AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CUC INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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 Number)
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
(208) 324-9261
</TABLE>
(Address, including ZIP code, and telephone number, including area code, of
agent for service)
<TABLE>
<S> <C>
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)
COPIES TO:
<TABLE>
<S> <C>
HOWARD CHATZINOFF, ESQ. STEPHEN A. MCKEON, ESQ.
WEIL, GOTSHAL & MANGES LLP PERKINS COIE
767 FIFTH AVENUE 1201 THIRD AVENUE
NEW YORK, NEW YORK 10153 40TH FLOOR
(212) 310-8000 SEATTLE, WASHINGTON 98101-3099
(206) 583-8534
</TABLE>
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 Larry Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of CUC International Inc., a
Delaware corporation ("CUC International"), with and into Sierra On-Line, Inc.,
a Delaware corporation ("Sierra"), as described in the Agreement and Plan of
Merger dated as of February 19, 1996 (the "Merger Agreement") attached as Annex
A to the Proxy Statement/Prospectus forming 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: / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.... 25,564,977 $36.75 $939,512,904.75 $323,969.97
</TABLE>
(1) The amount of common stock, $.01 par value, of CUC International (the "CUC
Common Stock") to be registered hereunder has been determined on the basis
of the exchange ratio for such shares in the Merger (i.e., 1.225 shares of
CUC Common Stock for each outstanding share of common stock, $.01 par value,
of Sierra ("Sierra Common Stock")).
(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
CUC Common Stock to be received by the holders of Sierra Common Stock in the
Merger ($36.75 per share, i.e., the average of the high and low sale prices
per share of the Common Stock as reported in The New York Stock Exchange,
Inc. ("NYSE") Composite Transactions on June 19, 1996).
(3) The registration fee for the CUC Common Stock registered hereby,
$323,969.97, 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) $36.75, the average of the high and low sale prices per share of CUC
Common Stock as reported in the NYSE Composite Transactions on June 19,
1996, and (y) 25,564,977. A fee of $144,204.47 was paid on April 5, 1996
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 Sierra with the Commission of its preliminary proxy materials
relating thereto pursuant to Rules 14a-110, 14a-6(a) and 14a-6(c)(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 such preliminary
proxy materials. Accordingly, an additional fee of $179,765.50 is required
to be and has been paid with the initial filing of this Registration
Statement.
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 1993 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>
[LOGO]
SIERRA ON-LINE, INC
June 21, 1996
To Our Shareholders:
You are hereby cordially invited to attend a special meeting (the "Meeting")
of the shareholders of Sierra On-Line, Inc., a Delaware corporation (the
"Company"), to be held at the Company's headquarters located at 3380 146th Place
S.E., Suite 300, Bellevue, Washington 98007, on Wednesday, July 24, 1996,
convening at 10:00 a.m., local time.
At the Meeting, holders of record of Company common stock ("Company Common
Stock") at the close of business on June 17, 1996 will be requested to consider
and vote upon (i) a proposal to adopt an Agreement and Plan of Merger dated as
of February 19, 1996, as amended (the "Merger Agreement"), among the Company,
CUC International Inc., a Delaware corporation ("CUC International"), and a
wholly owned subsidiary of CUC International ("Merger Sub"), pursuant to which
Merger Sub will be merged with and into the Company (the "Merger"), the Company
(as the surviving corporation in the Merger) will become a wholly owned
subsidiary of CUC International, and holders of Company Common Stock will
receive 1.225 shares of common stock of CUC International in exchange for each
share of Company Common Stock held by them, and (ii) such other business as may
properly be presented at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED
THE MERGER AGREEMENT (AND THE TRANSACTIONS CONTEMPLATED THEREBY), AND RECOMMENDS
THAT HOLDERS OF COMPANY COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT.
You should read carefully the accompanying Notice of Special Meeting and the
Proxy Statement/Prospectus for details concerning 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 Company 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,
/s/
Chairman of the Board
and Chief Executive Officer
<PAGE>
[LOGO]
SIERRA ON-LINE, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting (the "Meeting") of the holders of common stock, $.01 par
value ("Company Common Stock"), of Sierra On-Line, Inc., a Delaware corporation
(the "Company"), will be held at the Company's headquarters located at 3380
146th Place S.E., Suite 300, Bellevue, Washington 98007, on Wednesday, July 24,
1996, convening at 10:00 a.m., local time, 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 as of February 19, 1996, as amended (the "Merger
Agreement"), among the Company, CUC International Inc., a Delaware
corporation ("CUC International"), and Larry Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of CUC International ("Merger
Sub"). Pursuant to the Merger Agreement, Merger Sub will be merged with and
into the Company (the "Merger"), and the Company 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 Company Common Stock outstanding immediately prior thereto
(other than shares held by CUC International, Merger Sub or any other
subsidiary of CUC International or by any subsidiary of the Company) will be
converted into 1.225 shares of common stock, $.01 par value, of CUC
International ("CUC International Common Stock") in accordance with the
terms and subject to the conditions of the Merger Agreement. The Company has
the right (but is not required) to terminate the Merger Agreement and
abandon the Merger if, among other things, the Average Stock Price (as
defined in the accompanying Proxy Statement/Prospectus) is less than $29.00
(which represents a value to the Company's shareholders of $35.525 per share
of Company Common Stock based on the Merger exchange ratio of 1.225 shares
of CUC International Common Stock for each share of Company Common Stock).
THE MERGER (AND THE RELATED TRANSACTIONS CONTEMPLATED THEREBY) ARE MORE
FULLY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, AND THE FULL
TEXT OF THE MERGER AGREEMENT IS ATTACHED THERETO AS ANNEX A AND SHOULD BE
READ CAREFULLY AND IN ITS ENTIRETY.
2. To transact such other business as may properly be presented at the
Meeting or any adjournments or postponements thereof.
The Board of Directors of the Company has fixed the close of business on
June 17, 1996 as the record date for the purpose of determining the holders of
Company Common Stock who are entitled to receive notice of and to vote at the
Meeting and any adjournments or postponements thereof (the "Record Date").
As more fully described in the accompanying Proxy Statement/Prospectus,
based upon the equity capitalization of the Company and CUC International as of
the Record Date, the holders of Company Common Stock immediately prior to the
Effective Time will own, in the aggregate, approximately 10% to 12% of the CUC
International Common Stock outstanding immediately after the Effective Time.
<PAGE>
The affirmative vote of the holders of a majority of the outstanding Company
Common Stock is necessary to adopt the Merger Agreement. In accordance with
applicable law, holders of Company Common Stock will not be entitled to
appraisal rights in respect of the Merger.
YOUR VOTE IS VERY IMPORTANT! PLEASE 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 AT THE MEETING. ANY HOLDER OF COMPANY COMMON STOCK WHO SO DESIRES MAY
REVOKE HIS, HER 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 THE COMPANY,
(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 SHAREHOLDERS WHO ATTEND THE MEETING IN PERSON NEED NOT
REVOKE THEIR PROXY (IF PREVIOUSLY FURNISHED) AND VOTE IN PERSON.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED THE MERGER
AGREEMENT (AND THE TRANSACTIONS CONTEMPLATED THEREBY), AND RECOMMENDS THAT THE
HOLDERS OF COMPANY COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
/s/
Secretary
June 21, 1996
<PAGE>
[FACING PAGE OF PROXY CARD]
SIERRA ON-LINE, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SIERRA ON-LINE, INC.
The undersigned hereby appoints Kenneth A. Williams and Michael A. Brochu, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and vote, as designated below, all shares of Common
Stock, $.01 par value, of Sierra On-Line, Inc. (the "Company"), held of record
by the undersigned on June 17, 1996, at the Special Meeting of Shareholders of
the Company (the "Special Meeting") to be held at the Company's headquarters
located at 3380 - 146th Place S.E., Suite 300, Bellevue, Washington 98007 on
Wednesday July 24, 1996, at 10:00 a.m., local time, and at any adjournments or
postponements thereof.
1. APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF
FEBRUARY 19, 1996, AS AMENDED, AMONG THE COMPANY, CUC INTERNATIONAL INC.
AND LARRY ACQUISITION CORP.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact any other business that may properly be presented at the
Special Meeting or any adjournments or postponements of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1.
[REVERSE SIDE OF PROXY CARD]
THIS PROXY WILL BE VOTED AS DIRECTED ON THE FRONT SIDE OF THIS PROXY CARD.
WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. In their
discretion, the proxy holders are authorized to vote upon such other business as
may properly come before the meeting or any adjournments or postponements
thereof to the extent authorized by Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as amended.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SIERRA ON-LINE,
INC.
.....................................
(Print Shareholder(s) Name)
.....................................
(Signature(s) of Shareholder
or Authorized Signatory)
Dated ........................... ,
1996
Please sign exactly as your
name(s) appears on your
stock certificate. If shares
of stock stand of record in
the names of two or more
persons or in the name of
husband and wife, whether as
joint tenants or otherwise,
both or all of such persons
should sign the proxy. If
shares of stock are held of
record by a corporation, the
proxy should be executed by
the president or vice
president and the secretary
or assistant secretary.
Executors, administrators or
other fiduciaries who
execute the above proxy for
a deceased shareholder
should give their full
title. Please date this
proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING.
<PAGE>
PROXY STATEMENT/PROSPECTUS
[LOGO] [LOGO]
SIERRA ON-LINE, INC. CUC INTERNATIONAL INC.
3380 146TH PLACE S.E., SUITE 300 707 SUMMER STREET
BELLEVUE, WASHINGTON 98007 STAMFORD, CONNECTICUT 06901
(206) 649-9800 (203) 324-9261
PROXY STATEMENT RELATING TO
SPECIAL MEETING OF SHAREHOLDERS OF SIERRA ON-LINE, INC.
TO BE HELD ON WEDNESDAY, JULY 24, 1996
PROSPECTUS RELATING TO 25,564,977 SHARES OF CUC
INTERNATIONAL COMMON STOCK, $.01 PAR VALUE
This Proxy Statement/Prospectus is being furnished to holders of shares of
common stock, $.01 par value ("Company Common Stock"), of Sierra On-Line, Inc.,
a Delaware corporation (the "Company" or 'Sierra"), in connection with the
solicitation of proxies by the Company's Board of Directors for use at a special
meeting of the holders of Company Common Stock to be held at the Company's
headquarters located at 3380 146th Place S.E., Suite 300, Bellevue, Washington
98007, on Wednesday, July 24, 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 June 17, 1996 of Company Common Stock will be requested
to consider and vote upon a proposal to adopt the Agreement and Plan of Merger
dated as of February 19, 1996, as amended (the "Merger Agreement"), among CUC
International Inc., a Delaware corporation ("CUC International"), Larry
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of CUC
International ("Merger Sub"), and the Company. Pursuant to the Merger Agreement,
(i) Merger Sub will be merged (the "Merger") with and into the Company, which
will be the surviving corporation in the Merger and become a wholly owned
subsidiary of CUC International (the Company being sometimes hereafter referred
to in such context as the "surviving corporation"), and (ii) each share of
Company Common Stock outstanding immediately prior to the effective time of the
Merger (the "Effective Time") (other than shares held by CUC International,
Merger Sub or any other subsidiary of CUC International or by any subsidiary of
the Company) will be converted into 1.225 shares of common stock, $.01 par
value, of CUC International ("CUC International Common Stock") (the "Exchange
Ratio"), all as more fully described in this Proxy Statement/Prospectus and as
set forth in the Merger Agreement attached hereto as Annex A and incorporated by
reference herein (which should be read carefully and in its entirety). No
fractional shares of CUC International Common Stock will be issued in the Merger
to holders of Company Common Stock. See "The Merger Agreement--Conversion of
Shares; Exchange of Stock Certificates; No Fractional Shares."
As more fully described in "The Merger-Certain Consequences of the Merger,"
based upon the equity capitalization of the Company and CUC International as of
June 17, 1996, holders of Company Common Stock immediately prior to the
Effective Time will own, in the aggregate, approximately 10% to 12% of the CUC.
International Common Stock outstanding immediately after the Effective Time.
See "Information Concerning CUC International-Other CUC International Business
Combinations."
SEE "SUMMARY--RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CAREFULLY CONSIDERED BY HOLDERS OF COMPANY COMMON STOCK IN DETERMINING HOW TO
VOTE IN RESPECT OF THE MERGER AGREEMENT.
The Company has the right (but is not required) to terminate the Merger
Agreement and abandon the Merger if the "Average Stock Price" (as defined in
"Summary--Certain Definitions") of CUC International Common Stock is less than
$29.00 (which represents a value to Sierra's shareholders of $35.525 per share
of Company Common Stock based on the Exchange Ratio).
Because the market price of shares of CUC International Common Stock
inherently is subject to fluctuation, the value of the shares of CUC
International Common Stock that holders of shares of Company Common Stock will
receive in the Merger may increase or decrease prior to the Effective Time. The
Merger Agreement does not contain any minimum or maximum price protection
provisions and the Exchange Ratio is not subject to adjustment. The Merger
Agreement is subject to termination by CUC International or the Company if,
without fault of the terminating party, the Merger is not consummated by
September 30, 1996, and is subject to termination prior to such date upon the
occurrence of certain events. See "The Merger Agreement--Termination." Upon
termination of the Merger Agreement under certain circumstances related to a
Third Party Acquisition (as defined in "Summary--Certain Definitions"), the
Company may be
(cover page continues)
<PAGE>
(cover page continued)
required to pay CUC International up to an aggregate of $25.0
million in liquidated damages, together with reimbursement for certain
out-of-pocket fees and expenses incurred by CUC International (including certain
professional advisory fees) not to exceed $3.0 million. See "Summary--Risk
Factors--Fixed Exchange Ratio" and "The Merger Agreement--Termination; Fees and
Expenses."
CUC International Common Stock is traded on the New York Stock Exchange,
Inc. ("NYSE") and Company Common Stock is traded on the NASDAQ Stock Market. The
closing sale prices of CUC International Common Stock and Company Common Stock
were $37.50 and $27.125, respectively, on February 16, 1996 (the last trading
day preceding the public announcement of the Merger), and were $36.875 and
$45.00, respectively, on June 19, 1996 (the latest practicable date preceding
the mailing of this Proxy Statement/Prospectus for which such prices were
available). See "The Merger Agreement-- Termination."
Pursuant to a certain shareholders agreement dated as of February 19, 1996
entered into in connection with the Merger Agreement (the "Shareholders
Agreement"), the holders of approximately 9% of the outstanding Company Common
Stock (which consist of Kenneth A. Williams, the Company's Chairman of the Board
and Chief Executive Officer, and his spouse, Roberta L. Williams, a director of
the Company) have agreed with CUC International to vote their shares of Company
Common Stock at the Meeting for adoption of the Merger Agreement and against
certain other extraordinary corporate and business combination transactions
involving the Company which would impede or delay consummation of the Merger.
The Shareholders Agreement terminates by its terms upon the earlier to occur of
the termination of the Merger Agreement in accordance with its terms and the
Effective Time. The full text of the Shareholders Agreement is attached to this
Proxy Statement/Prospectus as Annex B and is incorporated herein by reference,
and should be read carefully and in its entirety.
Effective on February 19, 1996, simultaneously with the execution of the
Merger Agreement, CUC International and Stealth Acquisition I Corp., a
California corporation and a wholly owned subsidiary of CUC International
("SAC"), entered into an Agreement and Plan of Merger (the "Davidson Merger
Agreement") with Davidson & Associates, Inc., a California corporation
("Davidson"), providing for the merger of SAC with and into Davidson, with
Davidson as the surviving corporation in such merger (the "Davidson Merger"). In
addition, effective on April 19, 1996, CUC International and IG Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of CUC International
("IGA"), entered into an Agreement and Plan of Merger (the "Ideon Merger
Agreement") with Ideon Group, Inc., a Delaware corporation ("Ideon"), providing
for the merger of IGA with and into Ideon, with Ideon as the surviving
corporation in such merger (the "Ideon Merger"). THE MERGER, THE DAVIDSON MERGER
AND THE IDEON MERGER ARE INDEPENDENT TRANSACTIONS AND CONSUMMATION OF NONE OF
SUCH TRANSACTIONS IS CONDITIONED UPON CONSUMMATION OF ANY OF THE OTHER
TRANSACTIONS. IN ADDITION, PURSUANT TO APPLICABLE LAW AND THE COMPANY'S AND CUC
INTERNATIONAL'S RESPECTIVE CERTIFICATES OF INCORPORATION AND BY-LAWS CURRENTLY
IN EFFECT, NEITHER HOLDERS OF CUC INTERNATIONAL COMMON STOCK NOR HOLDERS OF
COMPANY COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT
OF THE DAVIDSON MERGER OR THE IDEON MERGER. SIMILARLY NEITHER HOLDERS OF
DAVIDSON COMMON STOCK NOR HOLDERS OF IDEON COMMON STOCK, AS SUCH, ARE ENTITLED
TO NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER. For additional information
regarding the terms and conditions of the Davidson Merger and the Ideon Merger,
see "Information Concerning CUC International--Other CUC International Business
Combinations" and "Unaudited Pro Forma Condensed Combined Financial Statements."
This document, in addition to constituting the Company's Proxy Statement
relating to the Meeting, 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 maximum aggregate number of
shares of CUC International Common Stock issuable in the Merger to holders of
outstanding shares of Company Common Stock. All information concerning CUC
International contained (or, as permitted by applicable rules and regulations of
the Commission, incorporated by reference with respect to CUC International) in
this Proxy Statement/Prospectus has been furnished or prepared by CUC
International, and all information concerning the Company contained (or, as
permitted by applicable rules and regulations of the Commission, incorporated by
reference with respect to the Company) in this Proxy Statement/Prospectus has
been furnished or prepared by the Company.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to holders of record of Company Common Stock on or about June 24,
1996.
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 June 21, 1996.
(end of cover page)
<PAGE>
AVAILABLE INFORMATION
Each of CUC International, the Company, Davidson and Ideon 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 the
Company 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, 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 NYSE, 20 Broad Street, New York, New York 10005, and periodic reports, proxy
statements and other information filed by the Company may be inspected at the
offices of the NASDAQ Stock Market, 1735 K Street, N.W., Washington, D.C. 20006,
and periodic reports, proxy statements and other information filed by Davidson
and Ideon may be inspected at the offices of the NASDAQ Stock Market and the
offices of the NYSE, respectively, specified above.
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, upon application to the Commission, the
Company no longer will be subject to the informational and certain other
requirements of the Exchange Act. See "The Merger--Federal Securities Law
Consequences."
CUC International has filed with the Commission the Registration Statement
under the Securities Act with respect to the CUC International Common Stock
issuable in the Merger to holders of Company Common Stock. 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 NOT SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF COMPANY 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, 707 SUMMER STREET, STAMFORD, CONNECTICUT 06901, ATTENTION:
SECRETARY, TELEPHONE: (203) 324-9261, AND IN THE CASE OF DOCUMENTS RELATING TO
THE COMPANY, 3380 146TH PLACE S.E., SUITE 300, BELLEVUE, WASHINGTON 98007,
ATTENTION: SECRETARY, TELEPHONE: (206) 649-9800. TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE JULY 10, 1996.
EXCEPT FOR THE DESCRIPTIONS OF THE DAVIDSON MERGER AND THE IDEON MERGER, ALL
DISCLOSURES CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING DAVIDSON AND IDEON ARE DERIVED FROM THE PUBLICLY
AVAILABLE DOCUMENTS REFERRED TO BELOW AND HAVE BEEN INCLUDED OR INCORPORATED BY
REFERENCE HEREIN WITH DAVIDSON'S AND IDEON'S RESPECTIVE CONSENT. THE COMPANY AND
CUC INTERNATIONAL HAVE NOT PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS,
NOR HAVE THEY MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO THE INFORMATION
PROVIDED THEREIN. NEITHER THE COMPANY NOR CUC INTERNATIONAL MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER PUBLICLY
AVAILABLE INFORMATION REGARDING DAVIDSON OR IDEON ARE ACCURATE OR COMPLETE.
FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE
DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF
SUCH PUBLICLY AVAILABLE DOCUMENTS) THAT WOULD AFFECT DAVIDSON OR IDEON HAVE BEEN
PUBLICLY DISCLOSED.
(i)
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by CUC International (File No.
1-10308), the Company (File No. 0-17154), Davidson (File No. 0-21280) and Ideon
(File No. 1-11465), respectively, with the Commission pursuant to the Exchange
Act are incorporated by reference in this Proxy Statement/
Prospectus: (i) CUC International's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996, filed with the Commission on April 26, 1996 (the
"CUC 10-K"); (ii) CUC International's Current Report on Form 8-K filed with the
Commission on February 21, 1996, (iii) CUC International's Current Reports on
Form 8-K filed with the Commission on February 22, 1996, (iv) CUC
International's Current Report on Form 8-K filed with the Commission on March
12, 1996, (v) CUC International's Current Report on Form 8-K filed with the
Commission on April 22, 1996, (vi) CUC International's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1996, filed with the Commission on
June 14, 1996 (the "CUC 10-Q"); (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)
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1995, filed with the Commission on June 29, 1995; (ix) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1995, filed with the
Commission on August 17, 1995; (x) the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1995, filed with the Commission on
November 15, 1995; (xi) the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1995, filed with the Commission on February
13, 1996, as amended by Amendment No. 1 to the Company's Quarterly Report on
Form 10-Q/A for the fiscal quarter ended December 31, 1995, filed with
Commission on May 15, 1996 (the "Company 10-Q"); (xii) the Company's Current
Report on Form 8-K, filed with the Commission on December 6, 1995; (xiii) the
Company's Current Report on Form 8-K, filed with the Commission on March 1,
1996; (xiv) the description of the Company Common Stock contained in the
Company's registration statement on Form 8-A, filed with the Commission on
September 15, 1988; (xv) Davidson's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, filed with the Commission on March 29, 1996 (the
"Davidson 10-K"); (xvi) Davidson's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996, filed with the Commission on May 15, 1996 (the
"Davidson 10-Q"); (xvii) Ideon's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, filed with the Commission on March 20, 1996, as amended
by Amendment No. 1 to Ideon's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1995, filed with the Commission on April 29, 1996, and as
further amended by Amendment No. 2 to Ideon's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1995, filed with the Commission on June 20,
1996 (the "Ideon 10-K"); and (xviii) Ideon's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1996, filed with the Commission on May 15,
1996, as amended by Amendment No. 1 to Ideon's Quarterly Report on Form 10-Q/A
for the fiscal quarter ended March 31, 1996, filed with the Commission on June
20, 1996 (the "Ideon 10-Q").
All documents filed with the Commission by CUC International, the Company,
Davidson and Ideon, 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.
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 THE COMPANY. 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 THE COMPANY 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.
(ii)
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... ii
SUMMARY............................................................................... 1
SUMMARY--RISK FACTORS................................................................. 17
Fixed Exchange Ratio................................................................ 17
Integration of Certain Operations................................................... 17
Reliance Upon Company and Davidson Management....................................... 18
Interests of Certain Persons in the Merger.......................................... 18
SUMMARY SELECTED FINANCIAL DATA....................................................... 20
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA......................... 25
COMPARATIVE MARKET PRICE INFORMATION.................................................. 27
INFORMATION CONCERNING CUC INTERNATIONAL.............................................. 30
INFORMATION CONCERNING THE COMPANY.................................................... 36
THE MEETING........................................................................... 37
General............................................................................. 37
Matters to Be Considered at the Meeting............................................. 37
Record Date; Quorum; Voting at the Meeting.......................................... 37
Proxies............................................................................. 38
THE MERGER............................................................................ 39
Background of the Merger............................................................ 39
Reasons for the Merger; Recommendation of the Company's Board of Directors.......... 42
Opinion of the Company's Financial Advisor.......................................... 44
Certain Consequences of the Merger.................................................. 52
Management of the Company After the Merger.......................................... 53
Conduct of the Business of CUC International and the Company if the Merger Is Not
Consummated........................................................................... 53
Material Contacts Between CUC International and the Company......................... 53
Interests of Certain Persons in the Merger.......................................... 54
Accounting Treatment................................................................ 56
Certain Federal Income Tax Consequences............................................. 57
Regulatory Approvals................................................................ 59
Federal Securities Law Consequences................................................. 60
Stock Exchange Listing.............................................................. 60
No Appraisal Rights................................................................. 60
THE MERGER AGREEMENT.................................................................. 61
The Merger; Effective Time.......................................................... 61
Conversion of Shares; Exchange of Stock Certificates; No Fractional Shares.......... 61
Treatment of Stock Options.......................................................... 62
Treatment of Convertible Notes...................................................... 63
Representations and Warranties...................................................... 63
Certain Covenants................................................................... 63
Conditions.......................................................................... 69
Termination......................................................................... 71
Fees and Expenses................................................................... 72
Modification or Amendment........................................................... 73
Waiver.............................................................................. 73
SHAREHOLDERS AGREEMENT................................................................ 74
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS.......................................................................... 75
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................ 83
COMPARISON OF SHAREHOLDERS RIGHTS..................................................... 84
Directors........................................................................... 84
Amendments to the Charters.......................................................... 84
Amendments to the By-Laws........................................................... 85
Quorum.............................................................................. 85
Vote Required for Merger and Certain Other Transactions............................. 85
Business Combinations Following a Change of Control................................. 85
Cumulative Voting................................................................... 86
Special Meetings of Shareholders; Action by Consent................................. 86
SHAREHOLDER PROPOSALS................................................................. 86
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 87
PRINCIPAL HOLDERS OF CUC INTERNATIONAL COMMON STOCK................................... 88
LEGAL MATTERS......................................................................... 89
EXPERTS............................................................................... 89
OTHER MATTERS......................................................................... 90
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ANNEXES
Annex A Agreement and Plan of Merger dated as of February 19, 1996, as amended,
among CUC International Inc., Larry Acquisition Corp. and the Company. .... A-1
Annex B Shareholders Agreement dated as of February 19, 1996, among CUC
International Inc. and each of the holders of Company Common Stock party
thereto.................................................................... B-1
Annex C Opinion of Robertson, Stephens & Company LLC............................... C-1
Annex D Opinion of Perkins Coie.................................................... D-1
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(iv)
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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. SHAREHOLDERS ARE URGED TO READ THIS
PROXY STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE CAREFULLY 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. SEE "-- CERTAIN
DEFINITIONS."
UNLESS OTHERWISE INDICATED, ALL BENEFICIAL OWNERSHIP INFORMATION AND SHARE
AMOUNTS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS (A) HAVE BEEN ADJUSTED FOR
AND GIVE EFFECT TO THE 3:2 SPLITS OF CUC INTERNATIONAL COMMON STOCK EFFECTED ON
EACH OF JUNE 12, 1992, APRIL 30, 1993 AND JUNE 30, 1995, (B) HAVE BEEN ADJUSTED
FOR, AND GIVE EFFECT TO, THE 2:1 SPLIT OF THE COMPANY COMMON STOCK EFFECTED ON
MARCH 3, 1995, (C) HAVE BEEN ADJUSTED FOR AND GIVE EFFECT TO THE 2:1 SPLITS OF
THE DAVIDSON COMMON STOCK, EFFECTED IN DECEMBER 1992 AND ON AUGUST 23, 1995, AND
(D) ASSUME THAT (I) OUTSTANDING OPTIONS TO PURCHASE SHARES OF COMPANY COMMON
STOCK WILL NOT BE EXERCISED PRIOR TO THE EFFECTIVE TIME, (II) OUTSTANDING
OPTIONS TO PURCHASE SHARES OF CUC INTERNATIONAL COMMON STOCK WILL NOT BE
EXERCISED PRIOR TO THE EFFECTIVE TIME, (III) OUTSTANDING OPTIONS TO PURCHASE
SHARES OF IDEON COMMON STOCK (OTHER THAN OPTIONS HELD BY IDEON'S DIRECTORS
WHICH, PURSUANT TO THE IDEON MERGER AGREEMENT, WILL BE CONVERTED AT THE IDEON
EFFECTIVE TIME INTO THE RIGHT TO RECEIVE SHARES OF CUC INTERNATIONAL COMMON
STOCK) WILL NOT BE EXERCISED PRIOR TO THE IDEON EFFECTIVE TIME, (IV) 0.4943
SHARES OF CUC INTERNATIONAL COMMON STOCK WILL BE ISSUED IN THE IDEON MERGER FOR
EACH SHARE OF IDEON COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE IDEON
EFFECTIVE TIME (THE MID-POINT OF THE RANGE OF THE NUMBER OF SHARES OF CUC
INTERNATIONAL COMMON STOCK TO BE ISSUED IN THE IDEON MERGER TO HOLDERS OF IDEON
COMMON STOCK PURSUANT TO THE "COLLAR" PROVIDED IN THE IDEON MERGER AGREEMENT),
(V) THE DAVIDSON MERGER WILL BE CONSUMMATED SUBSTANTIALLY SIMULTANEOUSLY WITH
THE CONSUMMATION OF THE MERGER, (VI) OUTSTANDING OPTIONS TO PURCHASE SHARES OF
DAVIDSON COMMON STOCK WILL NOT BE EXERCISED PRIOR TO THE DAVIDSON EFFECTIVE
TIME, (VII) NO DISSENTERS' RIGHTS WILL BE EXERCISED IN RESPECT OF THE DAVIDSON
MERGER, AND (VIII) THE CONVERTIBLE NOTES WILL NOT BE CONVERTED INTO SHARES OF
COMPANY COMMON STOCK PRIOR TO THE EFFECTIVE TIME.
THE MERGER, THE DAVIDSON MERGER AND THE IDEON MERGER ARE INDEPENDENT
TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED UPON
CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO
APPLICABLE LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S RESPECTIVE CERTIFICATES
OF INCORPORATION AND BY-LAWS CURRENTLY IN EFFECT, NEITHER HOLDERS OF COMPANY
COMMON STOCK NOR HOLDERS OF CUC INTERNATIONAL COMMON STOCK, AS SUCH, ARE
ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE DAVIDSON MERGER OR THE IDEON
MERGER. SIMILARLY, NEITHER HOLDERS OF DAVIDSON COMMON STOCK NOR HOLDERS OF IDEON
COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE
MERGER.
THE COMPANIES
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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
48.0 million consumers using its various services. CUC
International currently 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 programs. CUC International also
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administers insurance package programs which are generally
combined with discount shopping and travel for credit union
members, distributes welcoming packages which provide new
homeowners with discounts for local merchants and provides
travelers with value-added tax refunds. 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 its 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 at such offices is (203) 324-9261.
LARRY ACQUISITION CORP. ..... Merger Sub, a Delaware corporation and 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.
SIERRA ON-LINE, INC. ........ Sierra is a leading publisher and distributor of interactive
entertainment, education and personal productivity
software titles for multimedia PCs, including CD-ROM-based
PC systems, and selected emerging platforms. Sierra uses
its design and development capabilities, as well as
outside acquisitions, to create branded software products
and product series with complex and interesting storylines
and sophisticated graphics, sound and other features.
Sierra offers more than 50 software titles, including
popular products such as the King's Quest series, Leisure
Suit Larry series, Police Quest series, Phantasmagoria,
Gabriel Knight: The Beast Within, Front Page Sports:
Football Pro '96, IndyCar Racing II, The Lost Mind of Dr.
Brain and Print Artist. Sierra sells its products through
a domestic field sales force and a network of independent
domestic and foreign distributors. The Company sells
through a variety of distribution channels, including
computer and electronics superstores, software specialty
stores, mass merchants, wholesale clubs, direct mail and
bundling arrangements. Internationally, the Company sells
primarily through independent distributors in specified
territories and, in the United Kingdom, directly to
software retailers. The Company is continually evaluating
new and potentially promising distribution channels,
including on-line distribution through commercial on-line
services and the Internet. During the fiscal year ended
March 31, 1996, the Company significantly expanded its
product line and brand awareness by continuing to develop
high quality entertainment and education titles
incorporating state-of-the-art software technology and by
acquiring other successful or promising titles from third
parties. The Company released 29 new internally-developed
titles in fiscal 1996 (ended March 31, 1996) and acquired
an additional 18 titles in the
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entertainment, education, simulation and personal
productivity categories. For a more detailed description
of the business and properties of the Company, see
"Information Concerning the Company" and the descriptions
thereof set forth in the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1995 and the
Company 10-Q.
Sierra's executive offices are located at 3380 146th Place
S.E., Suite 300, Bellevue, Washington 98007, and its
telephone number at such offices is (206) 649-9800.
SPECIAL MEETING OF SHAREHOLDERS
TIME, DATE AND PLACE......... The Meeting will be held at 10:00 a.m., local time, on
Wednesday, July 24, 1996, at the Company's headquarters at
3380 146th Place S.E., Suite 300, Bellevue, Washington
98007.
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 may properly be presented at the Meeting or
any adjournments or postponements thereof.
RECORD DATE; SHARES ENTITLED
TO VOTE...................... Only holders of record of shares of Company Common Stock at
the close of business on June 17, 1996 (the "Record Date")
are entitled to notice of and to vote at the Meeting. At
the Record Date, there were 20,869,369 shares of Company
Common Stock outstanding, each of which is entitled to one
vote on each matter to be acted upon or which properly may
be presented at the Meeting, and approximately 900 holders
of record.
QUORUM; VOTE REQUIRED........ The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Company Common Stock
entitled to vote at the Meeting will constitute a quorum
for the transaction of business at the Meeting, and the
affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to
vote at the Meeting is necessary to adopt the Merger
Agreement. Accordingly, abstentions, failures to vote and
broker non-votes will have the practical effect of voting
against adoption of the Merger Agreement. Shares of
Company 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 or, if no
instructions are indicated, such shares will be voted for
adoption of the Merger Agreement and in the discretion of
the proxy holder as to any other matter that may properly
be presented at the Meeting. 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. A shareholder who has submitted a proxy
may revoke such proxy at any time prior to its exercise at
the Meeting. See "The Meeting--Record Date; Quorum; Voting
at the Meeting" and "Proxies."
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OWNERSHIP OF COMPANY COMMON
STOCK BY MANAGEMENT AND
CERTAIN OTHER PERSONS;
SHAREHOLDERS AGREEMENT..... As of the Record Date, the executive officers and directors
of the Company (12 persons as a group) beneficially owned
approximately 10% of the outstanding Company Common Stock.
Walter A. Forbes, the Chairman of the Board and Chief
Executive Officer of CUC International, also is a director
of the Company and owns 6,020 shares of Company Common
Stock and options to purchase up to an additional 93,000
shares of Company Common Stock, of which 25,800 are
currently exercisable. Mr. Forbes did not participate in
any meetings or deliberations of the Company's Board of
Directors regarding the Merger. Except for Mr. Forbes,
neither CUC International nor any of its subsidiaries,
affiliates, directors or executive officers owns any
shares of Company Common Stock. See "The Merger--Interests
of Certain Persons in the Merger" and "Ownership of
Company Common Stock by Certain Beneficial Owners and
Management."
Concurrently with the execution of the Merger Agreement, CUC
International entered into the Shareholders Agreement
pursuant to which the holders of approximately 9% of the
outstanding Company Common Stock (which consist of Kenneth
A. Williams, the Company's Chairman of the Board and Chief
Executive Officer, and his spouse, Roberta L. Williams, a
director of the Company), have agreed that 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 holders will vote (or cause to
be voted) the shares held of record or beneficially by
them for adoption of the Merger Agreement and against
certain other transactions involving the Company which
could impede or delay consummation of the Merger. The
Shareholders Agreement terminates by its terms upon the
earlier of termination of the Merger Agreement in
accordance with its terms and the Effective Time. See
"Shareholders Agreement." The full text of the
Shareholders Agreement is attached hereto as Annex B and
incorporated herein by reference and should be read
carefully and in its entirety.
THE MERGER
EFFECTS OF THE MERGER; MERGER
CONSIDERATION; NO
FRACTIONAL SHARES.......... In the Merger (i) Merger Sub will be merged with and into
the Company, and the Company, as the surviving corporation
in the Merger, will become a wholly owned subsidiary of
CUC International; (ii) each share of Company Common Stock
outstanding immediately prior to the Effective Time (other
than shares held by CUC International or Merger Sub or any
other subsidiary of CUC International or by any subsidiary
of the Company) will be converted into 1.225 fully paid
and non-assessable shares (the "Exchange Ratio") of CUC
International Common Stock; and (iii) at the Effective
Time, each holder of a certificate representing shares of
Company Common Stock will
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cease to have any rights with respect to such shares,
except the right to receive the number of shares of CUC
International Common Stock specified above and cash
payable in lieu of fractional share interests in
accordance with the Merger Agreement.
No fractional shares of CUC International Common Stock will
be issued in the Merger to holders of Company Common
Stock, but in lieu thereof, each holder of Company Common
Stock otherwise entitled to receive a fractional share of
CUC International Common Stock, upon surrender of his, her
or its certificates evidencing shares of Company Common
Stock, will be entitled to receive an amount of cash
(without interest) determined by multiplying (x) the
closing sale price of CUC International Common Stock as
reported on the NYSE Composite Transactions on the
business day two days prior to the Effective Time by (y)
the fractional share interest to which such holder
otherwise would be entitled. See "The Merger Agreement--
Conversion of Shares; Exchange of Stock Certificates; No
Fractional Shares."
Based upon the equity capitalization of CUC International
and the Company, respectively, as of the Record Date, and
giving effect to the Merger (and assuming consummation of
the Davidson Merger and the Ideon Merger at or prior to
the Effective Time), the total number of shares of CUC
International Common Stock outstanding immediately
following the Effective Time will be 260,974,003, and the
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
10% of the CUC International Common Stock outstanding
immediately after the Effective Time. If the Davidson
Merger is consummated at or prior to the Effective Time
(but the Ideon Merger is not), the total number of shares
of CUC International Common Stock outstanding immediately
following the Effective Time will be 247,141,925 and such
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
10% of the CUC International Common Stock outstanding
immediately after the Effective Time. If the Ideon Merger
is consummated at or prior to the Effective Time (but the
Davidson Merger is not), the total number of shares of CUC
International Common Stock outstanding immediately
following the Effective Time will be 230,934,397 and such
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
11% of the CUC International Common Stock outstanding
immediately after the Effective Time. If neither the
Davidson Merger nor the Ideon Merger is consummated at or
prior to the Effective Time, the total number of shares of
CUC International Common Stock outstanding immediately
following the Effective Time will be 217,102,319 and such
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
12% of the CUC International Common Stock outstanding
immediately after the Effective Time. See "The
Merger--Certain Consequences of the Merger."
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TREATMENT OF OPTIONS......... At the Effective Time, each outstanding option to purchase
shares of Company Common Stock will be assumed by CUC
International and will constitute an option to acquire (on
the same terms and subject to the same conditions as were
applicable under the assumed option to purchase shares of
Company Common Stock) the same number of shares of CUC
International Common Stock as the holder of each such
assumed option would have been entitled to receive in the
Merger had such holder exercised such assumed option in
full immediately prior to the Effective Time. See "The
Merger Agreement--Treatment of Stock Options."
CONVERTIBLE NOTES............ The surviving corporation will succeed by operation of law
to the obligations of the Company under the Convertible
Notes and, upon conversion thereof in accordance with the
terms and conditions of such securities, each holder
thereof will be entitled to receive 1.225 shares of CUC
International Common Stock in lieu of each share of
Company Common Stock otherwise issuable upon such
conversion. Holders of the Convertible Notes are not
entitled to vote in respect of the Merger Agreement.
EXCHANGE OF CERTIFICATES..... After the Effective Time, holders of record of Company
Common Stock at the Effective Time will receive from The
Bank of Boston, as exchange agent (the "Exchange Agent"),
or another bank or trust company designated by CUC
International and reasonably acceptable to the Company,
for the benefit of the holders of Company Common Stock,
instructions and letters of transmittal for exchanging
certificates evidencing shares of Company Common Stock for
certificates evidencing the number of shares of CUC
International Common Stock that they are entitled to
receive in the Merger based on the Exchange Ratio. Holders
of Company Common Stock should not surrender their
certificates until they receive such instructions and
letters of transmittal after the Effective Time. See "The
Merger Agreement--Conversion of Shares; Exchange of Stock
Certificates; No Fractional Shares.
In the event that a certificate evidencing shares of Company
Common Stock has been, lost, stolen, destroyed or is not
properly registered, the holder thereof is urged, in order
to avoid delays and additional expense, to notify the
Company's registrar and transfer agent, First Interstate
Bank of California, Corporate Trust Department, 345
California Street, 8th Floor, San Francisco, CA 94104,
Attention: Mr. Joseph W. Thatcher, Jr., (415) 773-7801, of
such fact to arrange for the issuance of replacement
certificates.
REASONS FOR THE MERGER....... CUC INTERNATIONAL. CUC International's Board of Directors
believes that the Merger will (i) enable CUC International
to take advantage of the rapidly expanding personal
computer ("PC") and interactive access information
technology markets and better position CUC International
to diversify its services by engaging in the development
of educational and entertainment products for the global
PC and Internet markets, (ii) continue CUC International's
history of providing goods and services to consumers in
both traditional and on-line interactive ways; and
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(iii) enable CUC International to broaden its interactive
content offerings.
THE COMPANY. The Company's Board of Directors believes that
the Merger is in the best interests of the Company's
shareholders, and has approved the Merger and recommended
adoption of the Merger Agreement. The Board reached its
conclusion based on a variety of factors, including,
without limitation, (i) the substantial premium
represented by the Exchange Ratio over the market price of
Company Common Stock prior to announcement of the proposed
Merger, (ii) the opinion of the Company's financial
advisor, Robertson, Stephens & Co. ("RS & Co."), dated
February 19, 1996 and delivered to the Company's Board, to
the effect that as of such date and based upon and subject
to certain matters stated therein, the Exchange Ratio was
fair from a financial point of view to holders of Company
Common Stock, (iii) the opportunity for the Company's
shareholders to benefit from owning shares in a larger,
more diversified company with greater financial resources
than the Company, (iv) the historic price stability of CUC
International Common Stock compared to Company Common
Stock, (v) the opportunities presented by the Merger for
revenue enhancement, cost savings and future growth in the
consumer software business, and (vi) the tax-free nature
of the Merger to the Company's shareholders. See "The
Merger-- Reasons for the Merger; Recommendation of the
Company's Board of Directors."
RECOMMENDATION OF THE
COMPANY'S BOARD OF
DIRECTORS.................... The Board of Directors of the Company, by unanimous vote of
the six directors present (the total number of directors
being seven, and the number required for a quorum being
four), has determined that the Merger is fair to and in
the best interests of the Company and its shareholders,
has approved the Merger Agreement (and the transactions
contemplated thereby), and recommends adoption of the
Merger Agreement by the holders of Company Common Stock.
The foregoing recommendation is based upon a variety of
factors discussed in "The Merger-- Reasons for the
Merger"; Recommendation of the Company's Board of
Directors." Walter A. Forbes, the Chairman of the Board
and Chief Executive Officer of CUC International and a
director and shareholder of the Company did not
participate in any meetings or deliberations of the
Company's Board of Directors with respect to the Merger.
As discussed in "The Merger--Background of the Merger,"
Mr. Forbes, on behalf of CUC International, participated
in the negotiations with respect to the Merger but
abstained from the vote of the Board of Directors of CUC
International to approve the Merger Agreement.
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OPINION OF THE COMPANY'S
FINANCIAL ADVISOR............ RS & Co. has been retained by the Company to act as its
financial advisor in connection with the Merger and has
delivered an opinion to the Company's Board of Directors
dated February 19, 1996 to the effect that as of such date
and based upon and subject to certain matters stated
therein, the Exchange Ratio was fair from a financial
point of view to holders of Company Common Stock. The full
text of the written opinion of RS & Co dated February 19,
1996, which sets forth the analyses and assumptions made,
matters considered and limitations on the review
undertaken, is attached to this Proxy Statement/Prospectus
as Annex C and should be read carefully and in its
entirety. RS & Co's opinion is directed only to the
fairness of the Exchange Ratio from a financial point of
view to the holders of Company Common Stock, does not
address any other aspect of the Merger or related
transactions and does not constitute a recommendation to
any shareholder as to how such shareholder should vote at
the Meeting. See "The Merger--Opinion of the Company's
Financial Advisor."
CERTAIN CONSEQUENCES OF THE
MERGER....................... Upon consummation of the Merger, the Company will become a
wholly owned subsidiary of CUC International, holders of
Company Common Stock will become holders of CUC
International Common Stock, shares of Company Common Stock
will cease to be traded on the NASDAQ Stock Market, and
application promptly will be made to deregister such
shares under the Exchange Act. At the Effective Time, the
Certificate of Incorporation of the Company in effect
immediately prior to such time will become the Certificate
of Incorporation of the surviving corporation, and the
By-laws of the Company in effect immediately prior to such
time will become the By-laws of the surviving corporation,
in each case until thereafter amended or restated. See
"The Merger--Certain Consequences of the Merger."
MANAGEMENT OF THE COMPANY
AFTER THE MERGER............. Pursuant to the Merger Agreement, the members of the Board
of Directors of the Company at the Effective Time will be
the initial directors of the surviving corporation and the
officers of the Company at the Effective Time will be the
initial officers of the surviving corporation. CUC
International has no present intention of replacing after
the Effective Time any of the executive officers of the
surviving corporation. In connection with the Merger, CUC
International has agreed to enter into employment
agreements with each of the Company's Chairman of the
Board and Chief Executive Officer, President and Chief
Operating Officer, Vice President of Product Development,
Vice President and General Counsel, Director of Marketing
and Vice President of Sales, and has entered into a
personal services agreement with an independent software
developer for the Company, pursuant to which such persons
will continue to serve in such respective capacities for
the surviving corporation after the Effective Time. See
"The Merger--Interests of Certain
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Persons in the Merger; Management of the Company after the
Merger."
CONDUCT OF THE BUSINESS OF
CUC INTERNATIONAL AND THE
COMPANY 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 the Company will continue to be conducted
substantially as they currently are being conducted
(subject, in the case of CUC International, to the
proposed consummation of the Davidson Merger and/or the
Ideon Merger). In addition, pursuant to the terms of a
certain confidentiality agreement dated February 17, 1996,
between the Company and CUC International (the
"Confidentiality Agreement"), such parties have agreed
that, if the Merger is not consummated, for the two-year
period ending February 17, 1998, without the prior consent
of the other party, they will not in any manner, directly
or indirectly, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or
participate in or in any way assist any other person to
effect or seek, offer or propose (whether publicly or
otherwise) to effect or participate in: (i) any
acquisition of any securities (or beneficial ownership
thereof) or assets of the other party or any of its
subsidiaries; (ii) any tender or exchange offer, merger or
other business combination involving the other party or
any of its subsidiaries; (iii) any recapitalization,
restructuring, liquidation, dissolution or other
extraordinary transaction with respect to the other party
or any of its subsidiaries; or (iv) any solicitation of
proxies or consents to vote any voting securities of the
other party; (b) form, join or in any way participate in a
"group" (as defined under the Exchange Act) that proposes
to take any of the actions described in clauses (i)
through (iv) above; (c) otherwise act, alone or in concert
with others, to seek to control or influence the
management, board of directors or policies of the other
party; (d) take any action which might force the other
party to make a public announcement regarding any of the
types of matters set forth in (a) above; or (e) enter into
any discussions or arrangements with any third party with
respect to any of the foregoing. See "The Merger--Conduct
of the Business of CUC International and the Company if
the Merger is Not Consummated."
INTERESTS OF CERTAIN PERSONS
IN THE MERGER.............. In considering the recommendations of the Company's Board of
Directors, holders of Company Common Stock should consider
that certain of the Company's executive officers and
directors have certain interests in the Merger that are in
addition to and not necessarily aligned with the interests
of holders of Company Common Stock generally.
STOCK OPTIONS. At the Effective Time, each outstanding
option to purchase shares of Company Common Stock, whether
vested or unvested, will be assumed by CUC International
and will constitute an option to acquire, on the same
terms and subject to
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the same conditions as were applicable under the assumed
option, at an adjusted price per share, the same number of
shares of CUC International Common Stock as the holder of
the assumed option would have been entitled to receive
pursuant to the Merger had such holder exercised such
assumed option in full immediately prior to the Effective
Time. As of the Record Date, the directors and executive
officers of the Company (including Walter A. Forbes, the
Chairman of the Board and Chief Executive Officer of CUC
International) owned outstanding options to purchase up to
an aggregate of 677,750 shares of Company Common Stock, of
which 92,700 were currently exercisable. See "The Merger--
Interests of Certain Persons in the Merger--Stock
Options".
EMPLOYMENT AGREEMENTS. Each of the employees of the Company
identified below has agreed at the request of CUC
International to enter into employment agreements with the
surviving corporation prior to the Effective Time: Kenneth
A. Williams, the Chairman and Chief Executive Officer;
Michael A. Brochu, the President and Chief Operating
Officer; Jarold Bowerman, Vice President of Product
Development; Richard K. Thumann, Vice President and
General Counsel; Bill Moore, Director of Marketing; and
Dennis Cloutier, Vice President of Sales. Each agreement
will be substantially in the forms agreed to by such
individuals and CUC International concurrently with the
execution of the Merger Agreement. Mr. Williams also will
become a member of the Office of the President of CUC
International. See "The Merger Agreement--Certain
Covenants."
In addition, on February 19, 1996, CUC International entered
into a certain personal services agreement with Roberta L.
Williams (a director of the Company and the spouse of the
Company's Chairman and Chief Executive Officer), pursuant
to which she has agreed to provide continuing software
development services to the Company. Kenneth A. Williams
and Roberta L. Williams also have agreed to enter into
certain non-competition agreements with CUC International.
See "The Merger--Interests of Certain Persons in the
Merger--Employment Agreements."
DIRECTORSHIPS. Pursuant to the Merger Agreement, CUC
International has agreed to cause Kenneth A. Williams, the
Company's Chairman of the Board and Chief Executive
Officer, to be appointed to CUC International's Board of
Directors and to serve as a Vice Chairman of such Board,
effective upon consummation of the Merger. See "The
Merger--Interests of Certain Persons in the
Merger--Directorships." In addition, pursuant to the
Davidson Merger Agreement, CUC International has agreed to
cause Robert M. Davidson (the Chairman of the Board and
Chief Executive Officer of Davidson) and Janice G.
Davidson (the President of Davidson) to be appointed to
CUC International's Board of Directors, in each case
effective upon consummation of the Davidson Merger. See
"Information Concerning CUC International--Other CUC
International Business Combinations."
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Indemnification and Insurance. CUC International has agreed
to maintain in effect for a period of three years after
the Effective Time directors' and officers' liability
insurance policies comparable to those maintained by the
Company for the benefit of the persons who are directors
and officers of the Company immediately prior to the
Effective Time. CUC International has also agreed to
indemnify, to the fullest extent permitted by law and
except to the extent covered by the foregoing policies,
each person who is or was an employee, officer or director
of the Company at any time prior to the Effective Time
against all claims and liabilities that arise from actions
or omissions of such person prior to the Effective Time
that are based in whole or in part on such persons's
status as an employee, officer or director of the Company
or on the transactions contemplated by the Merger
Agreement. See "The Merger Agreement--Certain Covenants."
EFFECTIVE TIME OF THE The Merger will become effective on the date that a
MERGER....................... 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. CUC International
and the Company currently intend that the Effective Time
will occur promptly after adoption of the Merger Agreement
at the Meeting.
CONDITIONS TO THE MERGER..... The obligations of CUC International and the Company to
consummate the Merger are subject to the satisfaction of
certain conditions, including the accuracy, in all
material respects, of the representations and warranties
and the performance, in all material respects, of the
covenants and obligations of the respective parties to the
Merger Agreement; adoption of the Merger Agreement by the
requisite vote of the holders of Company Common Stock;
there not having occurred any events, changes or effects
having or reasonably expected to have a Material Adverse
Effect on CUC International or the Company, as the case
may be; no statute, rule, regulation, executive order,
decree, ruling or injunction having been enacted, entered,
promulgated or enforced by any United States court or
United States governmental authority which prohibits,
restrains, enjoins or restricts consummation of the
Merger; the Registration Statement (of which this Proxy
Statement/ Prospectus is a part) having become effective
under the Securities Act and not being the subject of any
stop order or proceedings seeking such an order, and CUC
International having received all state securities laws or
"blue sky" permits and authorizations necessary to issue
the shares of CUC International Common Stock issuable to
holders of Company Common Stock in the Merger; CUC
International having received 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 of the Merger Agreement, and
such letter not having been withdrawn or modified in any
material respect; the receipt of all requisite consents,
approvals and authorizations of non-governmental third
parties; and the receipt by the Company of an opinion from
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Perkins Coie, tax counsel to the Company, as to certain
tax matters. See "The Merger Agreement--Conditions."
Consummation of the Merger also is subject to the
satisfaction of certain regulatory matters, including
termination or expiration of the relevant waiting period
under the HSR Act. CUC International and the Company filed
pre-merger notification and report forms under the HSR Act
with the FTC and the Antitrust Division, respectively, on
April 18, 1996. Early termination of the waiting period
under the HSR Act was granted by the FTC on April 29,
1996, without any requests for additional documentation or
other information. See "The Merger-- Regulatory
Approvals."
The Merger Agreement provides that, at any time prior to the
Effective Time, CUC International and Merger Sub, or
Sierra, as the case may be, may (i) waive any inaccuracies
in the representations and warranties of the other party
contained in the Merger Agreement or in any document,
certificate or writing delivered pursuant to the Merger
Agreement and (ii) waive compliance by the other party
with any of the agreements or conditions contained in the
Merger Agreement.
TERMINATION OF THE MERGER
AGREEMENT.................... The Company has the right (but is not required) to terminate
the Merger Agreement if the Company's Board of Directors
determines in its good faith judgment, after consultation
with and based upon the advice of independent legal
counsel, that it is necessary to do so to comply with its
fiduciary duties to shareholders, provided that such
termination would not be effective (i) unless at the time
of such determination the Company has received a bona fide
proposal to effect a Third Party Acquisition that has not
been withdrawn as of the time of such termination and (ii)
until payment of a termination fee described below under
"--Termination Fee."
The Company also has the right (but is not required) to
terminate the Merger Agreement and abandon the Merger if
the Average Stock Price of CUC International Common Stock
is less than $29.00 (which represents a value to Sierra's
shareholders of $35.525 per share of Company Common Stock,
based on the Exchange Ratio). See "--Risk Factors--Fixed
Exchange Ratio." The Merger Agreement also is subject to
termination by CUC International or the Company if,
without fault of the terminating party, the Merger is not
consummated by September 30, 1996 and prior to such time
upon the occurrence of certain events. See "The
Merger--Termination."
TERMINATION FEE.............. Subject to certain conditions and exceptions described in
"The Merger Agreement--Fees and Expenses," upon termination
of the Merger Agreement under certain circumstances, the
Company may be required to pay CUC International up to an
aggregate of $25.0 million in liquidated damages, together
with reimbursement for certain out-of-pocket fees and
expenses incurred by CUC International (including certain
professional
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advisory fees) not to exceed $3.0 million. See "The
Merger--Fees and Expenses."
NO APPRAISAL RIGHTS.......... Holders of Company Common 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 on the NASDAQ Stock Market
and the shares of CUC International Common Stock to be
issued in the Merger to the holders of Company Common
Stock will be listed on the NYSE. 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."
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 the Company to consummate the Merger is
the receipt by it of an opinion of Perkins Coie, tax
counsel to the Company, dated the Closing Date, 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 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 of Company Common Stock which are converted into
shares of CUC International Common Stock (other than with
respect to cash received in lieu of fractional shares of
CUC International Common Stock). The form of opinion of
Perkins Coie is attached as Annex D to this Proxy
Statement/Prospectus. 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. It is a
condition to consummation of the Merger that CUC
International shall have received from its independent
auditors, Ernst & Young LLP, 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 of the Merger Agreement, and
such letter shall not have been withdrawn or modified in
any material respect. The Company has agreed to use
commercially reasonable efforts to cause its independent
auditors, Deloitte & Touche LLP, to cooperate fully with
Ernst & Young LLP, including delivering to the Company a
letter to the effect that the Company would meet the
criteria for pooling-of-interests accounting. See "The
Merger--Accounting Treatment."
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COMPARISON OF SHAREHOLDERS
RIGHTS....................... Upon consummation of the Merger, holders of Company Common
Stock will become shareholders of CUC International. CUC
International and the Company are both Delaware
corporations. Accordingly, the differences between the
rights of holders of shares of CUC International Common
Stock and the rights of holders of shares of Company
Common Stock arise solely from distinctions between the
respective Certificates of Incorporation and By-laws of
CUC International and the Company. See "Comparison of
Shareholders Rights" for a summary of such differences.
OTHER CUC INTERNATIONAL
BUSINESS COMBINATIONS........ THE DAVIDSON MERGER. Effective on February 19, 1996, CUC
International entered into the Davidson Merger Agreement
providing for the Davidson Merger. Pursuant to the
Davidson Merger Agreement each share of Davidson Common
Stock outstanding immediately prior to the effective time
of the Davidson Merger (other than shares held by CUC
International or SAC or held by any other subsidiary of
CUC International or subsidiary of Davidson, or shares to
which dissenters' rights are granted and properly
exercised under applicable California law) will, by virtue
of the Davidson Merger, be converted into .85 of one fully
paid and non-assessable share of CUC International Common
Stock.
Simultaneously with the execution of the Davidson Merger
Agreement, the holders of approximately 72% of the
outstanding shares of Davidson Common Stock (which consist
of Davidson's Chairman of the Board and Chief Executive
Officer, and President, respectively, and certain trusts
for which such persons serve as fiduciaries) have agreed
to vote their shares for adoption of the Davidson Merger
Agreement at the Davidson Meeting presently scheduled to
be held on or about July 24, 1996 (the "Davidson
Shareholders Agreement"). Accordingly, assuming that such
shareholders will vote for adoption of the Davidson Merger
Agreement at the meeting of holders of Davidson Common
Stock, such adoption will be assured irrespective of the
votes cast by any other holders of Davidson Common Stock.
In addition, pursuant to the Davidson Merger Agreement,
CUC International has agreed to enter into at the
effective time of the Davidson Merger certain executive
employment, registration rights and non-competition
agreements with Davidson's Chairman of the Board and Chief
Executive Officer, and President, respectively. Under
these agreements, CUC International has agreed to cause
Davidson's Chairman of the Board and Chief Executive
Officer, and President, respectively, to be elected to CUC
International's Board of Directors effective upon
consummation of the Davidson Merger. Pursuant to the
Merger Agreement, the Company has agreed, subject to
certain exceptions, to cooperate with all reasonable
requests of CUC International to coordinate the timing of
the Meeting and the meeting of the holders of Davidson
Common Stock.
Consummation of the Davidson Merger, which is intended to
qualify as a reorganization within the meaning of Section
368(a) of the Code and to qualify as a pooling of
interests for accounting
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and financial reporting purposes, is subject to the
satisfaction of certain conditions which are independent
from the conditions to consummation of the Merger.
Davidson has the right (but is not required) to terminate
the Davidson Merger and abandon the Davidson Merger if,
among other things, the average stock price of the CUC
International Common Stock is less than $29.00 (calculated
substantially in accordance with the calculation of the
Average Stock Price under the Merger Agreement).
According to the Davidson 10-K, Davidson develops,
publishes, manufactures and distributes high-quality
educational and entertainment software products for home
and school use. Its products incorporate characters,
themes, sound, graphics, music and speech in ways that
Davidson believes are engaging to the user. Davidson's
educational products, offered at multiple price points,
are targeted primarily to pre-kindergarten through 12th
grade age groups and address a variety of learning needs,
including math and problem solving, reading and language,
art, writing and creativity, productivity, science and
ecology, and social studies and history. Davidson also has
begun to develop entertainment software through its
Blizzard Entertainment division and recently acquired
Condor division (which has been renamed Blizzard North)
which is targeted to young adult and older users. In
addition to its internally produced software products,
Davidson enters into arrangements with affiliated label
software developers to publish and distribute home and/or
school versions of their products. Davidson has developed
and currently publishes 102 titles and in addition
distributes 51 affiliated label titles. Davidson's
executive offices are located at 19840 Pioneer Avenue,
Torrance, California 90503, and its telephone number at
such offices is (310) 793-0600.
THE IDEON MERGER. Effective on April 19, 1996, CUC
International entered into the Ideon Merger Agreement
providing for the Ideon Merger. Pursuant to the Ideon
Merger Agreement, each share of Ideon Common Stock
outstanding immediately prior to the Ideon Effective Time
(other than shares held by Ideon as treasury stock or by
any subsidiary of Ideon or owned by CUC International, IGA
or any other subsidiary of CUC International) will, by
virtue of the Ideon Merger, be converted into the right to
receive that number of shares of CUC International Common
Stock (the "Ideon Conversion Number") equal to the
quotient obtained by dividing: (x) $13.50 by (y) the
average stock price of CUC International Common Stock
measured over a prescribed period ending on the second
calendar day immediately preceding the meeting of Ideon's
shareholders to approve the Ideon Merger; provided that if
such second calendar day is not a trading day, the
measurement period will end on the next calendar day that
is a trading day (the "Ideon Merger Average Stock Price");
provided that if the Ideon Average Stock Price is $22.00
or less the Ideon Conversion Number will be 0.6136, and if
the Ideon Merger Average Stock Price is $36.00 or more the
Ideon Conversion Number will be 0.3750. Consummation of
the Ideon Merger, which is intended to qualify as a
reorganization within the meaning of Section 368(a) of the
Code and as pooling-of-interests for accounting and
financial reporting purposes, is subject to the
satisfaction of certain conditions which are independent
from the
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conditions to consummation of the Merger and the Davidson
Merger.
According to the Ideon 10-K, Ideon is a holding company with
three principal business units: SafeCard Services,
Incorporated ("SafeCard"), Wright Express Corporation
("Wright Express") and National Leisure Group, Inc.
("National Leisure Group"). SafeCard, Ideon's largest
operating subsidiary, is a leader in providing credit card
enhancement and continuity products and services, serves
over 160 credit card issuers, has approximately 13 million
subscribers and, during 1995, contributed approximately
80% of Ideon's consolidated revenue. SafeCard is based in
Jacksonville, Florida and has an operational facility
located in Cheyenne, Wyoming. Wright Express, based in
South Portland, Maine, is the leading provider of
information processing, financial and information
management services to commercial car, van and truck
fleets throughout the United States. In addition to the
Wright Express Universal Fleet Card, now accepted at over
90,000 fueling locations, Wright Express provides label
fleet commercial credit card programs to 15 of the
nation's oil companies, and co-branded fleet fueling cards
with 15 of the top vehicle leasing companies. National
Leisure Group, based in Boston Massachussetts, is a major
provider of vacation travel packages and cruises directly
to consumers in association with established retailers and
warehouse clubs in New England and with credit card
issuers and travel club members nationwide. Ideon's
principal executive offices are located at 7596 Centurion
Parkway, Jacksonville, Florida 32256, and its telephone
number at such offices is (904) 218-1800.
THE MERGER, THE DAVIDSON MERGER AND THE IDEON MERGER ARE
INDEPENDENT TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH
TRANSACTIONS IS CONDITIONED UPON CONSUMMATION OF ANY OF
THE OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO
APPLICABLE LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S
RESPECTIVE CERTIFICATES OF INCORPORATION AND BY-LAWS
CURRENTLY IN EFFECT, NEITHER HOLDERS OF COMPANY COMMON
STOCK NOR CUC INTERNATIONAL COMMON STOCK, AS SUCH, ARE
ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE
DAVIDSON MERGER OR THE IDEON MERGER. SIMILARLY, NEITHER
HOLDERS OF DAVIDSON COMMON STOCK NOR HOLDERS OF IDEON
COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE OF OR TO
VOTE IN RESPECT OF THE MERGER.
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For additional information concerning the Davidson Merger
and the Ideon Merger, see "Information Concerning CUC
International--Other CUC International Business
Combinations" and "Unaudited Pro Forma Condensed Combined
Financial Statements."
RISK FACTORS................. In determining how to vote shares of Company Common Stock at
the Meeting, holders of such shares should carefully
consider all of the information contained in this Proxy
Statement/Prospectus and, in particular, the following
factors:
FIXED EXCHANGE RATIO. Under the terms of the Merger
Agreement, each share of Company Common Stock outstanding
immediately prior to the Effective Time will be converted
into the right to receive 1.225 shares of CUC
International Common Stock. The Merger Agreement does not
contain any provisions for adjustment of the Exchange
Ratio based on fluctuations in the price of CUC
International Common Stock. Accordingly, the value of the
consideration to be received by holders of Company Common
Stock in the Merger will depend on the market price of CUC
International Common Stock at the Effective Time. CUC
International Common Stock historically has traded at a
high multiple of price to earnings and any decline in
future earnings growth could have a material adverse
effect on the market price of CUC International Common
Stock. Following the Merger, the trading price of CUC
International Common Stock could be subject to, among
other things, fluctuations in response to competitive
factors in the software industry, quarterly variations in
operating and financial results of the Company and/or
Davidson, if the Davidson Merger is consummated, and
announcements of technological innovations or new products
by the Company, Davidson and/or third party competitors.
Statements by financial or industry analysts regarding the
Merger, the Davidson Merger or the Ideon Merger (whether
or not substantiated) also may contribute to fluctuations
in the market price of CUC International Common Stock. On
February 16, 1996, the last trading day prior to the
public announcement of the proposed Merger, the closing
sale price of CUC International Common Stock was $37.50,
and the closing sale price of CUC International Common
Stock was $36.875 on June 19, 1996, the latest practicable
date preceding the mailing of this Proxy
Statement/Prospectus for which such price was available.
There can be no assurance that the market price of CUC
International Common Stock at and after the Effective Time
will approximate such prices. Although the Company has the
right (but is not required) to terminate the Merger
Agreement and abandon the Merger if the Average Stock
Price is less than $29.00, the Company nonetheless may
elect to consummate the Merger notwithstanding a decrease
in the trading price of CUC International Common Stock
that otherwise would entitle the Company to terminate the
Merger Agreement.
INTEGRATION OF CERTAIN OPERATIONS; EFFECT ON CUC
INTERNATIONAL COMMON STOCK. The Board of Directors of CUC
International believes that the Merger will (i) enable CUC
International to take advantage of the rapidly expanding
PC and interactive
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
access information technology markets and better position
CUC International to diversify its services by engaging in
the development of educational and entertainment products
for the global PC and Internet markets, (ii) continue CUC
International's history of providing goods and services to
consumers in both traditional on-line and interactive
ways; and (iii) enable CUC International to broaden its
interactive content offerings. The Company and CUC
International also intend that the Merger will result in
beneficial synergies with respect to the combination of
the businesses of the Company and Davidson, if the
Davidson Merger is consummated. Realization of the
anticipated benefits of the Merger will depend, in part,
on whether the integration of the Company with CUC
International and with Davidson, if the Davidson Merger is
consummated, is achieved in an efficient and effective
manner, and there can be no assurance that this will
occur.
RELIANCE UPON COMPANY AND DAVIDSON MANAGEMENT. CUC
International has no prior history in managing multimedia
software development, publication or distribution
businesses, and CUC International will be dependent, in
part, upon the management and creative personnel of the
Company and Davidson, if the Davidson Merger is
consummated, to operate the businesses of the Company and
Davidson. Although senior executives of both the Company
and Davidson, if the Davidson Merger is consummated, will
enter into employment agreements with CUC International,
there can be no assurance that they or other management
and creative personnel of the Company and Davidson will
remain in the employ of CUC International following
consummation of the Merger and/or the Davidson Merger or
that such employment agreements would be renewed. The
potential loss of and failure to replace key management or
creative personnel from either the Company or Davidson
could have an adverse impact on the results of operations
of CUC International's entertainment and educational
software business.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members
of the Company's management and Board of Directors have
interests in the Merger that are in addition to and
potentially in conflict with the interests of the holders
of Company Common Stock generally. The Company's Board of
Directors was aware of these interests and considered
them, among other matters, prior to approving the Merger
Agreement and the transactions contemplated thereby. See
"The Merger--Interests of Certain Persons in the Merger."
CERTAIN DEFINITIONS.......... The following capitalized terms used in this Proxy
Statement/
Prospectus have the following respective meanings:
"ANTITRUST DIVISION" means the Antitrust Division of the
United States Department of Justice.
"AVERAGE STOCK PRICE" means a fraction, the numerator of
which is the sum of the Closing Price for each trading day
during the period of 15 consecutive trading days ending on
the first trading day that is at least 10 calendar days
prior to the scheduled date of the Meeting and the
denominator of which is 15.
"CLOSING DATE" means the date specified by CUC
International, Merger Sub and the Company for the closing
of the Merger to take place which is no later than the
second business day after
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
satisfaction or waiver of the conditions set forth in the
Merger Agreement.
"CLOSING PRICE" with respect to any trading day, means the
per share closing price of CUC International Common Stock
on such day as reported in the NYSE Composite
Transactions.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONVERTIBLE NOTES" means the Company's Convertible
Subordinated Notes due 2001.
"DAVIDSON COMMON STOCK" means the common stock, $.00025 par
value, of Davidson.
"DAVIDSON EFFECTIVE TIME" means the effective time of the
Davidson Merger.
"FTC" means the United States Federal Trade Commission.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"IDEON EFFECTIVE TIME" means the effective time of the Ideon
Merger.
"MATERIAL ADVERSE EFFECT" means any change or effect (i)
that is or is reasonably likely to be materially adverse
to the properties, business, results of operations or
condition (financial or otherwise) of the relevant party
(i.e., the Company or CUC International, as the context
may require) and its subsidiaries, taken as a whole, other
than, in the case of the Company, any change or effect
arising out of the software market or the entertainment,
education or personal productivity sectors of that market
or, in the case of CUC International, any change or effect
arising out of general economic conditions unrelated to
its businesses, or (ii) that may impair the ability of the
relevant party to consummate the transactions contemplated
by the Merger Agreement.
"SUPERIOR PROPOSAL" means any bona fide proposal to acquire,
directly or indirectly, for consideration consisting of
cash and/or securities, more than 50% of the Company
Common Stock then outstanding or all or substantially all
the assets of the Company and otherwise on terms which the
Company's Board of Directors 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 shareholders than the Merger.
"THIRD PARTY ACQUISITION" means the occurrence of any of the
following events (i) the acquisition of the Company by
merger or otherwise by any person (which includes a
"person" as such term is defined in Section 13(d)(3) of
the Exchange Act) or entity other than CUC International,
Merger Sub or any affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of more than 30% of
the total assets of the Company and its subsidiaries,
taken as a whole; or (iii) the acquisition by a Third
Party of 30% or more of the outstanding shares of Company
Common Stock.
</TABLE>
19
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
THE FOLLOWING SUMMARY SELECTED FINANCIAL DATA FOR CUC INTERNATIONAL FOR THE
FIVE YEARS ENDED JANUARY 31, 1996, FOR THE COMPANY FOR THE FIVE YEARS ENDED
MARCH 31, 1995, FOR DAVIDSON FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 AND FOR
IDEON FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWO MONTHS ENDED DECEMBER 31,
1994 AND THE FOUR YEARS ENDED OCTOBER 31, 1994, ARE DERIVED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY, DAVIDSON
AND IDEON, RESPECTIVELY. CUC INTERNATIONAL'S SELECTED FINANCIAL DATA AS OF APRIL
30, 1996 AND FOR THE THREE MONTHS THEN ENDED IS DERIVED FROM ITS UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS. THE COMPANY'S SELECTED FINANCIAL DATA FOR THE
YEAR ENDED MARCH 31, 1996 IS UNAUDITED AND IS DERIVED FROM CERTAIN FINANCIAL
INFORMATION PUBLISHED BY THE COMPANY ON MAY 14, 1996 (THE "COMPANY PRESS
RELEASE"). THE COMPANY'S SELECTED FINANCIAL DATA FOR THE NINE-MONTH PERIOD ENDED
DECEMBER 31, 1995 IS DERIVED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY. EACH OF DAVIDSON'S AND IDEON'S SELECTED FINANCIAL
DATA FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995, RESPECTIVELY, ARE
DERIVED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF EACH ENTITY,
RESPECTIVELY. THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CUC
INTERNATIONAL, THE COMPANY, DAVIDSON AND IDEON INCLUDE ALL ADJUSTMENTS,
CONSISTING OF NORMAL RECURRING RESERVES AND ACCRUALS, WHICH MANAGEMENT OF EACH
ENTITY CONSIDER NECESSARY FOR A FAIR PRESENTATION OF THE FINANCIAL POSITIONS AND
RESULTS OF OPERATIONS FOR THE UNAUDITED PERIODS AND DATES PRESENTED. THE DATA
SET FORTH BELOW 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 EACH OF THE CUC 10-K, THE CUC 10-Q, THE COMPANY 10-Q, THE DAVIDSON
10-K, THE DAVIDSON 10-Q, THE IDEON 10-K AND THE IDEON 10-Q.
CUC INTERNATIONAL INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,(I)
----------------------------------------------------------- ----------------------
1996 1995(D) 1994 1993(E) 1992 1996 1995
---------- ---------- -------- -------- -------- ---------- --------
<CAPTION>
(UNAUDITED)
INCOME STATEMENT DATA (A):
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............ $1,414,964 $1,182,896 $984,801 $800,971 $699,049 $ 390,026 $325,114
Income from continuing
operations before income
taxes..................... 266,343(b) 201,785 153,258 101,402 60,536(f) 78,660 59,047
Income from continuing
operations ............... 163,374(b) 124,566 94,151 63,667 33,901(f) 48,250 36,046
Income per common share
from continuing
operations (c)............ $ 0.84(b) $ 0.66 $ 0.51 $ 0.38 $ 0.21(f) $ 0.25 $ 0.19
---------- ---------- -------- -------- -------- ---------- --------
Weighted average number of
common and dilutive
common equivalent shares
outstanding (c)........... 194,666 189,219 183,113 167,908 163,690 196,736 192,371
---------- ---------- -------- -------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL
AT JANUARY 31, 30,
----------------------------------------------------------- ----------
1996 1995 1994 1993 1992 1996(I)
---------- ---------- -------- -------- -------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (A):
Total assets (i).................... $1,414,408 $1,094,353 $896,406 $727,647 $535,011 $1,466,671
Long-term debt (g).................. 5,451 16,965 23,601 29,855 16,330 5,315
Zero coupon convertible notes....... 14,410 15,046 22,176 37,295 69,228 14,709
Shareholders' equity (h)............ 727,212 480,163 312,047 167,381 19,604 805,571
Working capital (i)................. 557,149 378,801 238,441 94,176 58,786 625,734
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During the fiscal year ended January 31, 1996, CUC International acquired Welcome Wagon
International, Inc. ("Welcome Wagon"), CUC Europe Limited ("CUC Europe"), Credit Card
Sentinel (U.K.) Limited ("CCS"), Getko Group Inc. ("GETKO"), North American Outdoor
Group, Inc. ("NAOG"), and Advance Ross Corporation ("Advance Ross"). These
acquisitions, other than the acquisitions of GETKO, NAOG and Advance Ross, were
accounted for in accordance 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 operations of
</TABLE>
20
<PAGE>
<TABLE>
<C> <S>
these acquired entities for the periods prior to their acquisition were not significant
to the historical financial statements of CUC International. The acquisitions of GETKO, NAOG
and Advance Ross were accounted for in accordance with the pooling-of-interests method.
Accordingly, the financial statements, common share and per common share data were
restated for all prior periods to include GETKO, NAOG and Advance Ross.
(b) Includes provision for costs incurred in connection with the acquisition by CUC
International of Advance Ross. The charge aggregated $5.2 million ($4.2 million or $.02
per share of CUC International Common Stock, after-tax effect).
(c) Adjusted to give retroactive effect to the 3:2 stock split effected on June 30, 1995
for shareholders of record of CUC International Common Stock on June 19, 1995.
(d) During the fiscal year ended January 31, 1995, CUC International acquired Essex
Corporation and its subsidiaries ("Essex"). This acquisition was accounted for in
accordance with the purchase method and, accordingly, has been included in CUC
International's results of operations from the date of acquisition. Essex's results of
operations for the period prior to its acquisition were not significant to the
historical financial statements of CUC International.
(e) During the fiscal year ended January 31, 1993, CUC International acquired Leaguestar
plc ("Leaguestar") and Sally Foster Gift Wrap, LP ("Sally Foster"). These acquisitions
were accounted for in accordance with the purchase method and, accordingly, have been
included in CUC International's results of operations from the respective dates of
acquisition. Leaguestar's and Sally Foster's results of operations for the periods
prior to their acquisition were not significant to the historical financial statements
of CUC International.
(f) Includes provision for costs incurred in connection with the integration of the
operations of CUC International and Entertainment Publishing Corp. ("Entertainment")
(acquired during the fiscal year ended January 31, 1992 in a transaction accounted for
in accordance with the pooling-of-interests method), and costs of professional fees and
other expenses related to the merger with Entertainment. The charge aggregated $20.7
million ($15.0 million, or $.09 per share of CUC International Common Stock, after-tax
effect). Also includes a one-time gain on the sale of an unconsolidated affiliate of
Advance Ross. The gain aggregated $11.7 million ($7.0 million, or $.04 per share of CUC
International Common Stock, after-tax effect).
(g) Includes current portion of long-term debt of $1.4 million, $9.0 million, $6.3 million,
$3.4 million and $1.2 million at January 31, 1996, 1995, 1994, 1993 and 1992,
respectively. Excludes $5.5 million, $23.2 million and $26.7 million of amounts due
under revolving credit facilities at January 31, 1994, 1993 and 1992, respectively, and
$6.0 million due at January 31, 1993 under a note payable issued in connection with the
acquisition of Sally Foster.
(h) No cash dividends in respect of shares of CUC International Common Stock have been paid
or declared during the five years ended January 31, 1996. However, an insignificant
amount of cash dividends were paid in respect of the NAOG common stock for the fiscal
years ended January 31, 1994, 1993 and 1992.
(i) CUC International classified membership acquisition costs (previously classified as an
offset to deferred membership income) and membership solicitations in process
(previously classified as a current asset) as non-current assets in its balance sheet
at April 30, 1996. CUC International's total assets and working capital at January 31,
1996, 1995, 1994, 1993 and 1992 have been adjusted for these reclassifications and,
before giving effect to these reclassifications, were $1.1 billion and $0.6 billion,
$0.9 billion and $0.4 billion, $0.7 billion and $0.3 billion, $0.6 billion and $0.1
billion, and $0.4 billion and $0.1 billion, respectively.
</TABLE>
21
<PAGE>
SIERRA ON-LINE, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, (A)
-------------------------------------------------------
1996 1995 1994 1993 1992
----------- -------- ------- -------- -------
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................ $158,177 $ 97,879 $73,101 $ 56,320 $47,887
Income (loss) from continuing
operations before income taxes.............. 22,635(b) 18,857 (8,551) (12,868) 5,585
Income (loss) from continuing operations...... 16,170 12,992 (7,872) (9,611) 3,856
Income (loss) per common share
from continuing operations.................. $ 0.77(b) $ 0.70 $ (0.46) $ (0.57) $ 0.28
----------- -------- ------- -------- -------
Weighted average number
of common and dilutive common equivalent
shares outstanding............................ 21,012 18,513 17,143 16,826 13,756
----------- -------- ------- -------- -------
<CAPTION>
AT MARCH 31, (A)
-------------------------------------------------------
1996 1995 1994 1993 1992
----------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................................. $ 178,897 $145,354 $68,905 $ 65,194 $70,346
Long-term obligations......................... 1,030 5,907 634 236 6
Convertible debt.............................. 23,389 34,634 -- -- --
Shareholders' equity.......................... 118,531 82,619 51,106 51,570 60,263
Working capital............................... 118,848 103,161 34,266 37,596 45,983
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During the year ended March 31, 1996, the Company merged with The Pixellite Group
("Pixellite"), Software Inspiration, Ltd. ("Inspiration"), Green Thumb Software Inc.
("Green Thumb"), Arion Software, Inc. ("Arion") and Papyrus Design Group, Inc.
("Papyrus"). These mergers were accounted for in accordance with the
pooling-of-interests method. The financial information presented here reflects the
combined results of the Company, Pixellite, Inspiration, and Papyrus for all periods
presented. The financial statements of the Company have not been restated for the Green
Thumb and Arion acquisitions as the operations of these companies were not significant.
(b) Includes a non-recurring charge of $2.3 million ($.08 per share after-tax effect)
primarily related to the acquisition of Papyrus and the subsequent buyout of certain of
its distribution agreements, as well as investment banker fees associated with the
proposed Merger.
</TABLE>
22
<PAGE>
DAVIDSON & ASSOCIATES, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (A) UNAUDITED
------------------------------------------------ -----------------
1995 1994 1993 1992 1991 1996 1995
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Total revenues..... $147,226 $93,171 $62,372 $39,755 $16,559 $29,203 $25,622
Income from
continuing
operations before
income taxes....... 21,802 12,090(c) 11,167 6,402 5,062 3,090 1,820
Income from
continuing
operations......... 13,577 6,478(c) 6,949 3,685(b) 3,009(b) 2,071 1,217
Income per common
share from
continuing
operations(d)...... $ 0.38 $ 0.19(c) $ 0.21 $ 0.12(b) (b) $ 0.06 $ 0.03
-------- ------- ------- ------- ------- ------ -------
Weighted average
number of common
equivalent shares
outstanding(d)..... 35,768 34,986 33,599 31,442(b) (b) 35,712 35,116
-------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, (A) MARCH 31,
------------------------------------------------ 1996
1995 1994 1993 1992 1991 UNAUDITED
-------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................... $85,722 $60,582 $44,595 $20,580 $14,710 $76,058
Shareholders' equity.................. 59,598 45,709 37,333 5,012 10,905 62,107
Working capital (deficiencies)........ 48,067 35,988 30,452 (904)(d) 6,209 44,999
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During 1995, Davidson acquired Maverick Software, Inc. ("Maverick") and the Cute
Company (subsequently renamed "FUNNYBONE Interactive") through pooling-of-interests
transactions. Accordingly, the financial statements, common share and per common share
data were restated for all periods to include Maverick and FUNNYBONE Interactive.
During March 1996, Davidson acquired Condor, Inc. (subsequently renamed "Blizzard
North") through a pooling-of-interests transaction. The financial statements, common
share and per common share data at and for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 were not restated to include Blizzard North due to insignificance.
(b) Includes a pro forma income tax adjustment (unaudited) to reflect the tax liability of
Davidson as a C corporation rather than an S corporation for federal and state income
tax purposes. Income per common share from continuing operations and weighted average
number of common equivalent shares outstanding are not presented for 1991 due to
Davidson's S corporation status in that year.
(c) Includes a $3.95 million non-tax-deductible write-off of in-process research and
development associated with the June 1994 purchase of Learningways.
(d) Includes $10.5 million of dividend notes payable to shareholders in connection with
Davidson's conversion to an S corporation.
(e) All common share and per common share data have been adjusted to reflect a 2:1 stock
split, effected on August 23, 1995.
</TABLE>
23
<PAGE>
IDEON GROUP, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
TWO MONTHS MARCH 31,
YEAR ENDED ENDED YEAR ENDED OCTOBER 31, UNAUDITED
DECEMBER 31, DECEMBER 31, ----------------------------------------- -------------------
1995(I) 1994 1994 1993 1992 1991 1996 1995
------------ ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(H):
Subscription card
service and
consumer marketing
revenue, net....... $226,620 $ 33,290 $175,541 $156,600 $146,265 $140,557 $ 62,964 $ 56,680
Interest and other
income(a)........... 7,348 1,408 13,545 10,526 11,916 11,327 7,736 3,048
Income (loss) before
cumulative effect
of accounting
change(b)(c)(e)(f)(j)... (49,441) (49,944) 18,021 31,477 22,498 29,713 5,869 301
Net Income
(loss)(b)(c)(d)(e)(f)(j).(49,441) (49,944) 20,021 31,477 22,498 29,713 5,869 301
Income (loss) per
share(b)(c)(d)(e)(f)(j).. $(1.73) $(1.70) $.70 $1.10 $.75 $1.02 $.21 $.01
Cash dividends per
share............... $.20 $.05 $.20 $.20 $.15 $.15 $.05 $.05
------------ ------------ --------- --------- --------- -------- --------- ---------
Weighted average
number of common
and common dilutive
equivalent shares
outstanding(g)...... 28,500 29,297 28,411 28,572 30,158 29,325 28,097 29,870
------------ ------------ --------- --------- --------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, AT OCTOBER 31, MARCH 31,
------------------- ----------------------------------------- 1996
1995 1994 1994 1993 1992 1991 UNAUDITED
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(H)
Total cash and cash equivalents
and investments(g).............. $ 72,140 $168,981 $184,533 $170,039 $187,301 $178,670 $ 32,365
Total assets..................... 385,910 428,714 480,373 378,287 377,418 351,566 391,281
Stockholders' equity(g).......... 102,860 166,806 217,592 157,695 165,498 144,903 107,120
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During the first quarter of 1996, Ideon recognized $6.7 million of income from the
reversal of an accrual established in 1992 in connection with a contested lease. The
contested lease was the subject of litigation which was settled in March 1996. During
1994, Ideon recognized $4.3 million of income from the settlement of two lawsuits.
During 1992, Ideon recognized $0.6 million of income from the settlement of a lawsuit.
(b) During 1995, Ideon recorded pre-tax charges of $43.8 million (net of recoveries of $1.2
million) related to the abandonment of certain new product development efforts and the
restructuring of SafeCard and the corporate infrastructure.
(c) During the two months ended December 31, 1994, Ideon recorded a pre-tax charge of $65.5
million (for a change in the amortization periods for deferred subscriber acquisition
costs). Ideon also recorded a charge to earnings of $1.9 million for permanent
impairment of the value of its securities portfolio.
(d) During 1994, Ideon recorded a $2.0 million benefit ($.07 per share) resulting from a
change in its method of accounting for income taxes.
(e) During 1992, Ideon recorded a pre-tax charge of $17.5 million against earnings in
connection with its relocation from Ft. Lauderdale, Florida to Cheyenne, Wyoming.
(f) In April 1994, Ideon recorded a pre-tax charge of $7.9 million in connection with a
reorganization of its operations, the naming of a new senior management team and a
payment made to Steven J. Halmos, Ideon's co-founder, in connection with the termination
of his contract to provide services to Ideon.
(g) During 1995 and 1993, Ideon repurchased approximately 1.0 million and 3.5 million shares
of Ideon Common Stock at a cost of approximately $9.8 million and $41.7 million,
respectively.
(h) In September 1994, Ideon acquired the outstanding common stock of Wright Express. In
January 1995, Ideon acquired the net assets of National Leisure Group. The results of
operations of Wright Express and National Leisure Group have been included in the
consolidated results of operations since their respective dates of acquisition.
(i) Effective Janaury 1, 1995, Ideon changed its fiscal year end from October 31 to December
31.
(j) During the first quarter of 1996, Ideon recorded certain nonrecurring charges including
(i) a charge for the termination of its former Chairman and Chief Executive Officer
($2.5 million), (ii) a reserve for the consolidation of its operations in Jacksonville,
Florida and the closing of its Jacksonville operations center ($2.9 million) and (iii)
expenses related to the Board of Directors review of strategic alternatives to enhance
shareholder value ($.08 million).
</TABLE>
24
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
THE FOLLOWING SUMMARY UNAUDITED PRO FORMA SELECTED COMBINED 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, THE COMPANY, DAVIDSON AND IDEON
GIVING EFFECT TO THE MERGER, THE DAVIDSON MERGER AND THE IDEON MERGER UNDER THE
POOLING-OF-INTERESTS METHOD. THIS PRO FORMA INFORMATION MAY NOT BE INDICATIVE OF
THE RESULTS THAT WOULD HAVE OCCURRED HAD THE MERGER, THE DAVIDSON MERGER AND THE
IDEON MERGER BEEN EFFECTED ON THE DATES INDICATED OR THE RESULTS WHICH MAY BE
OBTAINED IN THE FUTURE. CUC INTERNATIONAL, THE COMPANY AND DAVIDSON HAVE PAID NO
CASH DIVIDENDS ON THEIR COMMON STOCK DURING THE PERIODS PRESENTED. HOWEVER, AN
INSIGNIFICANT AMOUNT OF CASH DIVIDENDS WERE PAID IN RESPECT OF THE NAOG COMMON
STOCK FOR THE FISCAL YEAR ENDED JANUARY 31, 1994. THE PRO FORMA INFORMATION IS
BASED ON THE HISTORICAL FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY,
DAVIDSON AND IDEON CONTAINED IN THE CUC 10-K, THE CUC 10-Q, THE COMPANY 10-Q,
THE COMPANY PRESS RELEASE, THE DAVIDSON 10-K, THE DAVIDSON 10-Q, THE IDEON 10-K
AND THE IDEON 10-Q, RESPECTIVELY. THE COMPANY'S REVENUES OF $22.2 MILLION AND
NET INCOME OF $0.7 MILLION FOR THE THREE MONTHS ENDED MARCH 31, 1995 ARE
INCLUDED IN THE COMPANY'S HISTORICAL STATEMENTS OF INCOME FOR THE YEARS ENDED
MARCH 31, 1995 AND DECEMBER 31, 1995 AND ARE, THEREFORE, INCLUDED IN THE FISCAL
1996 AND 1995 PRO FORMA RESULTS OF OPERATIONS. EFFECTIVE JANUARY 1, 1995, IDEON
CHANGED ITS FISCAL YEAR END FROM OCTOBER 31 TO DECEMBER 31. IDEON'S RESULTS OF
OPERATIONS FOR THE TWO MONTHS ENDED DECEMBER 31, 1994 (THE "IDEON TRANSITION
PERIOD") HAVE BEEN EXCLUDED FROM THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA. IDEON'S REVENUES AND NET LOSS FOR THE IDEON TRANSITION PERIOD
WERE $34.7 MILLION AND $(49.9) MILLION, RESPECTIVELY. THE NET LOSS FOR THE IDEON
TRANSITION PERIOD WAS PRINCIPALLY THE RESULT OF A $65.5 MILLION ONE-TIME,
NON-CASH, PRE-TAX CHARGE RECORDED IN CONNECTION WITH A CHANGE IN ACCOUNTING FOR
DEFERRED SUBSCRIBER ACQUISITION COSTS.
PRO FORMA CUC INTERNATIONAL AND THE COMPANY
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- -------------
<S> <C> <C> <C> <C>
1996 1995 1994 1996
INCOME STATEMENT DATA:
Total revenues............................ $ 1,559,728 $1,280,775 $1,057,902 $ 425,589
Income from continuing operations......... 180,839 137,558 86,279 47,675
Income per common share from continuing
operations................................ $ 0.82 $ 0.65 $ 0.42 $ 0.21
------------------- ---------- ---------- -------------
Weighted average number of common and
dilutive common equivalent shares
outstanding............................... 219,828 211,897 204,113 223,006
------------------- ---------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $ 1,645,568
Long-term obligations............................................................. 6,345
Zero coupon convertible notes..................................................... 14,709
Convertible debt.................................................................. 23,389
Shareholders' equity.............................................................. 924,102
Working capital................................................................... 744,582
</TABLE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY AND DAVIDSON
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- ------------
<S> <C> <C> <C> <C>
1996 1995 1994 1996
INCOME STATEMENT DATA:
Total revenues............................ $ 1,706,954 $1,373,946 $1,120,274 $454,792
Income from continuing operations......... 194,416 144,036 93,228 49,746
Income per common share from continuing
operations................................ $ 0.78 $ 0.60 $ 0.40 $ 0.20
------------------- ---------- ---------- ------------
Weighted average number of common and
dilutive
common equivalent shares outstanding.... 250,231 241,636 232,672 253,361
------------------- ---------- ---------- ------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AT APRIL 30, 1996
-----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $ 1,721,626
Long-term obligations............................................................. 6,345
Zero coupon convertible notes..................................................... 14,709
Convertible debt.................................................................. 23,389
Shareholders' equity.............................................................. 986,209
Working capital................................................................... 780,281
</TABLE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY AND IDEON
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- ------------
<S> <C> <C> <C> <C>
1996 1995 1994 1996
INCOME STATEMENT DATA:
Total revenues............................ $ 1,788,006 $1,461,440 $1,216,292 $495,612
Income from continuing operations......... 131,398 155,579 117,756 53,544
Income per common share from continuing
operations................................ 0.56 0.69 0.54 0.23
Cash dividends per common share........... $ 0.02 $ 0.02 $ 0.02 $ 0.01
------------------- ---------- ---------- ------------
Weighted average number of common and
dilutive common equivalent shares
outstanding............................... 233,915 225,941 218,236 236,894
------------------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $ 2,036,849
Long-term obligations............................................................. 6,345
Zero coupon convertible notes..................................................... 14,709
Convertible debt.................................................................. 23,389
Shareholders' equity.............................................................. 951,222
Working capital................................................................... 692,213
</TABLE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY, DAVIDSON AND IDEON
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- ------------
<S> <C> <C> <C> <C>
1996 1995 1994 1996
INCOME STATEMENT DATA:
Total revenues............................ $ 1,935,232 $1,554,611 $1,278,664 $524,815
Income from continuing operations......... 144,975 162,057 124,705 55,615
Income per common share from continuing
operations................................ 0.55 0.63 0.51 0.21
Cash dividends per common share........... $ 0.02 $ 0.02 $ 0.02 $ 0.01
------------------- ---------- ---------- ------------
Weighted average number of common and
dilutive common equivalent shares
outstanding............................... 264,318 255,679 246,795 267,249
------------------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $ 2,112,907
Long-term obligations............................................................. 6,345
Zero coupon convertible notes..................................................... 14,709
Convertible debt.................................................................. 23,389
Shareholders' equity.............................................................. 1,013,329
Working capital................................................................... 727,912
</TABLE>
26
<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 1995 through June 19, 1996,
the reported high and low closing prices of CUC International Common Stock as
reported on the NYSE Composite Transactions for all periods presented, based on
published financial sources. CUC International has paid no cash dividends in
respect of CUC International Common Stock during the periods presented. The
market price for CUC International Common Stock on February 16, 1996, the last
trading day 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."
<TABLE>
<CAPTION>
PRICE PER SHARE
OF CUC INTERNATIONAL
COMMON STOCK
-----------------
HIGH LOW
---------------- ---------------
<S> <C> <C> <C> <C>
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 (ended 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.......................................... 38 30
Fiscal 1997 (ending January 31, 1997)
First Quarter........................................... 39 1/4 28
Second Quarter (through June 19, 1996).................. 39 3/8 33 1/4
</TABLE>
The share prices set forth above have been adjusted to give retroactive
effect to the 3:2 stock split effected on June 30, 1995 for shareholders of
record of CUC International Common Stock on June 19, 1995. CUC International has
not paid any dividends in respect of CUC International Common Stock since its
inception, other than the payment of a special dividend of $0.99 per common
share and $1.38 face amount ($0.62 original issuance discount amount) per common
share of CUC International's Zero Coupon Notes due in 1996 in connection with a
recapitalization of CUC International effected in fiscal 1990. In addition, the
Amended and Restated Credit Agreement dated as of June 30, 1994 and entered into
with General Electric Capital Corporation (which contained restrictions on the
payment of dividends in respect of CUC International Common Stock), was
terminated effective on March 19, 1996.
The Company. Shares of Company Common Stock are listed for trading on the
NASDAQ Stock Market under the symbol "SIER." The table below sets forth, for the
Company's fiscal quarters commencing in fiscal 1995 through June 19, 1996, the
reported high and low sales prices of the Company Common Stock as reported on
the NASDAQ Stock Market, based on published financial sources. The Company has
paid no cash dividends on shares of the Company Common Stock during the periods
presented. The market price for Company Common Stock on February 16, 1996, the
last trading day 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."
27
<PAGE>
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMPANY
COMMON STOCK
-----------------
HIGH LOW
---------------- ---------------
<S> <C> <C> <C> <C>
Fiscal 1995 (ended March 31, 1995)
First Quarter........................................... $13 3/8 $ 7 1/8
Second Quarter.......................................... 12 1/8 7 5/8
Third Quarter........................................... 18 1/8 10
Fourth Quarter.......................................... 23 1/4 14 5/8
Fiscal 1996 (ended March 31, 1996)
First Quarter........................................... 25 3/8 16 1/2
Second Quarter.......................................... 48 3/4 24
Third Quarter........................................... 39 1/2 22 3/4
Fourth Quarter.......................................... 40 17 1/2
Fiscal 1997 (ending March 31, 1997)
First Quarter (through June 19, 1996)................... 48 1/4 31 1/4
</TABLE>
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 Company Common Stock, on February 16, 1996, the last trading day
immediately preceding the public announcement of the proposed Merger, and on
June 19, 1996 the last trading day for which closing sale prices were available
at the time of the mailing of this Proxy Statement/Prospectus, as well as the
"equivalent per share price" of shares of Company Common Stock on such dates.
The "equivalent per share price" of shares of Company 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
the Exchange Ratio.
<TABLE>
<CAPTION>
CUC INTERNATIONAL COMPANY COMPANY
COMMON STOCK COMMON STOCK EQUIVALENT
PRICE PRICE PER SHARE PRICE
----------------- ------------ ---------------
<S> <C> <C> <C>
February 16, 1996.............. $371/2 $271/8 $4515/16
June 19, 1996.................. $367/8 $45 $453/16
</TABLE>
Following the Effective Time, shares of CUC International Common Stock are
expected to continue to be traded on the NYSE, and shares of Company Common
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 COMPANY COMMON STOCK WILL
RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE TIME. THE
COMPANY HAS THE RIGHT (BUT IS NOT REQUIRED) TO TERMINATE THE MERGER AGREEMENT
AND ABANDON THE MERGER IF THE AVERAGE STOCK PRICE IS LESS THAN $29.00 (WHICH
REPRESENTS A VALUE TO SIERRA'S SHAREHOLDERS OF $35.525 PER SHARE OF COMPANY
COMMON STOCK, BASED ON THE EXCHANGE RATIO). SEE "SUMMARY--RISK FACTORS--FIXED
EXCHANGE RATIO."
SHAREHOLDERS ARE ENCOURAGED TO OBTAIN CURRENT QUOTATIONS FOR SHARES OF CUC
INTERNATIONAL COMMON STOCK AND COMPANY COMMON STOCK.
Comparative Per Common Share Data. The following sets forth the book value
and income per share from continuing operations of CUC International Common
Stock and the book value and income per share from continuing operations of
Company Common Stock. The pro forma combined information is based on the
historical financial statements of CUC International, the Company, Davidson and
Ideon, as applicable (see "Unaudited Pro Forma Condensed Combined Financial
Statements"), as adjusted to reflect consummation of the Merger, the Davidson
Merger and the Ideon Merger under the pooling-of-interests method. The pro forma
combined information and the Company equivalent pro forma information set forth
below are unaudited. The information set forth below should be read in
conjunction with the respective audited and unaudited consolidated financial
statements of CUC
28
<PAGE>
International, the Company, Sierra and Ideon, including the notes thereto,
incorporated herein by reference, and the Unaudited Pro Forma Condensed Combined
Financial Statements appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT APRIL 30, 1996
-----------------
<S> <C>
Book Value Per Common Share:
Historical:
CUC International(a).................................................... $4.23
Company................................................................. 5.80
Pro Forma Combined--CUC International and the Company....................... 4.29
Pro Forma Combined--CUC International, the Company and Davidson............. 4.02
Pro Forma Combined--CUC International, the Company and Ideon................ 4.15
Pro Forma Combined--CUC International, the Company, Davidson and Ideon...... 3.91
Company Equivalent Pro Forma--CUC International and the Company(b).......... 5.26
Company Equivalent Pro Forma--CUC International, the Company and
Davidson(b)................................................................. 4.92
Company Equivalent Pro Forma--CUC International, the Company and Ideon(b)... 5.08
Company Equivalent Pro Forma--CUC International, the Company, Davidson and
Ideon(b).................................................................... 4.79
</TABLE>
<TABLE>
<CAPTION>
CUC INTERNATIONAL'S
---------------------------------------
FISCAL YEAR ENDED
JANUARY 31, THREE MONTHS
---------------------- ENDED
1996 1995 1994 APRIL 30, 1996
----- ----- ------ --------------
<S> <C> <C> <C> <C>
Cash Dividends Per Common Share(c):
Pro Forma Combined--CUC International, the Company and
Ideon........................................................ $0.02 $0.02 $ 0.02 $ 0.01
Pro Forma Combined--CUC International, the Company, Davidson
and Ideon.................................................... 0.02 0.02 0.02 0.01
Company Equivalent Pro Forma--CUC International, the Company
and Ideon.................................................... 0.02 0.02 0.02 0.01
Company Equivalent Pro Forma--CUC International, the Company,
Davidson and Ideon........................................... 0.02 0.02 0.02 0.01
Income (Loss) Per Common Share From Continuing Operations:
Historical:
CUC International(a)..................................... 0.84 0.66 0.51 0.25
Company.................................................. 0.85 0.70 (0.46) (0.03)
Pro Forma Combined--CUC International and the Company........ 0.82 0.65 0.42 0.21
Pro Forma Combined--CUC International, the Company and
Davidson..................................................... 0.78 0.60 0.40 0.20
Pro Forma Combined--CUC International, the Company and
Ideon........................................................ 0.56 0.69 0.54 0.23
Pro Forma Combined--CUC International, the Company, Davidson
and Ideon.................................................... 0.55 0.63 0.51 0.21
Company Equivalent Pro Forma--CUC International and the
Company(b)................................................... 1.00 0.80 0.51 0.26
Company Equivalent Pro Forma--CUC International, the Company
and Davidson(b).............................................. 0.96 0.74 0.49 0.25
Company Equivalent Pro Forma--CUC International, the Company
and Ideon(b)................................................. 0.69 0.85 0.66 0.28
Company Equivalent Pro Forma--CUC International, the Company,
Davidson and Ideon(b)........................................ 0.67 0.77 0.62 0.26
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Adjusted to give retroactive effect to the 3:2 stock split effected on June 30, 1995
for shareholders of record of CUC International Common Stock on June 19, 1995.
(b) The Company equivalent pro forma information was computed by multiplying the pro forma
combined information by the Exchange Ratio.
(c) CUC International, the Company and Davidson have paid no cash dividends on their common
stock during the periods presented. However, an insignificant amount of cash dividends
were paid in respect of the NAOG common stock for the year ended January 31, 1994.
</TABLE>
29
<PAGE>
INFORMATION CONCERNING CUC INTERNATIONAL
CUC International is a membership-based consumer services company, providing
consumers with access to a variety of services. CUC International currently has
approximately 48.0 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 programs. CUC International also administers insurance package
programs which generally are combined with discount shopping and travel for
credit union members, distributes welcoming packages which provide new
homeowners with discounts for local merchants and provides travelers with
value-added tax refunds. 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 its 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. Some of CUC
International's individual memberships are available on-line to interactive
computer users via major on-line services and the Internet's World Wide Web. For
the fiscal year ended January 31, 1996, approximately 442 million solicitation
pieces were mailed, followed up by approximately 59 million telephone calls.
Individual memberships represented 63%, 65% and 69% of consolidated revenues
for the fiscal years ended January 31, 1996, 1995 and 1994, respectively.
Wholesale memberships represented 14%, 13% and 14% of consolidated revenues for
the fiscal years ended January 31, 1996, 1995 and 1994, respectively. Discount
coupon book memberships represented 23%, 22% and 17% of consolidated revenues
for the fiscal years ended January 31, 1996, 1995 and 1994, respectively.
Membership revenue is recorded net of anticipated cancellations.
In January 1995, CUC International acquired all of the outstanding capital
stock of 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 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
30
<PAGE>
believes that payments to such shareholders aggregating in excess of $30.0
million would be extremely remote.
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.
Other CUC International Business Combinations
The Davidson Merger. On February 19, 1996, CUC International entered into
the Davidson Merger Agreement providing for the Davidson Merger. Pursuant to the
Davidson Merger Agreement, at the effective time of the Davidson Merger (the
"Davidson Effective Time"), each share of Davidson Common Stock outstanding
immediately prior to such time (other than shares held by CUC International, SAC
or any other subsidiary of CUC International or by any subsidiary of Davidson,
or shares to which dissenters' rights are granted and properly exercised under
applicable California law) will by virtue of the Davidson Merger and without any
action on the part of any holder of Davidson Common Stock, be converted into .85
of one fully paid and non-assessable share of CUC International Common Stock. No
fractional shares of CUC International Common Stock will be issued to holders of
Davidson Common Stock in the Davidson Merger. Based on the equity capitalization
of Davidson at June 7, 1996, it is expected that CUC International will issue in
the Davidson Merger to holders of Davidson Common Stock an aggregate of
approximately 30,039,606 shares of CUC International Common Stock.
In addition, at the Davidson Effective Time, each outstanding option to
purchase shares of Davidson Common Stock, whether vested or unvested, will be
cancelled and in lieu thereof, CUC International will issue to each holder
thereof a replacement option (which will not be qualified under Section 422 of
the Code) to purchase, on substantially the same terms and conditions as were
applicable under the substituted options, the same number of shares of CUC
International Common Stock as the holder of the substituted option would have
been entitled to receive in the Davidson Merger had such holder exercised his or
its option, in full, immediately prior to the Davidson Effective Time.
Each of Davidson and CUC International have agreed, until the Davidson
Effective Time, to conduct and cause each of its respective subsidiaries to
conduct its operations in the ordinary course of business consistent with past
practice and, with certain specified exceptions, each of Davidson and CUC
International have further agreed not to take certain actions or enter into or
consummate certain transactions relating to: capitalization, indebtedness,
investments, organizational instruments, accounting practices, tax elections,
employee compensation benefits and plans, capital expenditure programs and
extraordinary corporate transactions and business combinations. Davidson also
has agreed, subject to certain qualifications and exceptions specified in the
Davidson Merger Agreement (including with respect to the fiduciary duty of
Davidson's Board of Directors to the holders of Davidson Common Stock) to
discontinue any discussions or negotiations with parties (other than CUC
International and SAC) interested in pursuing an acquisition of Davidson's
assets or equity securities or a strategic business combination with Davidson or
its subsidiaries, and has agreed to pay to CUC International a termination (or
"break-up") fee of $25.0 million under certain circumstances, together with
reimbursement of up to $2.5 million of out-of-pocket expenses (including certain
professional advisory fees) incurred by CUC International and SAC.
The obligations of CUC International, Davidson and SAC to consummate the
Davidson Merger are subject to and include the following conditions, as
applicable: (i) the Davidson Merger Agreement having been duly adopted by the
requisite vote of the holders of Davidson Common Stock; (ii) there not having
been enacted, entered, promulgated or enforced by any United States court or
United States governmental authority, any injunction, statute, rule, regulation,
executive order, decree, or ruling
31
<PAGE>
which prohibits, restrains, enjoins or restricts consummation of the Davidson
Merger; (iii) the registration statement relating to the Davidson Merger having
become effective and no stop order proceedings seeking to suspend the
effectiveness thereof having been initiated by the Commission, and CUC
International having received all state securities laws or "blue sky" permits
and authorizations necessary to issue in the Davidson Merger shares of CUC
International Common Stock in exchange for the shares of Davidson Common Stock;
(iv) all waiting periods applicable to the Davidson Merger under the HSR Act
having expired or been terminated (such termination was granted on May 7, 1996);
(v) CUC International having received 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 Davidson
Merger, provided that the Davidson Merger is consummated in accordance with the
terms of the Davidson Merger Agreement, and such letter not having been
withdrawn or modified in any material respect; and (vi) CUC International (or
its affiliate) having purchased certain real property currently owned by
Davidson's Chairman and Chief Executive Officer, and President, respectively,
and leased by such persons to Davidson.
The obligations of CUC International and SAC to effect the Davidson Merger
are further subject to the following additional conditions: (i) the accuracy of
the representations and the performance of the covenants of Davidson contained
in the Davidson Merger Agreement; (ii) the performance by the affiliates of
Davidson (determined under Rule 145 under the Securities Act) of their
contractual obligations specified in letters delivered by such affiliates to CUC
International pursuant to the Davidson Merger Agreement and the performance by
the parties to the Davidson Shareholders Agreement of their respective covenants
thereunder; (iii) the number of dissenting shares in respect of the Davidson
Merger as of the Davidson Effective Time not exceeding 5% of the then total
outstanding shares of Davidson Common Stock; (iv) Davidson having obtained the
consent or approval of each person whose consent or approval is required in
order to permit the succession by the surviving corporation in the Davidson
Merger to any obligation, right or interest of Davidson or any of its
subsidiaries under certain specified material agreements, except those for which
the failure to obtain such consents and approvals would not, individually or in
the aggregate, have a material adverse effect on Davidson; (v) there not having
occurred any events, changes or effects with respect to Davidson or its
subsidiaries having or which reasonably could be expected to have a material
adverse effect on Davidson; and (vi) certain non-competition and employment
agreements entered into in connection with the Davidson Merger being in full
force and effect.
The obligation of Davidson to effect the Davidson Merger is further subject
to the following additional conditions: (i) the accuracy of the representations
and the performance of the covenants of CUC International and SAC contained in
the Davidson Merger Agreement; (ii) the receipt by Davidson of an opinion of tax
counsel to the effect that the Davidson Merger will be treated for United States
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and such opinion not having been withdrawn or modified in any
material respect; (iii) there not having occurred any events, changes or effects
with respect to CUC International and its subsidiaries having or which could
reasonably be expected to have a material adverse effect on CUC International;
(iv) the shares of CUC International Common Stock issuable in the Davidson
Merger to the holders of Davidson Common Stock and such other shares required to
be reserved for issuance in connection with the Davidson Merger having been
authorized for listing on the NYSE, subject to official notice of issuance; and
(v) Davidson having obtained the consent or approval of each person whose
consent or approval is required in connection with the transactions contemplated
by the Davidson Merger Agreement and certain other specified material
agreements, except those for which the failure to obtain such consent or
approval would not, individually or in the aggregate, have a Material Adverse
Effect on CUC International.
The Davidson Merger Agreement may be terminated and the Davidson Merger
abandoned at any time prior to the Davidson Effective Time by the written mutual
consent of CUC International, SAC and Davidson.
32
<PAGE>
Subject to the exceptions and qualifications specified therein, the Davidson
Merger Agreement may be terminated by (i) Davidson in the case of (A) the breach
of the representations or the non-performance of the covenants of CUC
International or SAC contained therein, (B) the determination of Davidson's
Board of Directors to terminate the Davidson Merger Agreement in order to comply
with its fiduciary duties to holders of Davidson Common Stock (after having
received a bona fide proposal to effect a competing third party acquisition of
Davidson), or (C) the average stock price (calculated on substantially the same
basis as the Average Stock Price) of the CUC International Common Stock having
fallen below $29.00 or (ii) CUC International or SAC in the case of (A) the
breach of the representations or the non-performance of the covenants of
Davidson contained therein, (B) the withdrawal, modification or change by
Davidson's Board of Directors of its recommendation of the Davidson Merger
Agreement to the holders of Davidson Common Stock and the recommendation by such
Board to such holders of a competing third-party acquisition of Davidson, or
Davidson's Board of Directors failure to call, give notice of or convene a
meeting of the holders of Davidson Common Stock to vote in respect of the
Davidson Merger Agreement, (C) the negotiation by Davidson with a competing
third party bidder for a period exceeding 15 business days after Davidson first
provides certain information to such bidder or commenced such negotiations or
(D) Davidson's failure to obtain the requisite approval of the Davidson Merger
Agreement by the holders of Davidson Common Stock after having convened a
meeting of such holders for such purpose.
Simultaneously with the execution of the Davidson Merger Agreement, the
holders of 72% of the outstanding Davidson Common Stock (which consist of
Davidson's Chairman and Chief Executive Officer, and President, respectively,
and certain trusts for which such persons serve as fiduciaries) have agreed
pursuant to the Davidson Shareholders Agreement to vote their shares of Davidson
Common Stock for adoption of the Davidson Merger Agreement at the Davidson
Meeting scheduled to be held on or about July 24, 1996. Accordingly, assuming
that such shareholders will vote for adoption of the Davidson Merger Agreement
at such meeting, such adoption will be assured irrespective of the votes cast by
any other holder of Davidson Common Stock. In addition, CUC International has
agreed to cause Davidson's Chairman of the Board and Chief Executive Officer,
and President, respectively, to be elected to CUC International's Board of
Directors effective upon consummation of the Davidson Merger.
Certain Information Concerning Davidson's Business
According to the Davidson 10-K, Davidson develops, publishes, manufactures
and distributes high-quality educational and entertainment software products for
home and school use. Its products incorporate characters, themes, sound,
graphics, music and speech in ways that Davidson believes are engaging to the
user. Davidson's educational products, offered at multiple price points, are
targeted primarily to pre-kindergarten through 12th grade age groups and address
a variety of learning needs, including math and problem solving, reading and
language, art, writing and creativity, productivity, science and ecology, and
social studies and history. Davidson also has begun to develop entertainment
software through its Blizzard Entertainment division and recently acquired
Condor division (which has been renamed Blizzard North) which is targeted to
young adult and older users. In addition to its internally produced software
products, Davidson enters into arrangements with affiliated label software
developers to publish and distribute home and/or school versions of their
products. Davidson has developed and currently publishes 102 titles and in
addition distributes 51 affiliated label titles. Davidson's executive offices
are located at 19840 Pioneer Avenue, Torrance, California 90503, and its
telephone number at such offices is (310) 793-0600.
The Ideon Merger. Effective on April 19, 1996, CUC International entered
into the Ideon Merger Agreement providing for the Ideon Merger. Pursuant to the
Ideon Merger Agreement, at the Ideon Effective Time, each share of Ideon Common
Stock outstanding immediately prior to such time (other than shares held by
Ideon as treasury stock or by any subsidiary of Ideon or owned by CUC
International, IGA or any other subsidiary of CUC International) will be
converted into the right to
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receive that number of shares of CUC International Common Stock equal to the
quotient obtained by dividing: (x) $13.50 by (y) the Ideon Merger Average Stock
Price; provided that if the Ideon Merger Average Stock Price is $22.00 or less
the Ideon Conversion Number will be 0.6136, and if the Ideon Merger Average
Stock Price is $36.00 or more the Ideon Conversion Number will be 0.3750. Based
on the equity capitalization of Ideon at May 31, 1996 (and assuming that 0.4943
shares of CUC International Common Stock will be issued in the Ideon Merger in
respect of each share of Ideon Common Stock), it is expected that CUC
International will issue in the Ideon Merger an aggregate of 13,832,078 shares
of CUC International Common Stock to holders of Ideon Common Stock.
In addition, not later than the Ideon Effective Time, each outstanding
option to purchase shares of Ideon Common Stock under any stock option or
compensation plan or arrangement of Ideon (other than any "stock purchase plan"
under section 423 of the Code) immediately prior to the Ideon Effective Time,
whether vested or unvested, will become and represent a substitute option to
purchase such number of shares of CUC International Common Stock determined by
multiplying: (x) the number of shares of CUC International Common Stock subject
to such option immediately prior to the Ideon Effective Time by (y) the Ideon
Conversion Number, at an exercise price per share of CUC International Common
Stock equal to the exercise price per share of Ideon Common Stock immediately
prior to the Ideon Effective Time, divided by the Ideon Conversion Number.
Notwithstanding the foregoing, options held by Ideon's directors at the Ideon
Effective Time will automatically be converted in the Ideon Merger into the
right to receive such number of shares of CUC International Common Stock equal
to (x) the number of shares of Ideon Common Stock such director could have
purchased had such director exercised his option in full immediately prior to
the Ideon Effective Time, multiplied by: (y) a fraction, the numerator of which
is the excess, if any, of (i) the Ideon Conversion Number multiplied by the
Ideon Merger Average Stock Price over (ii) the applicable exercise price per
share of such option, and the denominator of which is the Ideon Merger Average
Stock Price.
Ideon has agreed, until the Ideon Effective Time, to conduct and cause each
of its subsidiaries to conduct its operations in the ordinary course of business
and, with certain specified exceptions and within specified limits, Ideon has
further agreed not to take certain actions or enter into or consummate certain
transactions relating to, among other things, capitalization, indebtedness, the
creation of liens on material assets, capital contributions and investments, the
disposition or revaluation of assets, accounting matters, tax matters, employee
benefit and compensation matters, litigation matters, and extraordinary
corporate transactions and business combinations.
Ideon also has agreed, subject to certain qualifications and exceptions
specified in the Ideon Merger Agreement (including with respect to the fiduciary
duty of Ideon's Board of Directors to the holders of Ideon Common Stock) not to
engage in any discussions or negotiations with parties (other than CUC
International and IGA) interested in pursuing an acquisition of Ideon's assets
or equity securities or engaging in a strategic business combination with Ideon
or its subsidiaries. Moreover, upon termination of the Ideon Merger Agreement
under certain circumstances, Ideon has agreed to pay CUC International $7.0
million in liquidated damages, together with reimbursement of up to $1.0 million
of out-of-pocket expenses (including professional advisory fees) incurred by CUC
International.
The respective obligations of CUC International, Ideon and IGA to consummate
the Ideon Merger are subject to the following conditions, among others: (i) the
Ideon Merger Agreement having been duly adopted by the requisite vote of the
holders of Ideon Common Stock; (ii) CUC International Common Stock having been
approved for listing on the NYSE, subject to official notice of issuance, (iii)
there not being in effect any provision of any applicable law, regulation or
judgment, injunction, order or decree which prohibits consummation of the Ideon
Merger or any transactions contemplated thereby; (iv) the registration statement
relating to the Ideon Merger having become effective and no order suspending the
effectiveness thereof having been issued and remaining in effect; (v) all
waiting periods under the HSR Act relating to the Ideon Merger having expired,
and (vi) CUC International having received a letter from its independent
auditors, Ernst & Young LLP, and Ideon having received a letter, subject to
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customary qualifications, from its independent accountants, Price Waterhouse
LLP, each substantially to the effect that pooling-of-interests accounting
(under Accounting Principles Board Opinion No. 16) is appropriate for the Ideon
Merger; provided that the Ideon Merger is consummated in accordance with the
terms of the Ideon Merger Agreement; provided, further, that the foregoing will
not be a condition to Ideon's obligations if either Price Waterhouse LLP or
Ernst & Young LLP is unable to deliver such letter as a result of Ideon having
breached certain of its representations or covenants or Ideon or any of its
affiliates having taken or failed to take any other action, in any such case
that would prevent, in the opinion of such accounting firm, CUC International
from accounting for the Ideon Merger as a pooling-of-interests.
The obligations of CUC International and IGA to effect the Ideon Merger are
further subject to the accuracy of the representations and the performance of
the obligations and covenants of Ideon contained in the Ideon Merger Agreement
and the performance by the affiliates of Ideon (determined pursuant to Rule 145
under the Securities Act) of their contractual obligations specified in letters
delivered by such affiliates to CUC International pursuant to the Ideon Merger
Agreement. The obligations of Ideon to effect the Ideon Merger are further
subject to the accuracy of the representations and the performance of the
obligations and covenants of CUC International and IGA contained in the Ideon
Merger Agreement and the receipt by Ideon of an opinion of its tax counsel to
the effect that, among other things, the Ideon Merger will be treated for United
States federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.
The Ideon Merger Agreement may be terminated and the Ideon Merger abandoned
at any time prior to the Ideon Effective Time by the written mutual consent of
CUC International and Ideon. In addition, subject to the exceptions and
qualifications specified therein, the Ideon Merger Agreement may be terminated
by (i) Ideon in the case of (A) the breach of the representations or the non-
performance of the covenants of CUC International or IGA contained therein or
(B) the determination by Ideon's Board of Directors to enter into an agreement
providing for a bona fide third party proposal to acquire more than 50% of the
outstanding shares of Ideon Common Stock or substantially all of Ideon's assets
and otherwise containing terms which Ideon's Board of Directors believes to be
more favorable to holders of Ideon Common Stock than the Ideon Merger; provided
that certain termination payments are made to CUC International; or (ii) CUC
International or IGA in the case of (A) the breach of Ideon's representations or
the non-performance of Ideon's covenants contained therein, or (B) the Board of
Directors of Ideon (or any committee thereof) having withdrawn, modified or
changed in a manner adverse to CUC International or to IGA its recommendation of
the Ideon Merger or the Ideon Merger Agreement, approved or recommended a
superior acquisition proposal (of the type referred to in clause (i)(B) above),
or entered into a definitive agreement with respect to any inquiry, offer or
proposal from a third party to acquire a substantial portion of Ideon's assets
or more than 20% of Ideon's outstanding equity securities.
The Ideon Merger Agreement may also be terminated by either Ideon or CUC
International if (i) the Ideon Merger has not been consummated by December 31,
1996 (as such date may be extended by the parties to the Ideon Merger
Agreement); provided, however, that such right to terminate is not available to
the party whose failure to fulfill any obligation has been the cause of the
failure to meet such deadline, (ii) consummation of the Ideon Merger becomes
illegal or if any final and non-appealable judgment, injunction, order or decree
is in effect which enjoins the parties from consummating the Ideon Merger, or
(iii) Ideon's shareholders do not approve the Ideon Merger.
Certain Information Concerning Ideon's Business
According to the Ideon 10-K, Ideon is a holding company with three current
business units: SafeCard, Wright Express and National Leisure Group. SafeCard,
Ideon's largest operating subsidiary, is a leader in providing credit card
enhancement and continuity products and services, serves over 160
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credit card issuers, has approximately 13 million subscribers and, during 1995,
contributed approximately 80% of Ideon's consolidated revenue. SafeCard is based
in Jacksonville, Florida and has an operational facility located in Cheyenne,
Wyoming. Wright Express, based in South Portland, Maine, is the leading provider
of information processing, financial and information management services to
commercial car, van and truck fleets throughout the United States. National
Leisure Group, based in Boston, Massachusetts, is a major provider of vacation
travel packages and cruises directly to consumers in association with
established retailers and warehouse clubs in New England and with credit card
issuers and travel club members nationwide. Ideon's principal executive offices
are located at 7596 Centurion Parkway, Jacksonville, Florida 32256, and its
telephone number at such offices is (904) 218-1800.
THE MERGER, THE DAVIDSON MERGER AND THE IDEON MERGER ARE INDEPENDENT
TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED UPON
CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO
APPLICABLE LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S RESPECTIVE CERTIFICATES
OF INCORPORATION AND BY-LAWS CURRENTLY IN EFFECT, NEITHER HOLDERS OF COMPANY
COMMON STOCK NOR CUC INTERNATIONAL COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE
OF OR TO VOTE IN RESPECT OF THE DAVIDSON MERGER OR THE IDEON MERGER. SIMILARLY,
NEITHER HOLDERS OF DAVIDSON COMMON STOCK NOR HOLDERS OF IDEON COMMON STOCK, AS
SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER. FOR
INFORMATION CONCERNING CERTAIN EFFECTS OF THE DAVIDSON MERGER AND THE IDEON
MERGER ON CUC INTERNATIONAL, SEE "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS."
Sierra Litigation
On February 20, 1996, a lawsuit captioned: Meridian Capital Funding, Inc. v.
Sierra On-Line, Inc. et. al. (Civil Action No. 14848) was filed in the Court of
Chancery for the State of Delaware. The lawsuit was brought on behalf of the
public shareholders of the Company and names the Company, each of the Company's
individual directors and CUC International as party defendants. The lawsuit
alleges certain violations of such directors' fiduciary duties to the Company's
shareholders in connection with the Merger and other alleged improper conduct.
The plaintiffs, among other things, are seeking to enjoin consummation of the
Merger and, in the event of such consummation, rescission of the Merger and
monetary damages in an unspecified amount.
INFORMATION CONCERNING THE COMPANY
Sierra is a leading publisher and distributor of interactive entertainment,
education and personal productivity software titles for multimedia PCs,
including CD-ROM-based PC systems, and selected emerging platforms. Sierra uses
its design and development capabilities, as well as outside acquisitions, to
create branded software products and product series with complex and interesting
storylines and sophisticated graphics, sound and other features. Sierra offers
more than 50 software titles, including popular products such as the King's
Quest series, Leisure Suit Larry series, Police Quest series, Phantasmagoria,
Gabriel Knight: The Beast Within, Front Page Sports: Football Pro '96, IndyCar
Racing II, The Lost Mind of Dr. Brain and Print Artist.
Sierra sells its products through a domestic field sales force and a network
of independent domestic and foreign distributors. The Company sells through a
variety of distribution channels, including computer and electronics
superstores, software specialty stores, mass merchants, wholesale clubs, direct
mail and bundling arrangements. Internationally, the Company sells primarily
through independent distributors in specified territories and, in the United
Kingdom, directly to software retailers. The Company is continually evaluating
new and potentially promising distribution channels, including on-line
distribution through commercial on-line services and the Internet.
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The multimedia PC consumer software market has grown dramatically in recent
years, driven by the increasing installed base of multimedia PCs in the home,
the proliferation of new software titles and new and expanding distribution
channels. These factors have led to the development of a mass market for
software products, which has been characterized by a rise in importance of
strong distribution channels, a significant increase in the number of new
software titles offered in the market, increased competition for limited retail
shelf space to accommodate the abundance of new titles, and increased price
pressure. Consumer reaction to different software titles is often unpredictable.
Certain titles may gain broad popularity while others may not be received well
in the market. Generally, entertainment and education software producers
differentiate themselves by their ability to design products that are fun and/or
educational, while at the same time exploiting the graphics, image, animation,
audio and video capabilities of various hardware platforms.
During the fiscal year ended March 31, 1996, the Company significantly
expanded its product line and brand awareness by continuing to develop high
quality entertainment and education titles incorporating state-of-the-art
software technology and by acquiring other successful or promising titles from
third parties. The Company released 29 new internally-developed titles in fiscal
1996 (ended March 31, 1996) and acquired an additional 18 titles in the
entertainment, education, simulation and personal productivity categories. In
addition, the Company entered into joint venture agreements with Pioneer
Electronics Corporation relating to development of titles for the Japanese
market.
THE MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of shares of
Company Common Stock in connection with the solicitation of proxies by the
Company's Board of Directors for use at the Meeting to be held at the Company's
headquarters at 3380 146th Place S.E., Suite 300, Bellevue, Washington 98007, on
Wednesday, July 24, 1996, 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 offering by CUC International
of the shares of CUC International Common Stock issuable in the Merger to
holders of Company Common Stock. This Proxy Statement/Prospectus and the
accompanying proxy card are first being mailed to holders of Company Common
Stock on or about June 24, 1996.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of Company 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 COMPANY'S BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF THE DIRECTORS
PRESENT, HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT (AND THE
TRANSACTIONS CONTEMPLATED THEREBY), AND RECOMMENDS THAT HOLDERS OF COMPANY
COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. SEE "THE
MERGER--BACKGROUND OF THE MERGER"; "--REASONS FOR THE MERGER; RECOMMENDATION OF
THE COMPANY'S BOARD OF DIRECTORS."
RECORD DATE; QUORUM; VOTING AT THE MEETING
The Company's Board of Directors has fixed June 17, 1996 as the Record Date.
Accordingly, only holders of record of shares of Company Common Stock at the
close of business on such date will be entitled to notice of and to vote at the
Meeting. At the Record Date, there were 20,869,369 shares of
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Company Common Stock outstanding and entitled to vote, and approximately 900
holders of record. Each holder of record of Company 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
Company Common Stock entitled to vote at the Meeting is necessary to constitute
a quorum at the Meeting.
Adoption of the Merger Agreement will require the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock entitled
to vote thereon at the Meeting. Accordingly, abstentions, failures to vote and
broker non-votes will have the practical effect of voting against adoption of
the Merger Agreement. As of the Record Date, the directors and executive
officers of the Company beneficially owned in the aggregate approximately 10% of
the outstanding shares of Company Common Stock. Pursuant to the Shareholders
Agreement, the holders of approximately 9% of the outstanding Company Common
Stock (which consist of Kenneth A. Williams, the Company's Chairman and Chief
Executive Officer, and his spouse, Roberta L. Williams, a director of the
Company) have agreed to vote the shares of Company Common Stock held of record
or beneficially by them for adoption of the Merger Agreement. See "Shareholders
Agreement."
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of Company
Common Stock in connection with the solicitation of proxies by and on behalf of
the Board of Directors of the Company for use at the Meeting.
Shares of Company 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 or, if no
instructions are indicated, such shares will be voted for adoption of the Merger
Agreement. Holders of Company 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
Company Common Stock who so desires may revoke his, her 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 the Company, (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 shareholders who
attend the Meeting in person need not revoke their proxy (if previously
furnished) and vote 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 consideration of a motion to adjourn
the Meeting to another time and/or place, 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.
If any beneficial owner of Company Common Stock holds such stock in "street
name" and wishes to vote his or its stock at the Meeting, such owner must obtain
from the relevant nominee holding the Company Common Stock a properly executed
"legal proxy" identifying the beneficial owner as Sierra holder of Company
Common Stock, authorizing the beneficial owner to act on behalf of the nominee-
record owner at the Meeting and identifying the number of shares (and
certificate numbers, if applicable) in respect of which the authorization is
granted.
The Company will bear the cost of soliciting proxies from the holders of
Company Common Stock. In addition to solicitation by mail, directors, officers
and employees of the Company may solicit proxies
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by telephone, facsimile transmission or otherwise. Such directors, officers and
employees of the Company 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 Company Common Stock
held of record by them will be reimbursed for their reasonable expenses incurred
in forwarding such material. The Company has retained Georgeson & Co., at an
estimated cost of approximately $6,000.00, 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 Company Common Stock held of record by such
custodians, nominees and fiduciaries, and the Company 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 COMPANY COMMON STOCK SHOULD NOT
RETURN TO THE COMPANY ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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 the
Company. Set forth below is a summary of the background of these negotiations.
Walter A. Forbes, the Chairman of the Board and Chief Executive Officer of
CUC International, has been a member of the Board of Directors of the Company
since 1991. In October 1995, Mr. Forbes advised Kenneth A. Williams, the
Chairman of the Board and Chief Executive Officer of the Company, that CUC
International was considering diversifying its approach to the electronic
marketplace by entering the business of providing entertainment and educational
software content. At Mr. Forbes' request, Mr. Williams and Michael A. Brochu,
the Company's President and Chief Operating Officer, met once in mid-October
1995 with Mr. Forbes and on several occasions during October 1995 with E. Kirk
Shelton, the President and Chief Operating Officer of CUC International and
Christopher K. McLeod, Executive Vice President of CUC International, to discuss
the views of the Company's senior management with respect to the consumer
software business, CUC International's possible plans for entry into that
business and its possible interest in pursuing a business combination with the
Company. In late October 1995, Mr. Forbes advised Mr. Williams that CUC
International had decided to terminate its consideration of a potential business
combination with the Company. The October 1995 discussions did not include any
specific proposals by CUC International for a possible business combination with
the Company and no negotiations were held regarding such a transaction. The
Company's Board of Directors was not informed at that time of CUC
International's tentative interest in diversifying into the consumer software
business.
The next contact between CUC International and the Company occurred
following a regularly scheduled meeting of the Company's Board of Directors held
at the Company's headquarters on February 2, 1996, which Mr. Forbes attended.
After the meeting had adjourned, in a private conversation with Mr. Williams,
Mr. Forbes stated that CUC International was considering various strategic
alternatives, including possible entry into the consumer software business
through the acquisition of established companies known for their entertainment
and educational software content. Mr. Forbes then asked if Mr. Williams thought
that the Company's management and Board of Directors would have any interest in
a potential business combination with CUC International in the event that CUC
International decided to pursue this strategic direction. Mr. Williams indicated
that, in his view, the Company's management and Board of Directors might be
willing to explore a possible business combination with CUC International
provided that the transaction were priced at a substantial premium above the
market price of the Company Common Stock.
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On February 6, 1996, Mr. Shelton telephoned Mr. Williams to inform him that
CUC International was considering the potential acquisition of another consumer
software company headquartered in southern California and to request that a
meeting be held the next day to discuss CUC International's interest in pursuing
a potential business combination with the Company. Mr. Williams and a
representative of RS & Co. met with Mr. Shelton and Mr. McLeod in San Francisco,
California on February 7, 1996. During that meeting, Mr. Shelton and Mr. McLeod
outlined CUC International's plans to expand its presence in the consumer
software business and described CUC International's organizational structure and
approach to the management of recently acquired companies. On February 8, 1996,
Mr. Forbes and Mr. McLeod met with Mr. Brochu and described CUC International's
vision for the consumer software business. Another meeting was held on February
11, 1996 at which Mr. Forbes, Mr. Shelton and Mr. McLeod explained CUC
International's strategy for the consumer software business to Mr. Williams,
Roberta L. Williams, Mr. Brochu and Jarold Bowerman, Vice President of Product
Development of the Company, and to a representative of RS & Co.
On the morning of February 12, 1996, Mr. Shelton, Mr. McLeod, Mr. Williams
and a representative of RS & Co. began discussion of the proposed terms of a
potential business combination of the Company and CUC International. Mr.
Williams suggested that the merger consideration should have a value of at least
$50 per share of Company Common Stock. Mr. Forbes suggested that CUC
International might be prepared to issue, in a tax-free exchange, CUC
International Common Stock at a merger exchange ratio that, at the then current
share price of CUC International Common Stock, would value the Company Common
Stock at $45 per share. During the evening of February 12, 1996, Mr. Shelton
informed a representative of RS & Co. that, having considered the discussions
earlier that day, CUC International might be willing to pursue a business
combination with the Company in which 1.225 shares of CUC International Common
Stock would be exchanged for each share of Company Common Stock, representing a
transaction value of approximately $48 per share of Company Common Stock and a
premium of approximately 69% based on the closing sale prices of Company Common
Stock and CUC International Common Stock on February 12, 1996.
On February 13 and 14, 1996, Mr. Williams spoke with each of the Company's
directors to inform them of CUC International's interest in delivering a
preliminary business combination proposal and to schedule meetings of the
Company's Board of Directors to deliberate upon the proposal, and that CUC
International had authorized its counsel to prepare initial drafts of the
relevant transaction documents, including a draft merger agreement and
shareholders agreement.
On February 14, 1996, Weil, Gotshal & Manges LLP, CUC International's legal
counsel, delivered initial drafts of the Merger Agreement, Shareholders
Agreement and related transaction documents to the Company and its legal
counsel, Perkins Coie. The terms of such drafts were then negotiated by
representatives of the Company and CUC International and their respective legal
counsel from the morning of February 15, 1996 late into the evening of February
19, 1996. During this same period, each party conducted a legal and business due
diligence review of the other.
The Company's Board of Directors met on February 17, 1996 to review and
discuss the proposed business combination with CUC International. Mr. Forbes did
not attend the meeting. The remaining six directors of the Company attended the
meeting (four being sufficient for a quorum). Mr. Williams began with a brief
description of the history of the discussions between the Company and CUC
International. A representative of RS & Co. then summarized the economic terms
of the proposed business combination and described in detail RS & Co.'s analysis
of the financial terms of the proposed Merger. RS & Co.'s representative
concluded by advising the Company's Board of Directors that RS & Co. would be
prepared, subject to satisfactory resolution of remaining open issues, to
deliver to the Board of Directors its opinion that the proposed Exchange Ratio
was fair from a financial point of view to the holders of Company Common Stock.
The Company's Board of Directors next discussed at length the relative
values of the Company and CUC International and RS & Co.'s analysis of the
financial terms of the proposed Merger. The Board
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of Directors also discussed CUC International's proposed business strategy,
particularly with respect to the marketing and distribution of the Company's
products, and noted that the Merger presented opportunities for revenue
enhancement as well as cost savings. The Board of Directors also considered the
potential impact of the proposed merger between CUC International and Davidson.
The Board of Directors then reviewed with legal counsel certain material
terms of the draft Merger Agreement, including CUC International's proposed
nonsolicitation (or "no shop") provision with an appropriate "fiduciary out"
clause and CUC International's requirement that a reasonable termination payment
(or "breakup fee") should be payable to CUC International under certain
circumstances. The Board of Directors considered that the "fiduciary out" and
break-up fee terms which the Company intended to negotiate provided the Board of
Directors with the ability to furnish information to bona fide competing bidders
and to respond to a superior third-party proposal to acquire the Company, and
that the Company could terminate the Merger Agreement if the Company were
presented with a competing third party transaction that would provide superior
value to shareholders and, in any case, if the Average Stock Price fell below
the threshold price to be negotiated (i.e., $29.00), which represents a value to
Sierra's shareholders of $35.525 per share of Company Common Stock, based on the
Exchange Ratio).
The Board of Directors next discussed strategic alternatives to the proposed
Merger, including the prospect of merging with other companies as well as the
prospect of remaining an independent company. The Board reviewed the potential
for a business combination with one or more companies in the consumer
entertainment and educational software industry, including those discussed in
the RS & Co. analysis, and concluded that it was unlikely that such a business
combination would offer the advantages represented by the CUC International
proposal, particularly the substantial premium above the market price of the
Company's Common Stock, the liquidity represented by the substantially larger
and disaggregated market capitalization of CUC International, and the financial
resources of CUC International. The Board also discussed the possibility of a
business combination with a larger company in the general software industry or
the general entertainment industry and concluded that, although the Company had
no reason to believe that any such business combination proposal was likely, the
"fiduciary out" and termination provisions of the proposed Merger Agreement
would permit the Company to respond to a superior proposal should one be
presented. Finally, based upon its knowledge of the Company's business, the
Board discussed whether remaining an independent company would be likely to
result in greater shareholder value than accepting the CUC International
proposal. The Board concluded that CUC International's proposal was more
beneficial to Sierra's shareholders compared to the Company's likely strategic
alternatives. See "Reasons for the Merger; Recommendation of the Company's Board
of Directors."
The Board of Directors also discussed the draft Shareholders Agreement,
noncompetition agreements and employment agreement proposed to be entered into
between CUC International and each of Kenneth A. Williams and Roberta L.
Williams. Legal counsel explained that these agreements between CUC
International and each of Kenneth A. Williams and Roberta L. Williams were
required by CUC International as a condition of the Merger, and described their
material terms. Mr. and Mrs. Williams informed the Board of Directors that they
were willing to enter into such agreements.
The Board of Directors then instructed management to continue its
negotiations with respect to the draft Merger Agreement and related transaction
documents and, pending the results of such negotiations, to present the final
proposed terms of the transaction to the Company's Board of Directors at its
meeting scheduled for February 19, 1996. The parties and their advisors
continued to negotiate the terms of the Merger Agreement and related documents
on February 17, 18 and 19, 1996.
The Board of Directors reconvened on Monday, February 19, 1996 to consider
the proposed Merger. Mr. Forbes again did not participate in the meeting. The
remaining six directors of the Company attended the meeting (four being
sufficient for a quorum). The discussion commenced with an update by the
Company's legal counsel on the progress of the negotiations between the
respective
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advisors to the Company and CUC International and the changes made to the draft
Merger Agreement from the draft previously circulated to and reviewed by the
Board of Directors. The Board of Directors then discussed the proposed Merger
Agreement provisions with respect to the Company's ability to terminate the
Merger Agreement and enter into a definitive agreement for a superior
third-party transaction, and the negotiated changes to the proposed $25.0
million breakup fee such that a $12.5 million fee would be payable upon
termination of the Merger Agreement to enter into a superior third party
agreement and an additional $12.5 million fee would be payable only if the
aforementioned superior transaction were consummated.
RS & Co. then reviewed and discussed with the Board of Directors its
financial analysis of the proposed Merger and delivered that firm's opinion
that, as of February 19, 1996, the Exchange Ratio is fair to the holders of
Company Common Stock, from a financial point of view.
After further deliberations, the Board of Directors determined that the
proposed Merger was fair to and in the best interests of the Company and its
shareholders. Shortly thereafter, the Company's Board, by unanimous vote of the
six directors present (the total number of directors being seven, and the number
required for a quorum being four), approved the Merger Agreement (and the
transactions contemplated thereby), authorized management to complete
negotiations and to execute the Merger Agreement and related transaction
documents, and recommended that the Company's shareholders adopt the Merger
Agreement. Mr. Forbes did not participate in any meetings or deliberations of
the Company's Board of Directors regarding the Merger.
At a special meeting of the Board of Directors of CUC International held on
February 19, 1996, the directors, by unanimous vote of the directors (with one
abstention), 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.
Walter A. Forbes, the Chairman of the Board and Chief Executive Officer of CUC
International and a director and shareholder of the Company, abstained from the
vote by CUC International's Board of Directors to approve the Merger Agreement.
The Merger Agreement was executed by the parties effective on February 19,
1996, and each of CUC International and the Company issued a press release on
February 20, 1996 announcing the proposed Merger. The full text of the Merger
Agreement is attached to this Proxy Statement/ Prospectus as Annex A and
incorporated herein by reference and should be read carefully and in its
entirety.
REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
CUC International. CUC International's Board of Directors believes that the
business combination with Company will further CUC International's long-term
strategic objectives. In reaching its conclusions, CUC International's Board of
Directors considered, among other things, that: (i) the PC and interactive
information technology markets were expanding rapidly; (ii) according to
published economic reports, educational and entertainment technology products
are two of the fastest growing areas of consumer spending, and that the Company
is strongly positioned in these sectors with products well-suited for the rapid
penetration of the PC and Internet into consumers' homes; and (iii) the Merger
will enable CUC International to broaden its interactive content offerings.
Although the shares of CUC International Common Stock to be issued in the Merger
(and in the Davidson Merger and the Ideon Merger, if both are consummated) will
dilute (by an aggregate of approximately 27%) 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 and the Davidson Merger.
The Company. The Board of Directors of the Company believes that the terms
of the Merger are fair to and in the best interests of the Company and its
shareholders, and, by unanimous vote of the six
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directors present (the total number of directors being seven, and the number
required for a quorum being four), has approved the Merger Agreement (and the
transactions contemplated thereby).
The reasons for the Board of Directors' decision included, among others, the
very substantial premium represented by the Exchange Ratio over the market price
of Company Common Stock prior to announcement of the proposed Merger, the
opinion of the Company's financial advisor, RS & Co., dated February 19, 1996
and delivered to the Company's Board to the effect that, as of such date, based
upon and subject to certain matters stated therein, the Exchange Ratio was fair
from a financial point of view to holders of Company Common Stock, the
opportunity for the Company's shareholders to benefit from owning shares in a
larger, more diversified company with greater financial resources than the
Company, the substantially larger and disaggregated market capitalization of CUC
International, the historic price stability of CUC International Common Stock
compared to Company Common Stock, the opportunities presented by the Merger for
revenue enhancement, cost savings and future growth in the consumer software
business, and the tax-free nature of the Merger to the holders of Company Common
Stock.
In the course of its deliberations, the Board of Directors of the Company
reviewed and considered a number of factors relevant to the Merger, including
(i) the current and historical market prices of Company Common Stock and CUC
International Common Stock, (ii) information concerning the financial
performance, condition, business operations and prospects of the Company and CUC
International, based upon the Board of Directors' familiarity with the Company's
business, publicly available information about CUC International and the RS &
Co. analysis, (iii) information concerning the financial performance, condition
and business operations of Davidson, (iv) the greater marketing and financial
resources of the combined companies compared to the Company alone, (v) the
expected accounting treatment of the Merger as a pooling-of-interests, which
avoids the reduction in future earnings of the combined companies which would
result from the creation and amortization of goodwill under the purchase method
of accounting, (vi) the expected federal income tax treatment of the Merger as a
tax-free reorganization to the parties and to the Company's shareholders, (vii)
the proposed timing and structure of the transaction, which were expected to
permit a closing of the Merger by early summer, (viii) the excellent historical
relationship between Mr. Forbes and the management of the Company and the
compatibility of the corporate vision of CUC International and the Company with
respect to future growth in interactive information technology markets in
general and entertainment and educational software products in particular, and
the belief that the management styles and corporate cultures of CUC
International and the Company would be complementary, (ix) the opinion of RS &
Co. with respect to the fairness of the Exchange Ratio from a financial point of
view to the holders of Company Common Stock, (x) the very substantial premium of
approximately 69% to holders of Company Common Stock, calculated by multiplying
the closing price of CUC International Common Stock on February 16, 1996
($37.50) by the Exchange Ratio (1.225) and dividing the difference between that
product ($45.9375) and the closing price of Company Common Stock on February 16,
1996 ($27.125) by such closing price, (xi) the fact that even at the $29.00
baseline Average Stock Price the premium to the Company's shareholders above the
February 16, 1996 closing price of the Company's Common Stock would be 31%,
(xii) the greater market float and greater liquidity represented by the shares
of CUC International Common Stock to be received by the Company's shareholders
in the Merger compared to the market for Company Common Stock, (xiii) the
projected pro forma ownership of CUC International by Company shareholders
implied by the Exchange Ratio, with and without the Davidson Merger, (xiv) the
terms of the Merger Agreement (including the "fiduciary out" and termination
provisions thereof) and related agreements, and (xv) that CUC International has
the financial resources, willingness and expertise to complete a business
combination with the Company promptly which requires payment of the Merger
consideration in the form of CUC International Common Stock.
The Company's Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, among
other things: (i) the possibility of disruption to and potential loss of the
Company's management and key personnel, including software developers,
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pending consummation of or following the proposed Merger, (ii) the possibility
that the successful integration of the businesses of the Company, CUC
International (and Davidson, assuming the Davidson Merger is consummated) may
not be achieved on a timely basis, or perhaps at all, (iii) despite the
retention by the surviving corporation of the Company's senior executive
personnel (see "The Merger--Interests of Certain Persons in the
Merger--Employment Agreements"), the loss of complete independence that would
result from the Company becoming a wholly owned subsidiary of CUC International
pursuant to the Merger, and (iv) that certain members of the Company's
management and Board of Directors have interests in the Merger that are in
addition to and potentially in conflict with the interests of the holders of
Company Common Stock generally. See "Summary--Risk Factors--Interests of Certain
Persons in the Merger" and "The Merger--Interests of Certain Persons in the
Merger."
The foregoing discussion of the information and factors considered by the
Company's Board of Directors is not intended to be exhaustive but is intended to
include the material factors considered by the directors. In view of the wide
variety of factors considered by the Company's 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.
Recommendation of the Company's Board of Directors
THE COMPANY'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE TERMS OF THE MERGER (AND THE TRANSACTIONS CONTEMPLATED
THEREBY) ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS AND
RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Walter A. Forbes, Chairman of the Board and Chief Executive Officer of CUC
International, is a director of the Company and the beneficial owner of
approximately 6,020 shares of Company Common Stock and options to purchase an
additional 93,000 shares of Company Common Stock, of which 25,800 are currently
exercisable. Mr. Forbes did not participate in any meetings or deliberations of
the Board of Directors of the Company concerning the Merger.
OPINION OF COMPANY'S FINANCIAL ADVISOR
The Company retained RS & Co. to act as its financial advisor in connection
with the Merger and to render an opinion as to the fairness of the Exchange
Ratio to the holders of Company Common Stock, from a financial point of view.
The full text of RS & Co.'s opinion dated February 19, 1996 is attached to this
Proxy Statement/Prospectus as Annex C and is incorporated herein by reference,
and the summary of the opinion set forth below is qualified in its entirety by
reference to the full text of such opinion. Shareholders of the Company are
urged to read such opinion carefully and in its entirety for a description of
the procedures followed, the factors considered, the assumptions made and the
scope of review undertaken, as well as limitations on the review undertaken, by
RS & Co. in rendering its opinion.
At the February 19, 1996 special meeting of the Company's Board of
Directors, RS & Co. delivered its oral opinion, which subsequently was confirmed
in writing, that as of such date and based on the matters described therein, the
Exchange Ratio was fair to the holders of Company Common Stock, from a financial
point of view. RS & Co. did not recommend to the Company's Board that any
specific exchange ratio should constitute the Exchange Ratio. No limitations
were imposed by the Company's Board of Directors on RS & Co. with respect to the
investigations made or procedures followed by it in furnishing its opinion. RS &
Co.'s opinion to the Board addresses only the fairness of the Exchange Ratio to
the holders of Company Common Stock, from a financial point of view, and did not
constitute a recommendation to any such holder of Company Common Stock as to how
such holder should vote at the Meeting. RS & Co. expresses no opinion as to the
tax consequences of the Merger, and RS & Co.'s opinion as to the fairness of the
Exchange Ratio does not take into account the
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particular tax status or position of any holder of Company Common Stock. In
furnishing its opinion, RS & Co. was not engaged as an agent or fiduciary of the
Company's shareholders or any other third party.
In connection with the preparation of its opinion dated February 19, 1996,
RS & Co., among other things: (i) reviewed financial information concerning the
Company and CUC International furnished to it by both companies, including
certain internal financial analyses and forecasts prepared by the management of
the Company and CUC International; (ii) reviewed publicly available information
concerning the Company, including the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995, the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 1995, September 30, 1995 and
December 31, 1995, respectively, the Company's 1995 Proxy Statement and Annual
Report to Shareholders, various earnings and other public announcements made by
the Company and various published industry and market analysts reports
concerning the Company and the Company Common Stock, (iii) reviewed publicly
available information concerning CUC International, including the CUC 10-K, CUC
International's Quarterly Reports on Form 10-Q for the fiscal quarters ended
April 30, 1995, July 31, 1995 and October 31, 1995, CUC International's 1995
Proxy Statement Annual Report to Shareholders and various earnings and other
public announcements made by CUC International and various published industry
and market analyst reports concerning CUC International and the CUC
International Common Stock; (iv) held discussions with the management of the
Company and CUC International concerning the businesses, past and current
business operations, financial condition and future prospects of each of the
Company and CUC International on an independent basis, and of the Company and
CUC International on a combined basis; (v) reviewed the Merger Agreement; (vi)
reviewed the stock price and trading history of the Company and CUC
International; (vii) reviewed the contribution by each of the Company and CUC
International to pro forma combined revenue, operating income, pre-tax income
and net income; (viii) reviewed the valuations of publicly traded companies
which were deemed comparable to the Company and to CUC International; (ix)
compared the financial terms of the Merger with other transactions which were
deemed relevant; (x) analyzed the pro forma earnings per share of the combined
company, (xi) prepared a discounted cash flow analysis of the Company and CUC
International; (xii) held discussions with the management of CUC International
concerning CUC International's intention to acquire Davidson in a tax-free
reorganization to be accounted for as a pooling-of-interests and the terms of
such proposed acquisition; (xiii) reviewed publicly available financial
information concerning Davidson; (xiv) held discussions with management of each
of the Company and CUC International concerning the pro forma earnings, cash
flow and assets of a combined company comprised of the Company, CUC
International and Davidson; and (xv) made such other studies and inquiries, and
reviewed such other data, as were deemed relevant.
Non-public information provided to RS & Co. by CUC International included
(a) estimated total revenues of approximately $1.3 billion, $1.6 billion and
$1.9 billion for the fiscal years ending January 31, 1996, 1997 and 1998,
respectively, (b) estimated operating income of approximately $266.1 million,
$340.8 million and $425.8 million for the fiscal years ending January 31, 1996,
1997 and 1998, respectively, (c) estimated net income of approximately $167.1
million, $211.8 million and $266.4 million for the fiscal years ending January
31, 1996, 1997 and 1998, respectively, and (d) estimated earnings per share of
approximately $0.86, $1.08 and $1.33 for the fiscal years ending January 31,
1996, 1997 and 1998, respectively. Non-public information provided to R.S. & Co.
by the Company included (a) estimated total revenues of approximately $153.4
million, $187.2 million and $224.6 million for the fiscal years ending March 31,
1996, 1997 and 1998, respectively, (b) estimated gross profit of approximately
$109.2 million, $136.0 million and $163.2 million for the fiscal years ending
March 31, 1996, 1997 and 1998, respectively, (c) estimated operating income of
approximately $23.3 million, $37.5 million and $45.0 million for the fiscal
years ended March 31, 1996, 1997 and 1998, respectively, (d) estimated net
income of approximately $16.9 million, $23.8 million and $28.6 million for the
fiscal years ending March 31, 1996, 1997 and 1998, respectively, and (e)
estimated earnings per share of approximately $0.78, $1.08 and $1.25 for the
fiscal years ending March 31, 1996, 1997 and 1998, respectively.
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THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" EXEMPTION FOR FORWARD-LOOKING STATEMENTS TO ENCOURAGE COMPANIES TO
PROVIDE PROSPECTIVE INFORMATION ABOUT THEIR BUSINESSES, PROVIDED THAT SUCH
STATEMENTS ARE IDENTIFIED AS FORWARD-LOOKING AND ACCOMPANIED BY MEANINGFUL
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING
STATEMENTS. THE INFORMATION SET FORTH IN THE PRECEDING PARAGRAPH IS
FORWARD-LOOKING AND IS MADE PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
NEITHER CUC INTERNATIONAL NOR THE COMPANY AS A MATTER OF COURSE PUBLISHES OR
MAKES GENERALLY AVAILABLE ANY ESTIMATES, FORECASTS OR PROJECTIONS AS TO ITS
FUTURE PERFORMANCE, EARNINGS OR FINANCIAL CONDITION. THE FORWARD-LOOKING
INFORMATION SET FORTH ABOVE HAS BEEN INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS
SOLEY BECAUSE SUCH INFORMATION WAS FURNISHED TO R.S. & CO. BY MANAGEMENT OF CUC
INTERNATIONAL AND THE COMPANY. SUCH INFORMATION WAS NOT PREPARED WITH A VIEW TO
PUBLIC DISCLOSURE OR IN COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR FINANCIAL
FORECASTS. SUCH INFORMATION WAS PRELIMINARY IN NATURE AND PREPARED SOLELY FOR
INTERNAL PURPOSES AND IS SUBJECTIVE IN MANY RESPECTS AND, THEREFORE, SUSCEPTIBLE
TO INTERPRETATIONS AND PERIODIC REVISIONS BASED ON ACTUAL EXPERIENCE AND
BUSINESS DEVELOPMENTS. ALTHOUGH EACH OF CUC INTERNATIONAL AND THE COMPANY
BELIEVE THAT THE ASSUMPTIONS UPON WHICH ITS FORWARD-LOOKING INFORMATION WAS
BASED WERE REASONABLE WHEN MADE, BECAUSE SUCH ASSUMPTIONS ARE INHERENTLY SUBJECT
TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES WHICH
ARE DIFFICULT OR IMPOSSIBLE TO PREDICT AND ARE BEYOND THE COMPANY'S AND CUC
INTERNATIONAL'S CONTROL, THERE CAN BE NO ASSURANCE, AND NO REPRESENTATION OR
WARRANTY IS MADE, THAT THE FINANCIAL ESTIMATES CONTAINED IN SUCH FORWARD-LOOKING
INFORMATION WILL BE OR ARE CAPABLE OF BEING REALIZED. MOREOVER, IN THE CASE OF
CUC INTERNATIONAL, ACTUAL FINANCIAL RESULTS FOR THE FISCAL YEAR ENDED JANUARY
31, 1996 (WHICH ARE INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE
TO THE CUC 10-K) WERE NOT AVAILABLE AND, THEREFORE, NOT TAKEN INTO ACCOUNT BY
MANAGEMENT OF CUC INTERNATIONAL AT THE TIME ITS FINANCIAL ESTIMATES WERE
PREPARED AND FURNISHED TO R.S. & CO., AND NEITHER CUC INTERNATIONAL'S FINANCIAL
ESTIMATES NOR THE COMPANY'S FINANCIAL ESTIMATES GIVE EFFECT TO CONSUMMATION OF
THE MERGER, THE DAVIDSON MERGER OR THE IDEON MERGER (OR ANY OF THE PROPOSED
TRANSACTIONS CONTEMPLATED THEREBY). ACCORDINGLY, IT IS EXPECTED THAT THERE COULD
BE DIFFERENCES WHICH MAY BE MATERIAL BETWEEN ACTUAL FINANCIAL RESULTS AND
ESTIMATED FINANCIAL RESULTS, AND ACTUAL RESULTS MAY BE HIGHER OR LOWER THAN
THOSE ESTIMATED.
NEITHER CUC INTERNATIONAL, THE COMPANY, R.S. & CO. NOR ANY OF THEIR
RESPECTIVE AGENTS, EMPLOYEES OR ADVISORS INTEND OR HAVE ANY DUTY OR OBLIGATION
(CONTRACTUAL OR OTHERWISE) TO SUPPLEMENT, AMEND, UPDATE, OR REVISE ANY OF THE
FORWARD-LOOKING INFORMATION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS.
NEITHER CUC INTERNATIONAL'S NOR THE COMPANY'S INDEPENDENT AUDITORS HAVE EXAMINED
OR COMPILED SUCH INFORMATION OR APPLIED ANY PROCEDURES WITH RESPECT TO SUCH
INFORMATION. ACCORDINGLY,
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SUCH AUDITORS HAVE NOT EXPRESSED ANY OPINION OR OTHER FORM OF ASSURANCES WITH
RESPECT TO SUCH INFORMATION. ALTHOUGH CUC INTERNATIONAL, THE COMPANY AND THEIR
RESPECTIVE FINANCIAL ADVISORS OR OTHER REPRESENTATIVES CONSIDERED SUCH
FORWARD-LOOKING INFORMATION IN CONNECTION WITH THE PROPOSED MERGER, SUCH
INFORMATION CONSTITUTED ONLY ONE OF THE MANY FACTORS CONSIDERED BY SUCH PARTIES.
The following paragraphs summarize all material quantitative and qualitative
analyses performed by RS & Co. in arriving at its opinion and reviewed with the
Company's Board of Directors but does not purport to be a complete description
of the analyses performed by RS & Co. RS & Co. reviewed information that was
based on the financial condition of the Company and CUC International as of a
date or dates shortly before the Merger Agreement was executed as of February
19, 1996 and based on available stock price information through the close of
trading on the NYSE and the NASDAQ Stock Market, respectively, on February 16,
1996.
Stock Price and Trading Analysis. RS & Co. reviewed the trading activity,
including price and volume, of the Company Common Stock and CUC International
Common Stock since January 1, 1995. With respect to the Company, RS & Co. noted
that, since December 30, 1994, the daily closing sale prices of Company Common
Stock ranged from a high of $46.83 on September 13, 1995 to a low of $15.00 on
January 23, 1995. With respect to CUC International, RS & Co. noted that, since
December 30, 1994, the daily closing sale prices of CUC International Common
Stock ranged from a high of $39.25 on February 13, 1996 to a low of $22.00 on
January 3, 1995. RS & Co. also noted that since August 16, 1995, 83% of the
reported per share sale prices for Company Common Stock were less than $38.00.
In addition, RS & Co. compared the indexed performance of the Company Common
Stock and CUC International Common Stock since December 30, 1994 to a composite
index of companies deemed comparable by RS & Co. to the Company and a composite
index of companies comparable to CUC International. The composite index of
companies RS & Co. deemed comparable to the Company included: Activision, Inc.,
Broderbund Software, Inc., Edmark Corporation, Electronic Arts, Inc., GT
Interactive Software Corp., Maxis, Inc., 7th Level, Inc., SoftKey International
Inc. and Spectrum HoloByte, Inc. (collectively, the "Sierra Comparable
Companies"). The composite index of companies that RS & Co. deemed comparable to
CUC International included: Fritz Companies, Inc., H&R Block, Inc., Paychex,
Inc., QuickResponse Services, Inc. and Total System Services, Inc.
(collectively, the "CUC International Comparable Companies"). This information
was presented to provide the Company's Board of Directors with background
information regarding the respective per share prices of the Company Common
Stock and CUC International Common Stock over the indicated period.
Exchange Ratio Analysis. RS & Co. reviewed the exchange ratio of each share
of CUC International Common Stock for each share of Company Common Stock implied
by the daily closing sale prices of Company Common Stock and CUC International
Common Stock since February 16, 1995. RS & Co. noted that the average implied
exchange ratio since February 16, 1995 was 0.900, with a high of 1.446 on
September 13, 1995, a low of 0.535 on January 18, 1996, and a final ratio of
0.723 on February 16, 1996. RS & Co. noted that the average implied exchange
ratio since January 1, 1996 was 0.677, compared to the Exchange Ratio of 1.225
in the Merger.
RS & Co. reviewed the premiums represented by the Exchange Ratio compared to
implied exchange ratios based on the closing sale prices of Company Common Stock
and CUC International Common Stock as of February 16, 1996 and four weeks prior
to such date. Such premiums were 69.4% and 117.3%, respectively. In addition, RS
& Co. reviewed the premium represented by the Exchange Ratio of 1.225 in the
Merger compared to implied exchange ratios based on simple average and volume
weighted average historical closing sale prices for Company Common Stock and CUC
International Common Stock for the latest 10, 20 and 30 trading days, and the
trailing three, six, nine and 12 months, and since February 16, 1995. Such
premiums ranged between 30.7% and 90.8%.
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Contribution Analysis. RS & Co. compared the contribution of the Company and
CUC International to the pro forma combined revenue, operating income, pre-tax
income, and net income estimates for the combined company, based on the
forecasts of management of the Company and CUC International of their respective
company's financial performance for the fiscal years ended January 1996, 1997
and 1998. For such periods, RS & Co. noted that the Company would contribute
9.9% to 10.4% of pro forma combined revenue, 8.0% to 9.6% of pro forma combined
operating income, 8.1% to 9.6% of pro forma combined pre-tax income, and 9.2% to
9.8% of pro forma combined net income. Giving consideration to the Company and
CUC International's net cash amounts, RS & Co. noted the Company's implied
exchange ratio, based on its contribution to pro forma combined revenue and
operating income, ranged from 1.02 to 1.07 and 0.82 to 0.98, respectively. RS &
Co. also noted that the Company's implied exchange ratio, based on its
contribution to pro forma pre-tax and net income ranged from 0.77 to 0.93 and
0.89 to 0.95, respectively. RS & Co. compared these historical and projected
implied exchanged ratios to the Exchange Ratio which is higher than each of
these implied ratios.
Comparable Company Analysis Related to the Company. RS & Co. compared
certain financial data and multiples of income statement parameters accorded to
the Sierra Comparable Companies for the fiscal years ended March 31, 1993 and
1994, the trailing 12-month period, and the 1995 and 1996 calendar years.
Financial data compared included: market capitalization, total capitalization
(i.e., market capitalization less cash and cash equivalents, plus debt),
revenues, gross profit, operating income, net income, earnings per share, gross
margin, operating margin, net margin and projected earnings per share growth
rate as reported by RS & Co. and third party sources. Multiples compared
included: total capitalization to revenue, total capitalization to operating
income, price per share to earnings per share, and price per share to earnings
per share as adjusted for projected growth rates.
Based on total capitalization to revenue multiples of approximately 2.4 to
8.9x for estimated calendar 1995 and approximately 2.1 to 5.7x for projected
calendar year ending December 31, 1996 for the Sierra Comparable Companies, and
after adjusting for the Company's net cash, the Company's public market implied
equity valuation ranged from $399 million to $1.319 billion with an average of
$753 million, and $456 million to $1.125 billion with an average of $650
million, respectively. Based on total capitalization to operating income
multiples of approximately 13.8 to 56.9x for estimated calendar year ending
December 31, 1995 and approximately 12.6 to 39.0x for projected calendar year
ending December 31, 1996 for the Sierra Comparable Companies, and after
adjusting for the Company's net cash, the Company's public market implied equity
valuation ranged from $380 million to $1.377 billion with an average of $720
million, and $502 million to $1.437 billion with an average of $745 million,
respectively. Based on price per share to earnings per share multiples of
approximately 23.7 to 61.3x for estimated calendar year ending December 31, 1995
and approximately 11.5 to 52.6x for projected calendar year ending December 31,
1996 for the Sierra Comparable Companies, the Company's public market implied
equity valuation ranged from $420 million to $1.087 billion with an average of
$717 million, and $254 million to $1.160 billion with an average of $615
million, respectively. RS & Co. also valued the Company by applying a 25% and
50% acquisition premium to the average of the above noted six public market
valuations derived from the Sierra Comparable Companies. Based on those
premiums, the public market implied equity valuations were $875 million and
$1.050 billion, respectively. RS & Co. noted that based on the number of shares
of Company Common Stock outstanding on February 16, 1996 and on CUC
International's $37.50 closing stock price on the same date, the Merger resulted
in an aggregate Company equity value of approximately $1.016 billion.
Comparable Company Analysis Related to CUC International. RS & Co. compared
certain financial data and multiples of income statement parameters accorded to
the CUC International Comparable Companies for the fiscal years ended January
31, 1993 and 1994, the trailing 12-month period, and the 1995 and 1996 calendar
years. Financial data compared included market capitalization, total
capitalization (i.e., market capitalization less cash and cash equivalents, plus
debt), revenues, operating income, net income, earnings per share, operating
margin, net margin and projected earnings
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per share growth rate as reported by RS & Co. and third party sources. Multiples
compared included total capitalization to revenue, total capitalization to
operating income, price per share to earnings per share, and price per share to
earnings per share as adjusted for projected growth rates.
For CUC International, based on total capitalization to revenue multiples of
approximately 1.3 to 8.6x for estimated calendar year ended December 31, 1995
and approximately 1.0 to 7.2x for projected calendar year ended December 31,
1996 for the CUC International Comparable Companies, and after adjusting for CUC
International's net cash, CUC International's public market implied equity
valuation ranged from $1.875 billion to $11.464 billion with an average of
$5.564 billion, and $1.702 billion to $11.784 billion with an average of $5.509
billion, respectively. Based on total capitalization to operating income
multiples of approximately 14.3 to 43.7x for estimated calendar year ended
December 31, 1995 and approximately 12.4 to 33.4x for projected calendar year
ended December 31, 1996 for the CUC International Comparable Companies, and
after adjusting for CUC International's net cash, CUC International's public
market implied equity valuation ranged from $3.967 billion to $11.785 billion
with an average of $6.968 million, and $4.388 billion to $11.534 billion with an
average of $6.926 billion, respectively. Based on price per share to earnings
per share multiples of approximately 23.5 to 57.1x for estimated calendar year
ended December 31, 1995 and approximately 23.3 to 44.1x for projected calendar
year ended December 31, 1996 for the CUC International Comparable Companies,
CUC's public market implied equity valuation ranged from $3.820 billion to
$9.277 billion with an average of $6.095 billion, and $4.768 billion to $9.025
billion with an average of $6.238 billion, respectively. RS & Co. noted that
based on CUC International's closing stock price of $37.50 on February 16, 1996,
CUC International's total market capitalization was $7.095 billion.
Comparable Transaction Analysis Related to the Company. RS & Co. analyzed
publicly available information for selected pending or completed mergers and
acquisitions within the education/entertainment (together, "edutainment")
software industry and within the general software industry. In examining these
transactions, RS & Co. analyzed certain financial parameters of the acquired
company relative to the consideration offered. Financial indictors compared
included consideration offered plus net debt assumed ("total consideration") to
the latest 12 months' revenue, total consideration offered to latest 12 months'
net income, total consideration to book value, and the transaction premium paid
over the public equity closing sale price one day and one month, respectively,
prior to the public announcement of the transaction. The acquisitions reviewed
in the edutainment software industry were: Compton's NewMedia, Inc./ Softkey
International Inc. (November 30, 1995), Papyrus Design Group, Inc./Sierra
On-Line, Inc. (November 30, 1995), The Learning Company/Softkey International,
Inc. (October 30, 1995), Software Toolworks Inc./Pearson PLC (March 31, 1994),
MicroProse, Inc./Spectum HoloByte, Inc. (June 17, 1993), and Origin Systems,
Inc./Electronic Arts, Inc. (October 1, 1992) (the "edutainment transactions").
The acquisitions reviewed in the general software industry, in addition to the
edutainment transactions, included: Microtec Research, Inc./Mentor Graphics
Corp. (October 10, 1995), Collabra Software, Inc./Netscape Communications Corp.
(September 21, 1995), Delrina, Inc./Symanatec, Inc. (July 6, 1995), Frame
Technology Corporation/Adobe Systems (June 22, 1995), Lotus Development
Corp./International Business Machines (March 15, 1995), Spry Inc./CompuServe
(March 13, 1995), Allas Research Inc./Silicon Graphics, Inc. (February 7, 1995),
Wavefront Technologies, Inc./Silicon Graphics, Inc. (February 7, 1995),
Powersoft Corp./Sybase, Inc. (November 14, 1994), Digidesign, Inc./Avid
Technology, Inc., Intuit Inc./Microsoft Corp. (October 14, 1994), WordPerfect
Corp./Novell Inc. (March 21, 1994), Aldus Corp./Adobe Systems (March 15, 1994),
Softimage Inc./Microsoft Corp. (February 14, 1994), ChipSoft, Inc./Intuit, Inc.
(September 1, 1993), Compton's Multimedia/Tribune Co. (July 6, 1993), and Fox
Software Inc./Microsoft Corp. (March 23, 1992).
Based on total consideration offered to the latest 12 months' revenue
multiples of the edutainment transactions, the Company's implied equity value
ranged from $473 million to $1.289 billion, with an average of $745 million.
Based on the premium paid over the public equity closing sale price one month
prior to the public announcement of the edutainment transactions, the Company's
implied equity value
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ranged form $653 million to $898 million, with an average of $776 million. Based
on total consideration offered to the latest 12 months' revenue multiples of the
general software transactions, the Company's implied equity value ranged from
$317 million to $1.999 billion, with an average of $745 million. Based on
consideration offered to the latest 12 months' net income multiples of the
general software transactions, the Company's implied equity value ranged from
$528 million to $1.442 billion, with an average of $840 million. Based on the
premium paid over the public equity closing sale price one month prior to
announcement of the general software transactions, the Company's implied equity
value ranged from $653 million to $1.107 billion, with an average of $853
million. RS & Co. noted that based on the number of shares of Company Common
Stock outstanding on February 16, 1996 and on CUC International's $37.50 closing
stock price on the same date, the Merger resulted in an aggregate Company equity
value of approximately $1.016 billion.
Discounted Cash Flow Analysis Related to the Company. RS & Co. performed
certain discounted cash flow analyses to estimate the present value of the
stand-alone, unlevered (before interest expense) after-tax cash flows of the
financial projections prepared by management of the Company. RS & Co. first
discounted the projected, unlevered after-tax cash flows through March 31, 2002,
using a range of discount rates from 16% to 20%. This range of discount rates
was based on the weighted average cost of capital of the Sierra Comparable
Companies, which ranged from 13.1% to 22.6%, with a mean of 17.7%. The Company's
unlevered after-tax cash-flows were calculated as the after-tax operating
earnings of the Company adjusted for the add-back of non-cash expenses and the
deduction of uses of cash not reflected in the income statement. RS & Co. then
added to the present value of the cash flows the terminal value of the Company
in the fiscal year ending March 31, 2002, discounted back at the same discount
rate. The terminal value was computed by multiplying the Company's projected
earnings before interest and income ("EBIT") in the fiscal year ending March 31,
2002 by terminal multiples ranging from 10.0 to 14.0x. The range of terminal
multiples selected reflected RS & Co.'s judgment as to an appropriate range of
multiples at the end of the referenced period. The discounted cash flow
valuation indicated implied equity valuations from $456 million to $688 million,
with an average of $564 million.
Discounted Cash Flow Analysis Related to CUC International. RS & Co.
performed a discounted cash flow analysis to estimate the present value of the
stand-alone, unlevered (before interest expense) after-tax cash flows of the
financial projections prepared by management of CUC International. RS & Co.
first discounted the projected, unlevered after-tax cash flows through January
31, 2002 using a range of discount rates from 12% to 16%, which ranged from
10.5% to 18.6%, with a mean of 13.8%. This range of discount rates was based on
the weighted average cost of capital of the CUC International Comparable
Companies. CUC International's unlevered after-tax cash-flows were calculated as
the after-tax operating earnings of CUC International adjusted for the add-back
of non-cash expenses and the deduction of uses of cash not reflected in the
income statement. RS & Co. then added to the present value of the cash flows the
terminal value of CUC International in the fiscal year ending January 31, 2002,
discounted back at the same discount rate. The terminal value was computed by
multiplying CUC International's projected EBIT in fiscal 2002 by terminal
multiples ranging from 11.0 to 13.0x. The range of terminal multiples selected
reflect RS & Co.'s judgment as to an appropriate range of multiples at the end
of the referenced period. The discounted cash flow valuation indicated implied
equity valuations from $5.446 billion to $7.425 billion, with an average of
$6.381 billion.
Pro Forma Earnings Analysis. RS & Co. analyzed the pro forma earnings per
share of the combined company based on the Exchange Ratio and financial
projections provided by the respective managements of CUC International and the
Company. Such analysis indicated that, in the absence of synergies, pro forma
earnings per share of the combined company, compared to CUC International as a
stand-alone entity, would be reduced by 2.8% and 2.5% for CUC International's
fiscal years ending January 31, 1997 and 1998, respectively, and that the
corresponding pre-tax necessary for zero dilution were $10.8 million and $12.3
million, respectively.
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RS & Co. also analyzed the pro forma earnings per share of CUC International
assuming consummation of the Merger and the Davidson Merger based on the
Exchange Ratio of 1.225 in the Merger and a 0.85 exchange ratio in the proposed
Davidson Merger, and based on financial projections provided by the respective
managements of CUC International and the Company. Such analysis indicated that,
in the absence of synergies, pro forma earnings per share of the pro-forma
combined company, compared to CUC International as a stand-alone entity, would
be reduced by 6.4% and 5.4% for CUC International's fiscal years ending January
31, 1997 and 1998, respectively, and that the corresponding pre-tax savings
necessary for zero dilution were $28.5 million and $27.4 million, respectively.
RS & Co. also presented the results of this analysis, assuming $7.5 million and
$15.0 million in cost savings in each of CUC International's fiscal years ending
January 31, 1997 and 1998. Such analysis indicated reductions in the pro forma
combined company's earnings per share, compared to CUC International as a
stand-alone entity, of (i) 4.7% and 4.1% for the fiscal years ending January 31,
1997 and 1998, respectively, assuming $7.5 million in annual cost savings, and
(ii) 3.0% and 2.7% for the fiscal years ending January 31, 1997 and 1998,
respectively, assuming $15.0 million in annual cost savings.
RS & Co. also reviewed with the Board certain other analyses incorporating
the Merger and the Davidson Merger. None of these analyses altered RS & Co.'s
opinion regarding the fairness of the Merger. Although RS & Co. reviewed with
the Board certain terms of the Davidson Merger, RS & Co.'s opinion addresses
only the fairness of the Exchange Ratio to the holders of Company Common Stock
as of February 19, 1996, and does not address the fairness of the Davidson
Merger to any party.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to summary
description. In arriving at its opinion, RS & Co. did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, RS & Co. believes its analyses must be considered as a
whole and that considering any portion of such analyses and current factors
could create a misleading or incomplete view of the process underlying its
opinion. In its analyses, RS & Co. made numerous assumptions with respect to
industry performance, general business and other conditions and matters, many of
which are beyond the control of the Company and CUC International. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
Based on past activities, RS & Co. has a substantial degree of familiarity
with the Company. In addition, in the course of its engagement, RS & Co.
completed further investigation of the Company, CUC International and Davidson.
In arriving at its opinion, however, RS & Co. did not independently verify any
of the foregoing information and relied on all such information being complete
and accurate in all material respects. Furthermore, RS & Co. did not obtain any
independent appraisal of the properties or assets of the Company or CUC
International. With respect to the financial and operating forecasts (and the
assumptions and bases therefor), estimates and analyses provided to RS & Co. by
the Company and CUC International, RS & Co. assumed that such projections,
estimates and analyses were reasonably prepared in good faith and represent the
best currently available estimates and judgments of the respective management of
the Company and CUC International as to the future financial performance of both
companies. RS & Co. noted, among other things, that its opinion is necessarily
based upon market, economic and other conditions existing as of the date of the
opinion, and information available to RS & Co. as of the date thereof.
While RS & Co. selected the Sierra Comparable Companies and the CUC
Comparable Companies based on the similarities in markets served and businesses
conducted, no company used in the
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analysis of other publicly traded companies, nor any transaction used in the
comparable transaction analysis, is identical to the Company or CUC
International, or to the Merger.
RS & Co. was retained based on RS & Co.'s experience as a financial advisor
in connection with mergers and acquisitions and in securities valuations
generally, as well as RS & Co.'s investment banking relationship and familiarity
with the Company. RS & Co. has provided financial advisory and investment
banking services to the Company from time to time, including acting as lead
underwriter for the public offering by the Company of the Convertible Notes. In
addition, RS & Co. maintains a market in shares of the Company's Common Stock.
The Company engaged RS & Co. pursuant to a letter agreement dated February
13, 1996. The agreement provides that, for its services, RS & Co. is entitled to
receive, contingent upon consummation of the Merger, a fee based on the
aggregate consideration (including any consideration paid to holders of the
Company's stock, option, warrant and debt holders) paid in the Merger as
follows: 0.75% of the aggregate Merger consideration up to but less than $45.00
per share, plus 1.00% of the aggregate Merger consideration in excess of $45.00
per share but less than $50.00 per share, plus 1.50% of the aggregate Merger
consideration in excess of $50.00 per share. The fee that would have been
payable to RS & Co. if the Merger has been consummated on February 16, 1996 (the
last trading date prior to public announcement of the Merger) would have been
$7.67 million, based on CUC International's closing stock price of $37.50 on
such date. A payment of $500,000.00 became due and payable to RS & Co. upon
delivery of its fairness opinion to the Company Board and the execution of the
Merger Agreement. The remainder of the RS & Co. fee is due and payable upon
consummation of the Merger. The Company has also agreed to indemnify RS & Co.
for certain liabilities relating to or arising out of services provided by RS &
Co. as financial advisor to the Company.
CERTAIN CONSEQUENCES OF THE MERGER
Upon consummation of the Merger, shares of Company Common 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, the Company no longer
will be obligated to file periodic reports with the Commission. In addition, the
termination of registration of the Company Common Stock under the Exchange Act
would cause to be inapplicable certain other provisions of the Exchange Act,
including requirements that the Company's executive officers, directors and 10%
shareholders file certain reports concerning their ownership of the Company's
securities and provisions requiring that any profit by such executive officers,
directors and shareholders derived from purchases and sales of the Company's
equity securities within any six-month period be recovered by the Company.
In the Merger, shareholders of the Company immediately prior to the
Effective Time will, from and after the Effective Time, become shareholders of
CUC International, and thereby will continue to have an indirect economic
interest in the Company as a wholly owned subsidiary of CUC International. Based
upon the equity capitalization of the Company and CUC International as of the
Record Date and giving effect to the Merger (and assuming consummation of the
Davidson Merger and the Ideon Merger at or prior to the Effective Time), the
total number of shares of CUC International Common Stock outstanding immediately
following the Effective Time will be 260,974,003 shares, and the shareholders of
the Company immediately prior to the Effective Time will own, in the aggregate,
approximately 10% of the CUC International Common Stock outstanding immediately
after the Effective Time. If the Davidson Merger is consummated at or prior to
the Effective Time (but the Ideon Merger is not), the total number of shares of
CUC International Common Stock outstanding immediately following the Effective
Time will be 247,141,925 and such shareholders of the Company immediately prior
to the Effective Time will own, in the aggregate, approximately 10% of the CUC
International Common Stock outstanding immediately after the Effective Time. If
the Ideon Merger is consummated at or prior to the Effective Time (but the
Davidson Merger is not), the total number of shares of CUC International Common
Stock outstanding immediately following the Effective Time will be 230,934,397
and such shareholders of the Company immediately prior to the Effective Time
will
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own, in the aggregate, approximately 11% of the CUC International Common Stock
outstanding immediately after the Effective Time. If neither the Davidson Merger
nor the Ideon Merger is consummated at or prior to the Effective Time, the total
number of shares of CUC International Common Stock outstanding immediately
following the Effective Time will be 217,102,319 and such shareholders of the
Company immediately prior to the Effective Time will own, in the aggregate,
approximately 12% of the CUC International Common Stock outstanding immediately
after the Effective Time. CUC International has agreed to use all reasonable
efforts to cause the shares of CUC International Common Stock to be issued in
the Merger, and the shares of CUC International Common Stock to be reserved for
issuance pursuant to the Options and upon conversion of the Convertible Notes,
to be listed on the NYSE, subject to official notice of issuance.
MANAGEMENT OF THE COMPANY AFTER THE MERGER
Pursuant to the Merger Agreement, the directors of the Company at the
Effective Time will be the initial directors of the surviving corporation until
each such director's successor is duly elected or appointed and qualified, and
the officers of the Company at the Effective Time will be the initial officers
of the surviving corporation until each such officer's successor is duly elected
or appointed and qualified. In connection with the Merger, CUC International has
agreed to enter into employment agreements with each of the Company's Chairman
of the Board and Chief Executive Officer, President and Chief Operating Officer,
Vice President of Product Development, Vice President and General Counsel,
Director of Marketing and Vice President of Sales, and has entered into a
personal services agreement with an independent software developer for the
Company, pursuant to which such persons will continue to serve in such
capacities for the surviving corporation after the Effective Time. See "Interest
of Certain Persons in the Merger--Employment and Noncompetition Agreements."
CONDUCT OF THE BUSINESS OF CUC INTERNATIONAL AND THE COMPANY 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 the Company will continue to
be conducted substantially as they currently are being conducted (subject, in
the case of CUC International, to the consummation of the proposed Davidson
Merger and/or the Ideon Merger). Pursuant to the Confidentiality Agreement, CUC
International and the Company have agreed that, if the Merger is not
consummated, for the two-year period ending February 17, 1998, unless otherwise
agreed to in writing by the other party, neither it nor any of its affiliates
(as such term is defined under the Exchange Act) will in any manner, directly or
indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise)
to effect, or cause or participate in or in any way assist any other person to
effect or seek, offer or propose (whether publicly or otherwise) to effect or
participate in, (i) any acquisition of any securities (or beneficial ownership
thereof) or assets of the other party or any of its subsidiaries; (ii) any
tender or exchange offer, merger or other business combination involving the
other party or any of its subsidiaries; (iii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the other party or any of its subsidiaries; (iii) any
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other party or any of its subsidiaries; or (iv)
any solicitation of proxies (as such terms are used in the proxy rules of the
Commission) or consents to vote any voting securities of the other party; (b)
form, join or in any way participate in a "group" (as defined under the Exchange
Act) that proposes to take any of the actions described in clause (i) through
(iv) above; (c) otherwise act, alone or in concert with others, to seek to
control or influence the management, board of directors or policies of the other
party; (d) take any action which might force the other party to make a public
announcement regarding any of the types of matters set forth in (a) above; or
(e) enter into any discussions or arrangements with any third party with respect
to any of the foregoing.
MATERIAL CONTACTS BETWEEN CUC INTERNATIONAL AND THE COMPANY
Other than the discussions and negotiations relating to, and the execution
of, the Merger Agreement discussed in "The Merger--Background of the Merger,"
the "Shareholders Agreement," and the
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negotiations of the employment and noncompetition agreements and other related
transaction documentation, and the interests of certain directors and executive
officers discussed below in "--Interests of Certain Persons in the Merger,"
neither CUC International nor the Company knows of any past, present or proposed
material contracts, arrangements, understandings, relationships, negotiations or
transactions in the last five years between the Company or its affiliates and
CUC International or its affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors with
respect to the Merger Agreement, holders of shares of Company Common Stock
should be aware that certain executive officers and directors of the Company
have certain interests in the Merger that are in addition to and potentially in
conflict with the interests of holders of Company Common Stock generally. The
Board of Directors of the Company has considered these interests, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Stock Options. At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each, an "Option" and collectively, "Options")
issued pursuant to the (i) 1987 Stock Option Plan of the Company and the 1995
Stock Option and Award Plan (the "1995 Plan") of the Company and the Papyrus
Design Group, Inc. 1992 Stock Option Plan (collectively, the "Company Plans")
and (ii) the Sierra On-Line, Inc. 1993 Stock Option Agreement with Kenneth A.
Williams, the Company's Chairman and Chief Executive Officer, and the Sierra
On-Line, Inc. 1994 Stock Option Agreement with Walter A. Forbes, the Chairman of
the Board and Chief Executive Officer of CUC International and a director and
shareholder of the Company (collectively, the "Non-Plan Option Agreements"),
whether vested or unvested, will be assumed by CUC International and will
constitute an option to acquire, on the same terms and subject to the same
conditions as were applicable under the assumed Option (including, without
limitation, term, exercisability, vesting schedule, status as an "incentive
stock option" under section 422 of the Code, acceleration and termination
provisions), the same number of shares of CUC International Common Stock (each,
a "CUC International Option"), as the holder of the assumed Option would have
been entitled to receive pursuant to the Merger had such holder exercised the
assumed Option in full immediately prior to the Effective Time, at a price per
share equal to (y) the aggregate exercise price for the shares of Company Common
Stock otherwise purchasable pursuant to the assumed Option, divided by: (z) the
number of full shares of CUC International Common Stock deemed purchasable
pursuant to the assumed Option; provided, however, that the number of shares of
CUC International Common Stock that may be purchased upon exercise of any such
CUC International Option will not include any fractional share and, upon
exercise of the CUC International Option, a cash payment will be made for any
fractional share based upon the closing price of a share of CUC International
Common Stock on the NYSE on the trading day immediately preceding the date of
exercise. Employment with the Company will be credited to the optionees for
purposes of determining the number of vested shares of CUC International Common
Stock subject to exercise under assumed Options after the Effective Time. The
CUC International Options will become 100% vested and fully exercisable in the
event that, within two years after the Effective Time, the holder's employment
or services are terminated by CUC International or any of its affiliates without
Cause or the holder voluntarily terminates his or her employment or services
with Good Reason. "Cause" and "Good Reason" will have the same meanings as set
forth in the 1995 Plan. None of the Options that are unvested at the Effective
Time will become vested as a result of the execution and delivery of the Merger
Agreement or consummation of the Merger. As soon as practicable after the
Effective Time, but no later than 30 days thereafter, CUC International has
agreed to deliver to the holders of Options notices informing such holders that
such Options have been assumed by CUC International and constitute options to
purchase shares of CUC International Common Stock on the same terms and
conditions as the assumed Options (subject to certain adjustments after giving
effect to the Merger).
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As of the Record Date, executive officers and directors of the Company had
outstanding Options as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF WEIGHTED
COMPANY COMMON STOCK AVERAGE
SUBJECT TO EXERCISE
NAME OF INDIVIDUAL POSITION OUTSTANDING OPTIONS PRICE
- ----------------------------- ----------------------------- -------------------- ---------
<S> <C> <C> <C>
Kenneth A. Williams.......... Chairman of the Board and
Chief Executive Officer 109,000 $ 15.9914
Michael A. Brochu............ President and Chief Operating
Officer 120,000 $ 19.4063
Dennis Cloutier.............. Vice President of Sales 70,000 $ 14.3304
Jarold W. Bowerman........... Vice President of Product
Development 60,000 $ 18.9813
Richard K. Thumann........... Vice President and General
Counsel 30,000 $ 20.8063
Roland Oskian................ Vice President of European
Operations 30,000 $ 13.6667
Roberta L. Williams.......... Director 33,000 $ 20.4914
Thomas L. Beckmen............ Director 33,000 $ 20.6018
Michael G. Berolzheimer...... Director 36,000 $ 18.9375
Walter A. Forbes............. Director 93,000 $ 13.2598
Marvin H. Green, Jr. ........ Director 30,750 $ 21.3415
David C. Hodgson............. Director 33,000 $ 20.1591
</TABLE>
Employment and Noncompetition Agreements. Upon consummation of the Merger,
CUC International has agreed to enter into employment agreements with the
following employees of the Company: Kenneth A. Williams, Chairman of the Board
and Chief Executive Officer; Michael A. Brochu, President and Chief Operating
Officer; Jarold Bowerman, Vice President of Product Development; Richard K.
Thumann, Vice President and General Counsel; Bill Moore, Director of Marketing
and Dennis Cloutier, Vice President of Sales. Roberta L. Williams, a director of
and independent product developer for the Company, entered into a personal
services agreement with CUC International in connection with the execution of
the Merger Agreement. Roberta L. Williams and Kenneth A. Williams also agreed to
enter into non-competition agreements with CUC International upon consummation
of the Merger.
The employment agreement with Mr. Williams will provide that (i) he will be
elected to the Board of Directors of CUC International and serve as a Vice
Chairman of such Board, and will become a member of the Office of the President
of CUC International; (ii) he will continue as the surviving corporation's Chief
Executive Officer and as a director and will report to the President of CUC
International; (iii) he will be a member of the Office of the President of CUC
International; (iv) the term of his employment will continue for a period of 36
full calendar months, subject to extension or termination as provided in the
agreement; (v) he will receive a base salary which will be no less than his
salary in effect on the date of the agreement; (vi) he will be eligible for
discretionary annual incentive compensation awards; and (vii) he will be
entitled to participate in all compensation or employee benefit plans or
programs and receive all benefits and perquisites for which salaried employees
of CUC International are eligible under any plan or program now in effect or
later established by CUC International for salaried employees generally.
The non-competition agreements with each of Kenneth A. and Roberta L.
Williams (i) will provide that, from the closing date of the Merger to the third
anniversary of such date, they will not make any statements or perform any acts
intended to or which may have the effect of advancing the interest of any
existing or prospective competitors of the surviving corporation or any of its
subsidiaries or in any way injuring the interests of the surviving corporation
or any of its subsidiaries and, without the prior written approval by the Board
of Directors of CUC International, they will not engage in competition, or
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<PAGE>
directly or indirectly own or hold a proprietary interest in or be employed by,
or consult with or receive compensation from, any party which competes, in any
way or manner with the business of CUC International or any of its subsidiaries,
as such business or businesses may be conducted from time to time or (ii) until
the later of the fifth anniversary of the Closing Date and the expiration or
termination of their period of employment they will not (a) solicit any clients
of CUC International or any of its affiliates for any business of CUC
International or any of its affiliates or discuss with any employee of CUC
International or any of its affiliates the information or operations of any
business intended to compete with CUC International or any of its affiliates,
(b) solicit or induce any person who is an employee of CUC International or any
of its affiliates to terminate any relationship such person may have with CUC
International or any of its affiliates, nor shall they during such period
directly or indirectly engage, employ or compensate, or cause or permit any
person with whom they may be affiliated, to engage, employ or compensate, any
employee of CUC International or any of its affiliates, and (c) own or hold any
proprietary interest in, manage, be employed by or consult with, operate, join,
control or participate in the ownership, management, operation or control of any
person or entity that (x) competes, in any way or manner, with the surviving
corporation or its subsidiaries in the packaged entertainment or education
software business anywhere in the world as such business may be conducted from
time to time or (y) markets or distributes entertainment-related software or
services on the Internet or any similar computer network.
The employment agreements with each of Messrs. Brochu, Bowerman, Thumann,
Moore, and Cloutier will provide for the payment of a negotiated base salary and
bonus and the grant of options to purchase shares of CUC International Common
Stock.
The personal services agreement with Roberta L. Williams provides that she
will continue to provide the surviving corporation with certain personal
services relating to the design and development of computer software.
Directorships. CUC International has agreed, effective as of the Closing
Date, to increase the size of its Board of Directors by one director and to
cause Kenneth A. Williams to be appointed to such Board to fill the vacancy so
created for an initial term expiring on the third anniversary of the date of the
annual meeting of CUC International's shareholders next succeeding February 19,
1996 (i.e., the date of the Merger Agreement) and to serve as a Vice Chairman of
such Board. In addition, CUC International has agreed, effective upon
consummation of the Davidson Merger, to further increase the size of its Board
of Directors by two directors and to cause Robert M. Davidson (the Chairman and
Chief Executive Officer of Davidson) and Janice G. Davidson (the President of
Davidson) to be appointed to such Board to fill the vacancies so created for
initial terms expiring on the second anniversary (in the case of Mr. Davidson)
and on the first anniversary (in the case of Mrs. Davidson) of the date of the
annual meeting of CUC International's shareholders next following February 19,
1996 (i.e., the date of the Davidson Merger Agreement).
The Merger Agreement preserves certain indemnification and insurance rights
of the executive officers and directors of the Company which currently are in
effect. See "The Merger Agreement-- Certain Covenants."
ACCOUNTING TREATMENT
The Company and CUC International each has agreed that it will not take any
action which could prevent the Merger from being accounted for as a
"pooling-of-interests" and the Company has agreed to bring to the attention of
CUC International, and CUC International has agreed to bring to the attention of
the Company, any actions, or agreements or understandings, whether written or
oral, that could be reasonably likely to prevent CUC International from
accounting for the Merger as a "pooling-of-interests." CUC International has
agreed to use commercially reasonable efforts to cause its independent auditors,
Ernst & Young LLP, to deliver to CUC International a letter to the effect that
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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 of the Merger Agreement. The Company has agreed to use
commercially reasonable efforts to cause Deloitte & Touche LLP to cooperate
fully with Ernst & Young LLP (including, without limitation, sharing
information, analysis and work product, engaging in active discussions and
delivering to the Company a letter to the effect that the Company would meet the
criteria for pooling-of-interests accounting treatment. The Company has agreed
to use its best efforts to cause all affiliates (as defined below) and employees
to take or not take such actions as CUC International may be informed by any
governmental entity are necessary to be taken or not to be taken so that the
Merger will be accounted for as a "pooling-of-interests." See "The Merger
Agreement--Conditions" and "Unaudited Pro Forma Condensed Financial Statements."
Pursuant to the Merger Agreement, each person who is an "affiliate" of the
Company 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. 21028 (May 17, 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."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax consequences
of the Merger to the Company, CUC International and the holders of Company
Common Stock who are citizens or residents of the United States. It does not
discuss all of the tax consequences that may be relevant to the Company's
shareholders in special tax situations (such as insurance companies, financial
institutions, dealers in securities, tax-exempt organizations or non-U.S.
persons) or the Company's shareholders who acquired their shares of Company
Common Stock pursuant to the exercise of employee stock options or warrants, or
otherwise as compensation. The summary also does not discuss tax consequences to
holders of the Convertible Notes or the Company's options.
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. It is a condition to the obligation of the Company to consummate
the Merger that the Company shall have received an opinion from Perkins Coie,
tax counsel to the Company ("Tax Counsel") a form of which is attached as Annex
D to this Proxy Statement/Prospectus, 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
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 holders of
Company Common Stock as a result of the Merger with respect to shares of Company
Common Stock converted solely into shares of CUC International Common Stock
(except with respect to cash, if any, received by such Company shareholders in
lieu of fractional share interests in CUC International Common Stock). In
rendering its opinion, such Tax Counsel will rely upon certain assumptions,
representations and warranties of CUC International (on its own behalf and on
behalf of Merger Sub) and the Company and certain representations of significant
shareholders of the Company, including those set forth in the Merger Agreement.
Tax 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 such 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 will not be taken by the IRS or a court considering the issues.
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The parties will not request a ruling from the IRS in connection with any of
the federal income tax consequences of the Merger.
Consequences of Characterization as a Tax-Free Reorganization. As
discussed above, the Company has received an opinion of Tax Counsel, a copy
which is attached as Annex D to this Proxy Statement/Prospectus, that, subject
to the accuracy of those assumptions and representations described herein and in
such opinion, the Merger will be a reorganization described in Section 368(a)
of the Code. The consequences of the Merger's characterization as a
reorganization are as follows: (i) the tax basis of CUC International Common
Stock received by holders of Company Common Stock in the Merger will be the
same as the tax basis of Company Common 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 Company Common Stock will
include the period during which the shares of Company Stock surrendered in
exchange therefor were held, provided that such shares of Company Common Stock
were held as capital assets at the Effective Time. Moreover, the Merger will
not result in the recognition of gain or loss by the Company, CUC International
or Merger Sub. The taxable year of the Company will end for federal income tax
purposes as of the close of business on the day on which the Effective Time
occurs and the Company will be required to file a federal income tax return
for its taxable year ending on such date. As a result of the Merger, the Company
will experience an ownership change as defined in Section 382(g) of the Code
with the result that any tax credit carryforwards, net operating loss
carryovers, capital loss carryforwards or built-in deductions may become subject
to the limitations 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 Company 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 Company Common 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
Company Common Stock allocable to such fractional share interest. Such gain or
loss will be capital gain or loss, provided that such share of Company Common
Stock was held as a capital asset at the Effective Time and the receipt of cash
is not essentially equivalent to a dividend and will be a long-term capital gain
or loss if such share of Company Common Stock has been held for more than one
year.
Continuity of Interest Requirement. To qualify as a reorganization, the
Merger must satisfy certain requirements for tax-free reorganizations, including
the "continuity of interest" requirement. To satisfy the "continuity of
interest" requirement, holders of Company Common 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 Company Common 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 Company Common
Stock, as a group, would no longer have a significant equity interest in Company
business being conducted by CUC International after the Merger. Holders of
Company Common 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
Company Common Stock in the Merger. Management of the Company has represented to
Tax Counsel that, as of the date hereof, it knows of no plan or intention on the
part of the shareholders of the Company to sell, exchange or otherwise dispose
of a number of shares of CUC International Common Stock received in the Merger
that would reduce the holdings of CUC International Common Stock by all Company
shareholders to less than 50% of the total value, measured at the Effective
Time, of the Merger Consideration. Furthermore, certain significant shareholders
have represented that they have no current
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plan or intention to sell more than 10% of the shares of CUC International
Common Stock they will receive in the Merger in exchange for shares of Company
Common Stock outstanding on February 19, 1996. Assuming the accuracy of those
representations, as of the Effective Time, and that there is no plan or
intention by the Company's shareholders, as of the Effective Time, to sell or
assign a number of shares of CUC International Common Stock received in the
Merger that would reduce the holding of CUC International Common Stock by
all Company shareholders to less than 50% of the total value, measured at the
Effective Time, of the Merger Consideration, it is the opinion of Tax Counsel
that the Merger will meet the continuity of interest requirement. If the
representations or assumptions above prove to be inaccurate, it is possible that
the continuity of interest requirement will not be satisfied, and if such
requirement is not satisfied, the Merger would not be treated as a
reorganization. See "Consequences of Failure to Qualify as a Tax-Free
Reorganization."
Consequences of Failure to Qualify as a Tax-Free 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 Company Common Stock being treated as if they sold their
Company Common Stock in a taxable transaction. In such event, each holder of
Company Common Stock would recognize gain or loss with respect to each share of
Company Common Stock surrendered equal to the difference between the
shareholder'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 shareholder's
aggregate basis in the CUC International Common Stock so received would equal
its fair market value, and the shareholder's holding period for such stock would
begin the day after the Effective Time.
Assumptions made by Tax Counsel. Tax 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 historic shareholders of
the Company have not disposed of shares of Company Common 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 CUC International Common Stock
received in the Merger such that the holdings of CUC International Common Stock
by all historic shareholders of the Company would be reduced to less than 50% of
the total value, measured at the Effective Time, of the Merger Consideration,
(ii) the Merger will be consummated in accordance with the Merger Agreement,
(iii) the Company after the Merger will have retained substantially all its
assets, and (iv) after the Effective Time the parties intend the Company to
continue its business as a wholly-owned subsidiary of CUC International.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO
BE AN ANALYSIS OR LISTING OF ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. HOLDERS OF COMPANY COMMON STOCK ARE
URGED TO CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules promulgated thereunder by 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 and specified waiting period requirements have been
satisfied. CUC International and the Company filed pre-merger notification and
report forms under the HSR Act with the FTC and the Antitrust Division,
respectively, on April 18, 1996. Early termination of the required waiting
period under the HSR Act was granted by the FTC on April 29, 1996, 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
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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
the Company. 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 the Company.
Private parties also may seek to take legal action under the antitrust laws
under certain circumstances.
CUC International and the Company believe that the Merger will 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
the Company would prevail or would not be required to accept certain conditions,
including certain divestitures, in order to consummate the Merger.
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 the Company 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 the Company 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 shareholders of such party. Prior
to execution of the Merger Agreement, certain persons identified by the Company
as "affiliates" of the Company have executed a written agreement to the effect,
among other things, that they will not sell, pledge, transfer or otherwise
dispose of any shares of CUC International Common Stock issued to them pursuant
to the Merger, except pursuant to an effective registration statement under the
Securities Act, in compliance with Rule 145 or pursuant to an exemption from the
registration requirements of the Securities Act.
STOCK EXCHANGE LISTING
CUC International has agreed to use all reasonable efforts to cause the
shares of CUC International Common Stock to be issued in the Merger and the
shares of CUC International Common Stock to be reserved for issuance upon
exercise of Options and conversion of the Convertible Notes to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. A supplemental application will be filed for the listing of such
additional shares of CUC International Common Stock on the NYSE. It is a
condition to the Company's obligation to consummate the Merger that the shares
of CUC International Common Stock to be issued in the Merger be authorized for
listing on the NYSE upon official notice of issuance.
NO APPRAISAL RIGHTS
Holders of Company Common Stock are not entitled to appraisal rights under
the DGCL in connection with the Merger, because such shares are listed on the
NASDAQ Stock Market and the shares of CUC International Common Stock to be
issued in the Merger will be listed on the NYSE.
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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. CAPITALIZED TERMS USED AND
NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN THE MERGER
AGREEMENT. ALL HOLDERS OF COMPANY COMMON STOCK ARE ENCOURAGED TO READ THE MERGER
AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
THE MERGER; EFFECTIVE TIME
The Merger Agreement provides that, subject to the satisfaction or waiver of
the terms and conditions contained therein, including the requisite adoption
thereof by the holders of a majority of the outstanding shares of Company Common
Stock, Merger Sub will be merged with and into the Company, and the Company will
be the surviving corporation in the Merger and become a wholly owned subsidiary
of CUC International. The Merger will become effective on the date on which 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.
CUC International and the Company currently intend that the Effective Time will
occur promptly after adoption of the Merger Agreement at the Meeting. (SECTIONS
1.1 AND 1.2)
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES
At the Effective Time, pursuant to the Merger Agreement, each share of
Company Common Stock outstanding immediately prior to the Effective Time (other
than shares held by CUC International, Merger Sub, or any other subsidiary of
CUC International or by any subsidiary of the Company) will, by virtue of the
Merger and without any action on the part of any holder thereof, be converted
into 1.225 fully paid and nonassessable shares of CUC International Common
Stock. At the Effective Time, each share of Company Common Stock owned by CUC
International, Merger Sub or any wholly owned subsidiary of CUC International or
of the Company immediately prior to the Effective Time will be cancelled,
retired and cease to exist, and no payment will be made with respect thereto,
and each outstanding share of common stock of Merger Sub at the Effective Time
will be converted into one share of common stock of the surviving corporation.
Based on the number of shares of Company Common Stock outstanding on the Record
Date, approximately 25,564,977 shares of CUC International Common Stock will be
issued in the Merger. No fractional shares of CUC International Common Stock
will be issued in the Merger. In lieu of such issuance, each holder of shares of
Company Common Stock otherwise entitled to a fraction of a share of CUC
International Common Stock will be entitled to receive a cash payment in an
amount equal to the product of (x) the closing sale price of a share of CUC
International Common Stock as reported on the NYSE Composite Transactions on the
business day two days prior to the Effective Date and (y) the fractional share
interest to which such holder otherwise would be entitled. 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."
At the Effective Time, CUC International will make available to the Exchange
Agent or another bank or trust company designated by CUC International and
reasonably acceptable to the Company, for the benefit of the holders of shares
of Company Common Stock, (i) certificates representing the appropriate number of
shares of CUC International Common Stock to be issued in the Merger and (ii)
cash to be paid in lieu of fractional shares of CUC International Common Stock.
As soon as reasonably practicable after the Effective Time, the Exchange Agent
will mail to each record holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted in the Merger into the right to
receive shares
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of CUC International Common Stock: (i) a letter of transmittal (specifying that
delivery will be effected, and risk of loss and title to the certificates will
pass only upon delivery of the certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the certificates in exchange
for certificates representing shares of CUC International Common Stock. Upon
surrender of a certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such certificate will
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of CUC International Common Stock (and, if applicable, a
check representing the cash consideration to which such holder may be entitled
on account of a fractional share of CUC International Common Stock) and the
certificate so surrendered will be canceled (SECTIONS 1.8 AND 1.9).
SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND INSTRUCTIONS TO EFFECT THE
PROPER DELIVERY OF THEIR CERTIFICATES.
Until surrendered, each certificate will be deemed after the Effective Time
to represent only the right to receive upon such surrender the certificate
representing shares of CUC International Common Stock and cash in lieu of any
fractional shares of CUC International Common Stock. All shares of CUC
International Common Stock issued and cash in lieu of fractional share interests
paid upon surrender of certificates representing shares of Company Common Stock
will be deemed to have been issued in full satisfaction of all rights pertaining
to such shares of stock (SECTION 1.9).
TREATMENT OF STOCK OPTIONS
At the Effective Time, each outstanding Option to purchase shares of Company
Common Stock issued pursuant to the Company Plans and each of the Non-Plan
Option Agreements, whether vested or unvested, will be assumed by CUC
International and will constitute an option to acquire, on the same terms and
subject to the same conditions as were applicable under the assumed Option
(including, without limitation, with respect to the term, exercisability,
vesting schedule, status as an "incentive stock option" under section 422 of the
Code, acceleration and termination provisions), the same number of shares of CUC
International Common Stock as the holder of the assumed Option would have been
entitled to receive pursuant to the Merger had such holder exercised the assumed
Option in full immediately prior to the Effective Time, at a price per share
equal to (y) the aggregate exercise price for the shares of Company Common Stock
otherwise purchasable pursuant to the Option divided by (z) the number of full
shares of CUC International Common Stock deemed purchasable pursuant to the
assumed Option; provided, however, that the number of shares of CUC
International Common Stock that may be purchased upon exercise of any such CUC
International Option will not include any fractional share and, upon exercise of
the CUC International Option, a cash payment will be made for any fractional
share based upon the closing price of a share of CUC International Common Stock
on the NYSE on the trading day immediately preceding the date of exercise.
Employment with the Company will be credited to the optionees for purposes of
determining the number of vested shares of CUC International Common Stock
subject to exercise under assumed Options after the Effective Time. The CUC
International Options will become 100% vested and fully exercisable in the event
that, within two years after the Effective Time, the holder's employment or
services are terminated by CUC International or any of its affiliates without
Cause or the holder voluntarily terminates his or her employment or services
with Good Reason. "Cause" and "Good Reason" will have the same meanings as set
forth in the 1995 Plan. None of the Options that are unvested at the Effective
Time will become vested as a result of the execution and delivery of the Merger
Agreement or the consummation of the Merger (SECTION 1.10).
As soon as practicable after the Effective Time, but no later than 30 days
thereafter, CUC International has agreed to deliver to the holders of Options
notices informing such holders that such Options have been assumed by CUC
International and constitute options to purchase shares of CUC
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International Common Stock on the same terms and conditions as the assumed
Options (subject to certain adjustments after giving effect to the Merger)
(SECTION 1.10).
CUC International further has agreed to take all corporate action necessary
to reserve for issuance a sufficient number of shares of CUC International
Common Stock for delivery upon exercise of CUC International Options in
accordance with the provisions described above. As soon as practicable after the
Effective Time, but no later than 30 days thereafter, CUC International has
agreed to file a registration statement on Form S-3 or Form S-8, as the case may
be (or any successor or other appropriate forms), with respect to the shares of
CUC International Common Stock subject to the CUC International Options and has
agreed to use its best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as the CUC International Options
remain outstanding (SECTION 1.10).
TREATMENT OF CONVERTIBLE NOTES
The surviving corporation will succeed by operation of law to the
obligations of the Company under the Convertible Notes, and upon conversion
thereof the holders will be entitled to receive 1.225 shares of CUC
International Common Stock in lieu of each share of Company Common Stock
otherwise issuable thereunder.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by the Company
with respect to it and its subsidiaries as to corporate organization and
qualification; capitalization; authority and consents and approvals; opinion of
the Company's financial advisor; no default; litigation; filings by the Company
with the Commission; financial statements; no undisclosed liabilities and
absence of changes; compliance with applicable law; employee plans; brokers,
information included in this Proxy Statement/Prospectus and the Registration
Statement; tax matters; intangible property; material contracts; accounting
matters; environmental laws and regulations; disclosure; and other matters
(SECTIONS 2.1 THROUGH 2.19).
CUC International and Merger Sub also have made certain representations and
warranties with respect to organization; capitalization; authority and consents
and approvals; filings by CUC International with the Commission; financial
statements; compliance with applicable law; litigation; no undisclosed
liabilities; no default; information included in this Proxy Statement/Prospectus
and the Registration Statement; tax matters; brokers; employee plans;
environmental laws and regulations; accounting matters; disclosure; and other
matters (ARTICLE III).
CERTAIN COVENANTS
The Merger Agreement contains certain covenants and agreements, certain of
which are summarized below.
Conduct of Business of the Company. Except as contemplated by the Merger
Agreement, during the period from February 19, 1996 to the Effective Time, the
Company will, and will cause each of its subsidiaries to, conduct its operations
in the ordinary 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 the Merger Agreement, seek to preserve intact its
current business organizations, seek to keep available the service of its
current officers and employees and seek to preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
goodwill and ongoing businesses will be unimpaired at the Effective Time
(SECTION 4.1).
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in the Merger Agreement, prior to the Effective Time, neither
the Company nor any of its subsidiaries will,
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without the prior written consent of CUC International, which consent shall not
be unreasonably withheld: (i) amend its certificate or articles of incorporation
or bylaws (or other similar governing instrument); (ii) authorize for issuance,
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for the grant of options to
purchase up to 500,000 shares of Company Common Stock to employees under the
Company Plans, the sale of up to 191,981 shares of Company Common Stock to
employees under the 1995 Employee Stock Purchase Plan (the "ESPP"), the issuance
of up to 1,668,571 shares of Company Common Stock pursuant to the conversion of
the Convertible Notes in accordance with the terms thereof, and the issuance or
sale of shares of Company Common Stock pursuant to options granted under the
Company Plans or the Non-Plan Option Agreements (in each case, in the ordinary
course of business and consistent with past practice); (iii) split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to shareholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities of any of
its subsidiaries; (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 (other than the
Merger); (v) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any subsidiary;
(vi)(A) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business and in amounts not material to the Company and its
subsidiaries taken as a whole; (B) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and its
subsidiaries, taken as a whole, and except for obligations of the wholly owned
subsidiaries of the Company; (C) make any loans, advances or capital
contributions to, or investments in, any other person (other than to the wholly
owned subsidiaries of the Company or customary loans or advances to employees in
the ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (D) pledge or otherwise encumber
shares of capital stock of the Company or its subsidiaries; or (E) mortgage or
pledge any of its material assets, tangible or intangible, or create or suffer
to exist any material Lien, defined with respect to any asset as any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such asset thereupon; (vii) except as may be required by law or as contemplated
by the Merger Agreement, enter into, adopt or amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option (except for
normal grants to newly hired or current employees, consistent with past
practice), stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund, award or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or except for certain specified
exceptions and for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, and as
required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of February 19, 1996
(including, without limitation, the granting of stock appreciation rights or
performance units); (viii) acquire, sell, lease or dispose of any assets outside
the ordinary course of business or any assets which in the aggregate are
material to the Company and its subsidiaries taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business or grant any
exclusive distribution rights; (ix) except as may be required as a result of a
change in law or in GAAP, change any of the accounting principles or practices
used by it; (x) revalue in any material respect any of its assets, including,
without limitation, writing down the value of
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inventory or writing-off notes or accounts receivable other than in the ordinary
course of business or as required by GAAP; (xi)(A) acquire (by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof or any equity interest
therein; (B) enter into any contract or agreement, other than in the ordinary
course of business or amend in any material respect; (C) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$500,000 or, in the aggregate, are in excess of $5 million; provided, that any
capital expenditure already included in the Company's fiscal 1997 capital
expenditure budget provided to CUC International prior to February 19, 1996 will
be permitted to be made; or (D) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action that would be
prohibited under clauses (A), (B) and (C) above; (xii) make or revoke any tax
election or settle or compromise any tax liability material to the Company and
its subsidiaries taken as a whole or change (or make a request to any taxing
authority to change) any material aspect of its method of accounting for tax
purposes; (xiii) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Company and its subsidiaries or incurred in the ordinary course of business
consistent with past practice; (xiv) settle or compromise any pending or
threatened suit, action or claim relating to the transactions contemplated by
the Merger Agreement; or (xv) take (other than seeking the consent of CUC
International to the taking of any such action), propose to take, or agree in
writing or otherwise to take, any of the actions described in clauses (i)
through (xiv), or any action which would make any of the representations or
warranties of the Company contained in the Merger Agreement untrue or incorrect
in any material respect (SECTION 4.1).
Moreover, the Company has agreed, between February 19, 1996 and the
Effective Time, to furnish to CUC International and Merger Sub (i) within five
business days after the delivery thereof to management, such monthly financial
statements and data as are regularly prepared for distribution to the Company's
management and (ii) at the earliest time they are available, such quarterly and
annual financial statements as are prepared for the Company's filings with the
Commission, which will be in accordance with the books and records of the
Company. (SECTION 4.8)
Conduct of Business of CUC International. Except as contemplated by the
Merger Agreement, during the period from February 19, 1996 to the Effective
Time, CUC International has agreed to, and has agreed to cause each of its
subsidiaries to, conduct its operations in the ordinary 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 the Merger
Agreement, seek to preserve intact its current business organizations, seek to
keep available the service of its current officers and employees and seek to
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that goodwill and ongoing businesses will be
unimpaired at the Effective Time (SECTION 4.2).
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in the Merger Agreement, prior to the Effective Time, CUC
International has agreed that it will not, without the prior written consent of
the Company, which consent will not be unreasonably withheld: (i) amend its
certificate of incorporation (other than to increase the number of authorized
shares of CUC International Common Stock) or bylaws; (ii) split, combine or
reclassify any shares of its capital stock; declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock; make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to shareholders in their capacity as such;
or redeem or otherwise acquire any of its securities; (iii) adopt a plan of
complete or partial liquidation, dissolution, restructuring, recapitalization or
other reorganization of CUC International; (iv) grant options to purchase, or
make restricted stock grants with respect to, in excess of 1,000,000 shares of
CUC International Common Stock under CUC International's employee stock option
plans or stock purchase plans, except in connection with any acquisition (by
merger,
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consolidation, or acquisition of stock or assets) of any corporation,
partnership or other business organization or division thereof or any equity
interest therein (including, without limitation, in connection with the
transactions contemplated by the Davidson Merger Agreement); (v) except as
provided in the Merger Agreement, incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business and in amounts not material to CUC
International and its subsidiaries taken as a whole and except for other
indebtedness not exceeding $100,000,000 in the aggregate; or (vi) take, or agree
in writing or otherwise to take, any of the actions described in clauses (i)
through (v) above (SECTION 4.2).
Proxy Statement; the Meeting. The Company has agreed to call a meeting of
the holders of Company Common Stock to be held as promptly as practicable for
the purpose of voting upon the Merger Agreement and related matters. In
addition, the Company and Merger Sub have agreed through their respective Boards
of Directors to recommend to their respective shareholders adoption of the
Merger Agreement; provided, however, CUC International has agreed that the
Company's Board of Directors may withdraw its recommendation if it determines by
a majority vote, in its good faith judgment, after consultation with and based
upon the advice of independent legal counsel, that it is necessary to do so to
comply with its fiduciary duties to shareholders under applicable law.
Notwithstanding the foregoing (except if the Average Stock Price is less than
$29.00), the Company's Board of Directors may not withdraw its recommendation
because of fluctuations in the trading price of the CUC International Common
Stock between the date of the Merger Agreement (i.e., February 19, 1996) and the
date of the Meeting. The Company and CUC International have agreed to coordinate
and cooperate with respect to the timing of the Meeting and (subject to the
Company's agreement to coordinate the timing of the Meeting and the meeting of
the holders of Davidson Common Stock as described in the paragraph below) to use
its best efforts to hold the Meeting as soon as practicable after the date of
the Merger Agreement; provided, however, that the Company may postpone the
Meeting if the Company's Board of Directors by majority vote determines, in its
good faith judgment, after consultation with and based upon the advice of
independent legal counsel, that it is necessary to do so in order to comply with
its fiduciary duties to shareholders under applicable law and at the time of
such determination, the Company has received a bona fide proposal to effect a
Third Party Acquisition that is a Superior Proposal and that has not been
withdrawn.
In addition, with respect to the Davidson Merger, the Company has agreed to
cooperate with all reasonable requests of CUC International to coordinate the
timing of the Meeting and the meeting of holders of Davidson Common Stock.
(SECTIONS 4.6 AND 4.9).
Employee Matters. In addition, CUC International has agreed that: (i)
employees of the Company and its subsidiaries will be treated after the Merger
no less favorably under the compensation and benefits programs of CUC
International and its subsidiaries than other similarly situated employees of
CUC International and its subsidiaries; (ii) for a period of one year following
the Merger, CUC International will maintain and will cause its subsidiaries to
maintain with respect to their employees who had been employed by the Company or
any of its subsidiaries (A) base salary or regular hourly wage rates for each
such employee at not less than the rate applicable to such employee immediately
prior to the Merger to such employee, and (B) employee benefits (as defined for
purposes of Section 3(3) of the Employee Retirement and Income Security Act of
1974, as amended ("ERISA")), other than employee benefits as to which the
employees' interests are based upon shares of Company Common Stock) which are
substantially comparable in the aggregate to such employee benefits provided by
the Company and its subsidiaries immediately prior to the Merger; and (iii) CUC
International and its subsidiaries have agreed to credit employees of the
Company and its subsidiaries with their service with the Company and its
subsidiaries prior to the Merger to the same extent such service was counted
under the Company's ERISA Plans for purposes of determining eligibility to
participate or vesting under similar benefit plans provided by CUC International
after the Merger (SECTION 4.18).
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Other Potential Acquirors. The Company, its affiliates and their respective
officers, directors, employees, representatives and agents have agreed to cease
any existing discussions or negotiations, if any, with any parties conducted
prior to February 19, 1996 with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its subsidiaries.
However, the Company may, directly or indirectly, furnish information and
access, in each case only in response to unsolicited requests therefor, to any
corporation, partnership, person or other entity or group pursuant to
confidentiality agreements, and may participate in discussions and negotiate
with such entity or group concerning any merger, sale of assets, sale of shares
of capital stock or similar transaction involving the Company or any subsidiary
or division of the Company, if such entity or group has submitted a proposal to
the Company (whether or not in writing) relating to any such transaction and the
Company's Board of Directors by a majority vote determines in its good faith
judgment, after consultation with and based upon the advice of independent legal
counsel, that it is necessary to do so to comply with its fiduciary duties to
shareholders under applicable law. The Company's Board of Directors has agreed
to provide a copy of any such written proposal and a summary of any oral
proposal to CUC International or Merger Sub within 24 hours after receipt
thereof and thereafter to keep CUC International and Merger Sub promptly advised
of any material development with respect thereto (SECTION 4.4).
Except as set forth above, the Company has agreed that neither it nor any of
its affiliates will, nor will Merger Sub authorize or permit any of its or their
respective officers, directors, employees, representatives or agents to directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than CUC International and Merger Sub,
any affiliate or associate of CUC International and Merger Sub or any designees
of CUC International and Merger Sub) concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction involving the Company or any
subsidiary or division of the Company; provided, however, that the Company's
Board of Directors is permitted to take and disclose to its shareholders, a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with regard to any tender offer; and the Company's Board of Directors may
make such disclosure to the Company's shareholders as, in the good faith
judgment of the Board of Directors, after consultation with independent legal
counsel, is necessary to comply with its fiduciary duties to shareholders under
applicable law (SECTION 4.4).
Except as provided above, the Company's Board of Directors has agreed not to
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition; provided, however, if the Board, after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that it is necessary to do so to comply with its
fiduciary duties to shareholders under applicable law, the Board may approve or
recommend a Superior Proposal or cause the Company to enter into an agreement
with respect to a Superior Proposal, but only (i) after providing reasonable
written notice to CUC International advising it that the Company's Board of
Directors has received a Superior Proposal and identifying the person making the
same and (ii) if CUC International does not make within five days of CUC
International's receipt of the aforementioned notice, an offer which the
Company's Board of Directors, after consultation with its financial advisors,
determines is superior to such Superior Proposal (SECTION 4.4).
Indemnification of Directors and Officers. To the extent, if any, not
provided by an existing right under CUC International's or the Company's
directors and officers liability insurance policies, from and after the
Effective Time, CUC International has agreed, to the fullest extent permitted by
applicable law, to indemnify, defend and hold harmless each person who is now,
or has been at any time prior to February 19, 1996, or who becomes prior to the
Effective Time, a director, officer or employee of the parties to the Merger
Agreement or any subsidiary (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement, arising out
of actions or omissions occurring at or prior to the Effective Time and whether
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asserted or claimed prior to, at or after the Effective Time that are in whole
or in part (i) based on, or arising out of the fact that such person is or was a
director, officer or employee of such party or a subsidiary of such party or
(ii) based on, arising out of or pertaining to the transactions contemplated by
the Merger Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (A) CUC
International has agreed to pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel will be reasonably
satisfactory to CUC International, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to the
extent not prohibited by the DGCL and upon receipt of any affirmation and
undertaking required by the DGCL, (B) CUC International will cooperate in the
defense of any such matter and (C) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the DGCL and CUC International's certificate of incorporation or
bylaws shall be made by independent counsel mutually acceptable to CUC
International and the Indemnified Party; provided, however, that CUC
International will not be liable for any settlement effected without its written
consent (which consent will not be reasonably withheld). The Indemnified Parties
as a group may retain only one law firm with respect to each related matter
except to the extent there is, in the opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on any
significant issue between positions of any two or more Indemnified Parties
(SECTION 4.12).
For a period of three years after the Effective Time, CUC International has
agreed to cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by the Company for the benefit of those
persons who are covered by such policies at the Effective Time (or CUC
International may substitute therefor policies of at least the same coverage
with respect to matters occurring prior to the Effective Time), to the extent
that such liability insurance can be maintained annually at a cost to CUC
International not greater than 150% of the premium for the Company's current
directors' and officers' liability insurance; provided that if such insurance
cannot be so maintained or obtained at such costs, CUC International has agreed
to maintain or obtain as much of such insurance as can be so maintained or
obtained at a cost equal to 150% of the current annual premiums of the Company
for such insurance (SECTION 4.12).
To the fullest extent permitted by law, from and after the Effective Time,
all rights to indemnification now existing in favor of the employees, agents,
directors or officers of the Company and its subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in the Company's
certificate of incorporation or bylaws, in effect on the date thereof or
otherwise in effect on February 19, 1996, will survive the Merger and will
continue in full force and effect for a period of not less than six years from
the Effective Time (SECTION 4.12).
Pooling. The Merger Agreement provides that none of CUC International, its
direct or indirect wholly owned subsidiaries, or the Company or its subsidiaries
will take any action which would prevent the Merger from being accounted for as
a pooling-of-interests, and the Company and CUC International have agreed to
notify each other of any actions, agreements or understandings, whether oral or
written that reasonably could be likely to prevent CUC International from
accounting for the Merger as a pooling-of-interests. In addition, the Company
has agreed to use commercially reasonable efforts to cause its independent
auditors, Deloitte & Touche LLP, to cooperate fully with Ernst & Young LLP
including, without limitation, sharing information, analysis and work product,
engaging in active discussions and delivering to the Company a letter to the
effect that the Company would meet the criteria for pooling-of-interests
accounting in connection with the delivery by Ernst & Young LLP of a letter to
CUC International 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 of the
Merger Agreement. In addition, the Company has agreed to use its best efforts to
cause its affiliates and employees to take (or not take) such actions as CUC
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International may be informed by any Governmental Entity are necessary to be
taken (or not to be taken) such that the Merger will be accounted for as a
pooling-of-interests.
Other Covenants. Each of CUC International, Merger Sub and the Company, with
respect to the Merger, has agreed to use its reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by the Merger
Agreement, including, without limitation: (i) cooperation in the preparation and
filing of the Proxy Statement and the Registration Statement, any filings that
may be required under the HSR Act, and any amendments to any thereof; (ii) the
taking of all action reasonably necessary, proper or advisable to secure any
necessary consents under existing debt obligations of the Company and its
subsidiaries or amend the notes, indentures or agreements relating thereto to
the extent required by such notes, indentures or agreements or redeem or
repurchase such debt obligations; (iii) contesting any legal proceeding relating
to the Merger; and (iv) the execution of any additional instruments, including
the Certificate of Merger, necessary to consummate the transactions contemplated
by the Merger Agreement; provided, however, that as described elsewhere in this
Proxy Statement/Prospectus the Company may postpone a previously-scheduled
meeting of Company shareholders in the event that the Company's Board of
Directors by majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law and, at the time of such determination, the
Company has received a bona fide proposal to effect a Third Party Acquisition
that is a Superior Proposal that has not been withdrawn. Subject to the terms
and conditions of the Merger Agreement, CUC International and Merger Sub have
agreed to use all reasonable efforts to cause the Effective Time to occur as
soon as practicable after the vote of the holders of Company Common Stock in
respect to the Merger (SECTIONS 2.6, 2.9, 4.1, 4.2, 4.3, 4.9 AND 4.14).
The Company has agreed to give prompt notice to CUC International and Merger
Sub, and CUC International and Merger Sub have agreed to give prompt notice to
the Company, of (i) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause any representation or
warranty contained in the Merger Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time; (ii) any material failure of
the Company, CUC International or Merger Sub, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under the Merger Agreement; (iii) 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 the Merger Agreement and prior to the Effective Time, under any
contract or agreement 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; (iv) any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by the Merger Agreement; or (v) any material adverse change in
their respective financial condition, properties, businesses, results of
operations or prospects, taken as a whole, other than changes resulting from
general economic conditions; provided, however, that the delivery of any notice
in the circumstances described above will not cure such breach or non-compliance
or limit or otherwise affect the remedies available under the Merger Agreement
to the party receiving such notice (SECTION 4.13).
CONDITIONS
The respective obligations of each of CUC International, the Company and
Merger Sub, to consummate the Merger are subject to the following conditions,
among others: (i) the Merger Agreement shall have been adopted by the requisite
vote of the holders of Company Common Stock; (ii) no statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated, or enforced by any United States court or United States
governmental authority
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which prohibits, restrains, enjoins or restricts consummation of the Merger;
(iii) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired, and any other governmental or regulatory notices or
approvals required with respect to the transactions contemplated by the Merger
Agreement shall have been either filed or received (iv) the Registration
Statement shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order, 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 shares of Company Common Stock in the Merger; and (v) CUC
International shall have received 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 of the
Merger Agreement, and such letter shall not have been withdrawn or modified in
any material respect (SECTION 5.1).
The obligations of CUC International and Merger Sub to effect the Merger are
further subject to the following additional conditions: (i) the representations
of the Company contained in the Merger Agreement (or in any document delivered
pursuant thereto) shall be true and correct in all material respects at and as
of the Effective Time with the same effect as if made at and as of the Effective
Time, and at the Closing the Company shall have delivered to CUC International
and Merger Sub a certificate to such effect; (ii) each of the obligations of the
Company to be performed at or prior to the Effective Time pursuant to the terms
of the Merger Agreement shall have been duly performed in all material respects,
and at the Closing the Company shall have delivered to CUC International and
Merger Sub a certificate to such effect; (iii) each Company Affiliate and each
shareholder party to the Shareholders Agreement shall have performed his or its
respective obligations under the Shareholders Agreement and the applicable
letter from such affiliate dated as of February 19, 1996 and delivered to it by
the Company and CUC International and CUC International shall have received a
certificate signed by each person to such effect; (iv) the Company shall have
obtained the consent or approval of each person whose consent or approval is
required to permit the succession by the surviving corporation pursuant to the
Merger to any obligation, right or interest of the Company or any of its
subsidiaries under any loan or credit agreement, note, mortgage, indenture,
lease or other agreement or instrument, except those for which the failure to
obtain such consents and approvals would not, individually or in the aggregate,
have a Material Adverse Effect on the Company; (v) there shall not have occurred
any events, changes or effects with respect to the Company or its subsidiaries
having or which reasonably could be expected to have a Material Adverse Effect
on the Company; (vi) the non-competition agreements being in full force and
effect; and (vii) each of the employment agreement with Kenneth A. Williams, the
personal services agreement with Roberta L. Williams and the non-competition
agreements of such persons shall be in full force and effect (SECTION 5.3).
The obligation of the Company to effect the Merger is further subject to the
additional conditions that: (i) the representations of CUC International and
Merger Sub contained in the Merger Agreement (or in any other document delivered
pursuant thereto) shall be true and correct in all material respects at and as
of the Effective Time with the same effect as if made at and as of the Effective
Time, and at the Closing CUC International and Merger Sub shall have delivered
to the Company a certificate to such effect; (ii) each of the obligations of CUC
International and Merger Sub to be performed at or prior to the Effective Time
pursuant to the terms of the Merger Agreement shall have been duly performed in
all material respects, and at the Closing CUC International and Merger Sub shall
have delivered to the Company a certificate to such effect; (iii) the Company
shall have received an opinion of Perkins Coie, its tax counsel, to the effect
that (a) the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
(b) each of CUC International, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code, and (c) no gain
or loss will be recognized by a shareholder of the Company as a result of the
Merger with respect to the shares of Company Common Stock to be converted in the
Merger into shares of CUC International Common Stock (other than with respect to
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cash received in lieu of fractional shares of CUC International Common Stock)
and such opinion shall not have been withdrawn or modified in any material
respect; (iv) there shall not have occurred any events, changes or effects with
respect to CUC International and its subsidiaries having or which could
reasonably be expected to have a Material Adverse Effect on CUC International;
(v) the shares of CUC International Common Stock issuable in the Merger to the
holders of Company Common Stock and such other shares required to be reserved
for issuance in connection with the Merger having been authorized for listing on
the NYSE upon official notice of issuance; and (vi) CUC International shall have
obtained the consent or approval of each person whose consent or approval is
required in connection with the transactions contemplated by the Merger
Agreement under any loan or credit agreement, note, mortgage, indenture, lease
or other agreement or instrument, except those for which the failure to obtain
such consent or approval would not, individually or in the aggregate, have a
Material Adverse Effect on CUC International (SECTION 5.2).
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time by the mutual
written consent of CUC International, Merger Sub and the Company (SECTION 6.1).
Termination by Either CUC International and Merger Sub or by the
Company. The Merger Agreement may be terminated and the Merger abandoned by
action of the Board of Directors of either CUC International and Merger Sub or
by the Company if: (i) the Merger has not been consummated by September 30, 1996
(provided that such right to terminate will 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) or
(ii) any court of competent jurisdiction in the United States or another United
States governmental authority issues a final order, decree or ruling or taken
any other final action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action has become nonappealable
(SECTION 6.1).
Termination by CUC International and Merger Sub. 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 and Merger Sub if: (i)
there shall have occurred a breach of any representation or warranty of the
Company in the Merger Agreement or if any representation or warranty of the
Company shall have become untrue, in either case such that the conditions to the
obligations of CUC International and Merger Sub to effect the Merger set forth
in the Merger Agreement would be incapable of being satisfied by September 30,
1996 (or any permissible extension of such date); (ii) there shall have occurred
a breach by the Company of its covenants or agreements under the Merger
Agreement having a Material Adverse Effect on the Company or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
the Company shall not have cured such breach within 20 business days after
notice by CUC International and Merger Sub thereof; (iii) the Company's Board
shall have withdrawn, modified or changed its approval or recommendation of the
Merger Agreement or the Merger, and shall have recommended to the holders of
Company Common Stock a Third Party Acquisition or shall have failed to call,
give notice of, convene or hold a shareholders' meeting to vote upon the Merger
or shall have adopted any resolution to effect any of the foregoing; or (iv) the
Company shall have convened a meeting of its shareholders to vote upon the
Merger and failed to obtain the requisite vote of its shareholders (in respect
of the Merger Agreement) (SECTION 6.1).
Termination by the Company. 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 the Company if: (i) there shall have occurred a breach of any
representation or warranty on the part of CUC International or Merger Sub set
forth in the Merger Agreement, or any representation or warranty of CUC
International or Merger Sub otherwise shall have become untrue, in either case
such that the conditions to the Company's obligation to effect the Merger as set
forth in the Merger Agreement would
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be incapable of being satisfied by September 30, 1996 (or any permissible
extension of such date); (ii) there shall have occurred a breach by CUC
International or Merger Sub of any of their respective covenants or agreements
hereunder having a Material Adverse Effect on CUC International or materially
adversely affecting (or materially delaying) the consummation of the Merger, and
CUC International or Acquisition, as the case may be, shall not have cured such
breach within 20 business days after notice by the Company thereof; (iii) the
Company shall have entered into a definitive agreement relating to a Superior
Proposal (provided that termination in such circumstance may not be effected
until the Company first complies with its payment obligations to CUC
International described below under "-- Fees and Expenses" and set forth in the
Merger Agreement); (iv) the Company shall have convened a meeting of its
shareholders to vote upon the Merger and failed to obtain the requisite vote of
its shareholders in respect of the Merger Agreement; (v) the Company's Board by
a majority vote shall have determined in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so to comply with its fiduciary duties to shareholders,
provided that such termination will not be effective unless at the time of such
determination the Company shall have received a bona fide proposal to effect a
Third Party Acquisition that is a Superior Proposal which has not been withdrawn
as of the time of such termination (provided that such termination will not be
effective until the Company first complies with its payment obligations
described below under "--Fees and Expense" and set forth in the Merger
Agreement); or (vi) the Average Stock Price is less than $29.00. See
"Summary--Risk Factors--Fixed Exchange Ratio." (SECTION 6.1)
Effect of Termination. Generally, if the Merger Agreement is terminated by
CUC International or the Company as described above, the Merger Agreement will
become void without any liability to CUC International, Merger Sub or the
Company (or any of their respective affiliates, directors, officers or
shareholders), except for the termination and other fees payable under the
circumstances described in those provisions of the Merger Agreement relating to
termination of the Agreement, confidentiality of certain information, fees and
expenses, arbitration, governing law, equitable remedies and brokers (SECTION
6.2).
FEES AND EXPENSES
Except as set forth below, each of CUC International, Merger Sub and the
Company has agreed to bear its own expenses in connection with the Merger, and
the cost of printing this Proxy Statement/Prospectus will be borne equally by
CUC International and the Company (SECTION 6.3).
If the Merger Agreement is terminated (i) by CUC International and Merger
Sub in the case of: (a) a willful breach by the Company of any of its
representations or warranties under the Merger Agreement such that the
conditions to the obligations of CUC International and Merger Sub under the
Merger Agreement to effect the Merger would not be capable of being satisfied by
September 30, 1996 (or any permissible extension of such date) or (b) a breach
by the Company of any of its covenants or agreements under the Merger Agreement
which has a Material Adverse Effect on the Company or which materially adversely
affects (or materially delays) consummation of the Merger (which such breach has
not been cured within 20 business days after notice to the Company by CUC
International or Merger Sub of the occurrence thereof), and, within 12 months
after the occurrence of either of the events described in (a) or (b) of this
clause (i), the Company enters into an agreement providing for a Third Party
Acquisition (which is consummated within 12 months after termination of the
Merger Agreement by the Company) or a Third Party Acquisition occurs involving
any party (or any affiliate thereof) (x) with whom the Company (or its agents)
had negotiations with a view to a Third Party Acquisition, (y) to whom the
Company (or its agents) furnished information with a view to a Third Party
Acquisition, or (z) who had submitted a proposal or expressed an interest in
pursuing a Third Party Acquisition; (ii) by the Company in the case of (a) the
Company having entered into a definitive agreement relating to a Superior
Proposal or (b) the Company's Board of Directors by a majority vote having
determined in its good faith judgment, after consulting with and based upon the
advice of
72
<PAGE>
independent legal counsel, that it is necessary to do so to comply with its
fiduciary duties to shareholders, or (iii) by CUC International and Merger Sub
in the case of the Company's Board of Directors having (a) withdrawn, modified
or changed its approval or recommendation of the Merger Agreement or the Merger,
(b) recommended to the Company's shareholders a Third Party Acquisition, (c)
failed to call, give notice of, convene or hold a meeting of the holders of
Company Common Stock to vote upon the Merger Agreement, or (d) adopted a
resolution to effect any of the matters described in (a), (b) or (c) of this
clause (iii); then, the Company would be required to pay to CUC International up
to an aggregate of $25 million of liquidated damages, payable (A) in the case of
termination of the Merger Agreement under the circumstances described in clause
(i) above, $12.5 million on the date the Company enters into an agreement
providing for a Third Party Acquisition and $12.5 million on the date such Third
Party Acquisition was consummated (if consummated), and (B) in the case of
termination of the Merger Agreement under the circumstances described in clauses
(ii) and (iii) above, $12.5 million on the date of termination (except in the
case of a termination by CUC International due to the Company's Board of
Directors having withdrawn, modified or changed its approval or recommendation
of the Merger Agreement or the Merger or recommend to the Company's shareholders
a Third Party Acquisition, in which case such $12.5 million would be paid within
20 days following such termination) and $12.5 million upon consummation of a
Third Party Acquisition involving any party (or any affiliate thereof) (x) with
whom the Company (or its agents) had negotiations with a view to a Third Party
Acquisition, (y) to whom the Company (or its agents) furnished information with
a view to a Third Party Acquisition, or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, together in all cases, with
reimbursement of up to $3.0 million for certain out-of-pocket fees and expenses
(including certain professional advisory fees) incurred by CUC International and
Merger Sub (SECTION 6.3).
If the Company terminates the Merger Agreement as a result of (i) the breach
by CUC International or Merger Sub of any of their representations or warranties
set forth in the Merger Agreement or the inaccuracy thereof such that the
conditions to the Company's obligation under the Merger Agreement to effect the
Merger would not be capable of being satisfied by September 30, 1996 (or any
permissible extension of such date) or (ii) the breach by CUC International of
Merger Sub of any of their respective covenants or agreements under the Merger
Agreement having a Material Adverse Effect on CUC International or materially
delaying consummation of the Merger and CUC International or Merger Sub, as the
case may be, has not cured such breach within 20 business days after notice
thereof by the Company, CUC International has agreed to reimburse the Company
for certain out-of-pocket fees and expenses incurred by it (including certain
professional advisory fees) not to exceed $3.0 million (SECTION 6.3).
MODIFICATION OR AMENDMENT
The Merger Agreement may be amended by action taken by the Company, CUC
International and Merger Sub at any time before or after approval of the Merger
by the holders of a majority of the outstanding Company Common Stock but, after
any such approval, no amendment may be made which requires the approval of such
shareholders under applicable law without such approval. The Merger Agreement
may not be amended except by an instrument in writing signed on behalf of the
parties to the Merger Agreement (SECTION 6.4).
WAIVER
At any time prior to the Effective Time, CUC International, the Company or
Merger Sub may, in writing (i) extend the time for the performance of any of the
obligations or other acts of the parties to the Merger Agreement; (ii) waive any
inaccuracies in the representations and warranties of the other parties
contained in the Merger Agreement or in any document, certificate or writing
delivered, contained or pursuant to the Merger Agreement; or (iii) waive
compliance by the other parties with any of the agreements or conditions
contained in the Merger Agreement (SECTION 6.5).
73
<PAGE>
SHAREHOLDERS AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE SHAREHOLDERS
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
SHAREHOLDERS AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE. ALL
CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM IN THE SHAREHOLDERS AGREEMENT. ALL HOLDERS OF THE COMPANY
COMMON STOCK ARE ENCOURAGED TO READ THE SHAREHOLDERS AGREEMENT CAREFULLY AND IN
ITS ENTIRETY.
Concurrently with the execution and delivery of the Merger Agreement, CUC
International entered into an agreement with the holders of approximately 9% of
the outstanding Common Stock (consisting of Kenneth A. Williams, the Company's
Chairman and Chief Executive Officer, and his spouse, Roberta L. Williams, a
director of the Company).
Voting. Pursuant to the Shareholders Agreement, each party thereto 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 Company Common Stock, however called, or in connection with any
written consent of the Company's shareholders, such shareholder will vote (or
cause to be voted) the shares of Company Common Stock held of record or
beneficially by such shareholder: (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 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 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 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, and
(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 Articles 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) 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 Shareholders Agreement. Each party to the Shareholders Agreement 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 (SECTION 1).
Representations, Warranties, Covenants and Other Agreements. The parties to
the Shareholders Agreement have made certain customary representations,
warranties and covenants, including with respect to (i) their ownership of the
shares of Company Common Stock, (ii) their capacity and authority to enter into
and perform their obligations under the Shareholders Agreement, (iii) no
conflicts, (iv) restrictions on the transfer of their shares of Company Common
Stock, and (v) no finders fees (SECTION 2).
Termination. Other than as provided therein, the Shareholders Agreement will
terminate by its terms upon the earlier to occur of the termination of the
Merger Agreement in accordance with its terms and the Effective Time (SECTION
4).
74
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet at April
30, 1996 and the unaudited pro forma condensed combined statements of income for
the three month period ended April 30, 1996 and for the years ended January 31,
1996, 1995 and 1994, give effect to the proposed Merger pursuant to which each
outstanding share of Company Common Stock (other than shares held by CUC
International, Merger Sub or by any other subsidiary of CUC International or
subsidiary of the Company) will be converted at the Effective Time into 1.225
shares of CUC International Common Stock, as if the Merger had occurred on April
30, 1996. The unaudited pro forma condensed combined balance sheet at April 30,
1996 and the unaudited pro forma condensed combined statements of income for the
three month period ended April 30, 1996 and for the years ended January 31,
1996, 1995 and 1994 also give effect to the proposed Davidson Merger pursuant to
which each outstanding share of Davidson Common Stock (other than shares held by
CUC International, SAC or any other subsidiary of CUC International or by any
subsidiary of Davidson, or shares to which dissenters' rights are granted and
properly exercised under applicable California law) will be converted at the
Davidson Effective Time into .85 of one share of CUC International Common Stock,
and the proposed Ideon Merger pursuant to which each outstanding share of Ideon
Common Stock (other than shares held by Ideon as treasury stock or by any
Subsidiary of Ideon or owned by CUC International, Ideon Merger Sub or by any
other Subsidiary of CUC International) will be converted at the Ideon Effective
Time into the right to receive the number of shares of CUC International Common
Stock determined in accordance with the Ideon Conversion Number. (See "Certain
Information Concerning CUC International Inc.--Other CUC International Business
Combinations"). The pro forma information gives effect to the Merger, the
Davidson Merger and the Ideon Merger under the pooling-of-interests method and
to the adjustments described in the accompanying notes to the unaudited pro
forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that would have occurred if the Merger, the Davidson
Merger and the Ideon Merger 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 financial statements, related notes thereto
and other financial information included in the CUC 10-K, the CUC 10-Q, the
Company 10-Q, the Davidson 10-K, the Davidson 10-Q, the Ideon 10-K, and the
Ideon 10-Q. The Company's revenues of $22.2 million and net income of $0.7
million for the three months ended March 31, 1995 are included in the Company's
historical statements of income for the years ended March 31, 1995 and December
31, 1995 and are, therefore, included in the fiscal 1996 and 1995 pro forma
results of operations.
The Merger, the Davidson Merger and the Ideon Merger are independent
transactions and consummation of none of such transactions is conditioned upon
consummation of the other transactions. Although there can be no assurance, it
is intended by each of CUC International, the Company and Davidson that the
Meeting and the meeting of Davidson's shareholders relating to the Davidson
Merger will be convened substantially simultaneously.
75
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUC PRO FORMA
INTERNATIONAL SIERRA CUC DAVIDSON
APRIL 30, MARCH 31, PRO FORMA INTERNATIONAL MARCH 31, PRO FORMA
1996 1996 ADJUSTMENTS AND SIERRA 1996 ADJUSTMENTS
------------- ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.... $ 286,344 $ 40,220 $ 326,564 $ 3,082
Marketable securities........ 48,741 48,741 15,702 (9,300)(h)
Receivables.................. 305,380 43,677 349,057 29,171
Deferred subscriber
acquisition costs.............
Other current assets......... 148,004 22,157 170,161 10,066
------------- ------------ ------------- ------ -----------
Total current assets....... 739,728 154,795 894,523 58,021 (9,300)
Deferred membership
acquisition costs............. 278,001 278,001
Contract renewal rights and
intangible assets............ 281,545 9,785 291,330 1,662
Other non-current assets...... 167,397 14,317 181,714 16,375 9,300(h)
------------- ------------ ------------- ------
Total assets.................. $ 1,466,671 $178,897 $ 1,645,568 $ 76,058
------------- ------------ ------------- ------
------------- ------------ ------------- ------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
expenses, federal and state
income taxes payable and
other current
liabilities................... $ 113,994 $ 35,947 $ 149,941 $ 13,022
Deferred membership income...
------------- ------------ ------------- ------
Total Current
Liabilities................... 113,994 35,947 149,941 13,022
Deferred membership income.... 523,233 523,233
Other non-current
liabilities................... 23,873 24,419 48,292 929
------------- ------------ ------------- ------
Total liabilities............. 661,100 60,366 721,466 13,951
Shareholders' equity:
Common stock................. 1,944 205 45(a) 2,194 9 290(b)
Additional paid-in capital... 370,389 92,423 (394)(a) 462,418 35,886 (290)(b)
Retained earnings............ 482,657 27,024 509,681 26,212
Treasury stock............... (48,161) (349) 349(a) (48,161)
Unrealized gain on securities
available for sale............ (67) (67)
Foreign currency translation
adjustment.................... (1,258) (705) (1,963)
------------- ------------ ------------- ------
Total shareholders' equity.... 805,571 118,531 924,102 62,107
------------- ------------ ------------- ------
Total liabilities and
shareholders' equity.......... $ 1,466,671 $178,897 $ 1,645,568 $ 76,058
------------- ------------ ------------- ------
------------- ------------ ------------- ------
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA CUC
CUC CUC INTERNATIONAL
INTERNATIONAL, IDEON INTERNATIONAL SIERRA,
SIERRA AND MARCH 31, PRO FORMA SIERRA AND DAVIDSON
DAVIDSON 1996 ADJUSTMENTS IDEON AND IDEON
-------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.... $ 329,646 $ 19,449 $ 346,013 $ 349,095
Marketable securities........ 55,143 12,916 61,657 68,059
Receivables.................. 378,228 84,290 433,347 462,518
Deferred subscriber
acquisition costs............. 87,268 (87,268) (g)
Other current assets......... 180,227 22,453 192,614 202,680
-------------- ------------ ----------- ------------- -------------
Total current assets....... 943,244 226,376 (87,268) 1,033,631 1,082,352
Deferred membership
acquisition costs............. 278,001 42,382 87,268(g) 407,651 407,651
Contract renewal rights and
intangible assets............ 292,992 63,465 354,795 356,457
Other non-current assets...... 207,389 59,058 240,772 266,447
-------------- ------------ ------------- -------------
Total assets.................. $1,721,626 $391,281 $ 2,036,849 $ 2,112,907
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
<PAGE>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
expenses, federal and state
income taxes payable and
other current
liabilities................ $ 162,963 $111,477 80,000(f) $ 341,418 $ 354,440
Deferred membership income... 118,586 (118,586)(g)
-------------- ------------ ----------- ------------- -------------
Total Current
Liabilities................... 162,963 230,063 (38,586) 341,418 354,440
Deferred membership income.... 523,233 54,098 118,586(g) 695,917 695,917
Other non-current
liabilities................... 49,221 48,292 49,221
-------------- ------------ ----------- ------------- -------------
Total liabilities............. 735,417 284,161 80,000 1,085,627 1,099,578
Shareholders' equity:
Common stock................. 2,493 349 (211)(c) 2,332 2,631
Additional paid-in capital... 498,014 41,230 (57,852)(c) 445,796 481,392
Retained earnings............ 535,893 123,469 (80,000)(f) 553,150 579,362
Treasury stock............... (48,161) (58,063) 58,063(c) (48,161) (48,161)
Unrealized gain on securities
available for sale............ (67) 135 68 68
Foreign currency translation
adjustment.................... (1,963) (1,963) (1,963)
-------------- ------------ ----------- ------------- -------------
Total shareholders' equity.... 986,209 107,120 (80,000) 951,222 1,013,329
-------------- ------------ ------------- -------------
Total liabilities and
shareholders' equity.......... $1,721,626 $391,281 $ 2,036,849 $ 2,112,907
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
76
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------- PRO FORMA THREE MONTHS ENDED PRO FORMA
APRIL 30, 1996 MARCH 31, 1996 CUC INTERNATIONAL MARCH 31, 1996 CUC INTERNATIONAL,
CUC INTERNATIONAL SIERRA AND SIERRA DAVIDSON SIERRA AND DAVIDSON
----------------- -------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues.......... $ 390,026 $ 35,563 $ 425,589 $ 29,203 $ 454,792
EXPENSE (INCOME)
Operating................... 105,801 10,296 116,097 11,192 127,289
Marketing................... 151,962 9,613 161,575 4,481 166,056
General and
administrative............... 54,408 7,950 62,358 4,532 66,890
Software research and
development.................. 9,084 9,084 6,087 15,171
Interest income, net........ (805) (560) (1,365) (179) (1,544)
-------- ------- -------- ------- --------
Total expenses............... 311,366 36,383 347,749 26,113 373,862
-------- ------- -------- ------- --------
Income (loss) before income
taxes........................ 78,660 (820) 77,840 3,090 80,930
Provision (benefit) for
income taxes................. 30,410 (245) 30,165 1,019 31,184
-------- ------- -------- ------- --------
Net income (loss)............ $ 48,250 $ (575) $ 47,675 $ 2,071 $ 49,746
-------- ------- -------- ------- --------
-------- ------- -------- ------- --------
Net income (loss) per common
share........................ $ 0.25 $ (0.03) $ 0.21 $ 0.06 $ 0.20
-------- ------- -------- ------- --------
-------- ------- -------- ------- --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding.................. 196,736 21,445 223,006 35,712 253,361
-------- ------- -------- ------- --------
-------- ------- -------- ------- --------
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED CUC CUC INTERNATIONAL
MARCH 31, 1996 INTERNATIONAL, SIERRA, DAVIDSON
IDEON SIERRA AND IDEON AND IDEON
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues.......... $ 70,023 $ 495,612 $ 524,815
EXPENSE (INCOME)
Operating................... 11,925 128,022 139,214
Marketing................... 38,296 199,871 204,352
General and
administrative............... 11,450 73,808 78,340
Software research and
development.................. 9,084 15,171
Interest income, net........ (677) (2,042) (2,221)
------- -------- --------
Total expenses............... 60,994 408,743 434,856
------- -------- --------
Income (loss) before income
taxes........................ 9,029 86,869 89,959
Provision (benefit) for
income taxes................. 3,160 33,325 34,344
------- -------- --------
Net income (loss)............ $ 5,869 $ 53,544 $ 55,615
------- -------- --------
------- -------- --------
Net income (loss) per common
share........................ $ 0.21 $ 0.23 $ 0.21
------- -------- --------
------- -------- --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding.................. 28,097 236,894 267,249
------- -------- --------
------- -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
77
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA YEAR ENDED PRO FORMA
------------------------------------- CUC INTERNATIONAL DECEMBER 31, CUC INTERNATIONAL,
JANUARY 31, 1996 DECEMBER 31, 1995 AND 1995 SIERRA
CUC INTERNATIONAL SIERRA SIERRA DAVIDSON AND DAVIDSON
----------------- ----------------- ----------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues........ $ 1,414,964 $ 144,764 $ 1,559,728 $147,226 $1,706,954
EXPENSE (INCOME)
Operating................. 379,919 42,765 422,684 72,527 495,211
Marketing................. 556,920 27,893 584,813 17,158 601,971
General and
administrative............. 212,648 18,849 231,497 16,813 248,310
Software research and
development................ 33,158 33,158 19,745 52,903
Costs related to products
abandoned and
restructuring..............
Interest income, net...... (866) (2,310) (3,176) (819) (3,995)
-------- ------- -------- ------------ --------
Total expenses............. 1,148,621 120,355 1,268,976 125,424 1,394,400
-------- ------- -------- ------------ --------
Income (loss) before income
taxes...................... 266,343 24,409 290,752 21,802 312,554
Provision (benefit) for
income taxes.............. 102,969 6,944 109,913 8,225 118,138
-------- ------- -------- ------------ --------
Net income (loss).......... $ 163,374 $ 17,465 $ 180,839 $ 13,577 $ 194,416
-------- ------- -------- ------------ --------
-------- ------- -------- ------------ --------
Net income (loss) per
common share.............. $ 0.84 $ 0.85 $ 0.82 $ 0.38 $ 0.78
-------- ------- -------- ------------ --------
-------- ------- -------- ------------ --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................ 194,666 20,540 219,828 35,768 250,231
-------- ------- -------- ------------ --------
-------- ------- -------- ------------ --------
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA CUC INTERNATIONAL,
DECEMBER 31, 1995 CUC INTERNATIONAL, SIERRA, DAVIDSON
IDEON SIERRA AND IDEON AND IDEON
----------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues........ $ 228,278 $1,788,006 $1,935,232
EXPENSE (INCOME)
Operating................. 45,394 468,078 540,605
Marketing................. 135,469 720,282 737,440
General and
administrative............. 33,318 264,815 281,628
Software research and
development................ 33,158 52,903
Costs related to products
abandoned and
restructuring.............. 97,029 97,029 97,029
Interest income, net...... (5,690) (8,866) (9,685)
------- -------- --------
Total expenses............. 305,520 1,574,496 1,699,920
------- -------- --------
Income (loss) before income
taxes...................... (77,242) 213,510 235,312
Provision (benefit) for
income taxes.............. (27,801) 82,112 90,337
------- -------- --------
Net income (loss).......... $ (49,441) $ 131,398 $ 144,975
------- -------- --------
------- -------- --------
Net income (loss) per
common share.............. $ (1.73) $ 0.56 $ 0.55
------- -------- --------
------- -------- --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................ 28,500 233,915 264,318
------- -------- --------
------- -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
78
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA PRO FORMA
---------------------------------- CUC INTERNATIONAL YEAR ENDED CUC INTERNATIONAL,
JANUARY 31, 1995 MARCH 31, 1995 AND DECEMBER 31, 1994 SIERRA
CUC INTERNATIONAL SIERRA SIERRA DAVIDSON AND DAVIDSON
----------------- -------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service
fees and other
revenues.................. $ 1,182,896 $ 97,879 $ 1,280,775 $93,171 $1,373,946
EXPENSE (INCOME)
Operating................ 320,773 38,722 359,495 44,262 403,757
Marketing................ 479,590 19,862 499,452 12,375 511,827
General and
administrative............ 180,166 15,627 195,793 10,766 206,559
Software research and
development............... 21,967 21,967 14,369 36,336
Costs related to products
abandoned and
restructuring.............
Interest expense
(income), net............. 582 593 1,175 (691) 484
Gain on sale of
ImagiNation Network,
net....................... (17,749) (17,749) (17,749)
-------- ------- -------- ------ --------
Total expenses............ 981,111 79,022 1,060,133 81,081 1,141,214
-------- ------- -------- ------ --------
Income before income
taxes..................... 201,785 18,857 220,642 12,090 232,732
Provision for income
taxes..................... 77,219 5,865 83,084 5,612 88,696
-------- ------- -------- ------ --------
Income before cumulative
effect of accounting
change for income
taxes..................... 124,566 12,992 137,558 6,478 144,036
Cumulative effect of
accounting change for
income taxes..............
-------- ------- -------- ------ --------
Net income................ $ 124,566 $ 12,992 $ 137,558 $ 6,478 $ 144,036
-------- ------- -------- ------ --------
Income before cumulative
effect of accounting
change.................... $ 0.66 $ 0.70 $ 0.65 $ 0.19 $ 0.60
Cumulative effect of
accounting change........
-------- ------- -------- ------ --------
Net income per common
share..................... $ 0.66 $ 0.70 $ 0.65 $ 0.19 $ 0.60
-------- ------- -------- ------ --------
Weighted average number of
common and dilutive
common equivalent shares
outstanding............... 189,219 18,513 211,897 34,986 241,636
-------- ------- -------- ------ --------
-------- ------- -------- ------ --------
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA CUC INTERNATIONAL,
OCTOBER 31, 1994 CUC INTERNATIONAL, SIERRA, DAVIDSON
IDEON SIERRA AND IDEON AND IDEON
---------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service
fees and other
revenues.................. $180,665 $1,461,440 $1,554,611
EXPENSE (INCOME)
Operating................ 34,033 393,528 437,790
Marketing................ 106,503 605,955 618,330
General and
administrative............ 16,451 212,244 223,010
Software research and
development............... 21,967 36,336
Costs related to products
abandoned and
restructuring............. 7,900 7,900 7,900
Interest expense
(income), net............. (8,421) (7,246) (7,937)
Gain on sale of
ImagiNation Network,
net....................... (17,749) (17,749)
------- -------- --------
Total expenses............ 156,466 1,216,599 1,297,680
------- -------- --------
Income before income
taxes..................... 24,199 244,841 256,931
Provision for income
taxes..................... 6,178 89,262 94,874
------- -------- --------
Income before cumulative
effect of accounting
change for income
taxes..................... 18,021 155,579 162,057
Cumulative effect of
accounting change for
income taxes.............. 2,000 2,000 2,000
------- -------- --------
Net income................ $ 20,021 $ 157,579 $ 164,057
------- -------- --------
Income before cumulative
effect of accounting
change.................... $ 0.63 $ 0.69 $ 0.63
Cumulative effect of
accounting change........ 0.07 0.01 0.01
------- -------- --------
Net income per common
share..................... $ 0.70 $ 0.70 $ 0.64
------- -------- --------
Weighted average number of
common and dilutive
common equivalent shares
outstanding............... 28,411 225,941 255,679
------- -------- --------
------- -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
79
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA YEAR ENDED PRO FORMA
--------------------------------- CUC INTERNATIONAL DECEMBER 31, CUC INTERNATIONAL,
JANUARY 31, 1994 MARCH 31, 1994 AND 1993 SIERRA
CUC INTERNATIONAL SIERRA SIERRA DAVIDSON AND DAVIDSON
----------------- -------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues.......... $ 984,801 $ 73,101 $ 1,057,902 $62,372 $1,120,274
EXPENSE (INCOME)
Operating................... 267,772 32,442 300,214 29,385 329,599
Marketing................... 394,505 16,438 410,943 8,443 419,386
General and
administrative............... 162,231 9,969 172,200 10,299 182,499
Software research and
development.................. 18,788 18,788 3,547 22,335
Interest (income) expense,
net.......................... 7,035 (1,051) 5,984 (469) 5,515
Equity in loss from
ImagiNation Network....... 5,066 5,066 5,066
------- ------ -------- ------ --------
Total expenses............... 831,543 81,652 913,195 51,205 964,400
------- ------ -------- ------ --------
Income (loss) before income
taxes........................ 153,258 (8,551) 144,707 11,167 155,874
Provision (benefit) for
income taxes................. 59,107 (679) 58,428 4,218 62,646
------- ------ -------- ------ --------
Net income (loss)............ $ 94,151 $ (7,872) $ 86,279 $ 6,949 $ 93,228
------- ------ -------- ------ --------
Net income (loss) per common
share........................ $ 0.51 $ (0.46) $ 0.42 $ 0.21 $ 0.40
------- ------ -------- ------ --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding.................. 183,113 17,143 204,113 33,599 232,672
------- ------ -------- ------ --------
------- ------ -------- ------ --------
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA CUC INTERNATIONAL,
OCTOBER 31, 1993 CUC INTERNATIONAL, SIERRA, DAVIDSON
IDEON SIERRA AND IDEON AND IDEON
---------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues.......... $158,390 $1,216,292 $1,278,664
EXPENSE (INCOME)
Operating................... 16,891 317,105 346,490
Marketing................... 95,248 506,191 514,634
General and
administrative............... 12,542 184,742 195,041
Software research and
development.................. 18,788 22,335
Interest (income) expense,
net.......................... (8,736) (2,752) (3,221)
Equity in loss from
ImagiNation Network....... 5,066 5,066
------- -------- --------
Total expenses............... 115,945 1,029,140 1,080,345
------- -------- --------
Income (loss) before income
taxes........................ 42,445 187,152 198,319
Provision (benefit) for
income taxes................. 10,968 69,396 73,614
------- -------- --------
Net income (loss)............ $ 31,477 $ 117,756 $ 124,705
------- -------- --------
Net income (loss) per common
share........................ $ 1.10 $ 0.54 $ 0.51
------- -------- --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding.................. 28,572 218,236 246,795
------- -------- --------
------- -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
80
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(a) In the Merger, each outstanding share of Company Common Stock (other than
shares held by CUC International, Merger Sub or any other subsidiary of CUC
International or by any subsidiary of the Company) will be converted into 1.225
shares of CUC International Common Stock. The unaudited pro forma condensed
combined financial statements assume that all 20,428,217 shares of Company
Common Stock outstanding at March 31, 1996 will be converted in the Merger into
approximately 25.0 million shares of CUC International Common Stock in
accordance with the Exchange Ratio. The effect of this transaction, accounted
for in accordance with the pooling-of-interests method, was to increase stated
capital in respect of CUC International Common Stock by approximately $250,000
and to increase CUC International's additional paid-in capital by approximately
$92.0 million, and to eliminate the Company Common Stock and the Company
treasury stock.
(b) In the Davidson Merger, each outstanding share of Davidson Common Stock
(other than shares held by CUC International, SAC or any other subsidiary of CUC
International or by any subsidiary of Davidson, or shares to which dissenters'
rights are granted and properly exercised under applicable California law) will
be converted into .85 of one share of CUC International Common Stock (the
"Davidson Exchange Ratio"). The unaudited pro forma condensed combined financial
statements assume that all 35,233,463 shares of Davidson Common Stock
outstanding at March 31, 1996 will be converted in the Davidson Merger into
approximately 29.9 million shares of CUC International Common Stock based on the
Davidson Exchange Ratio. The effect of this transaction, accounted for in
accordance with the pooling-of-interests method, was to increase stated capital
in respect of CUC International Common Stock by approximately $299,000 and to
increase CUC International's additional paid-in capital by approximately $35.6
million, and to eliminate Davidson Common Stock.
(c) In the Ideon Merger, each outstanding share of Ideon Common Stock (other
than shares held by Ideon as treasury stock or by any subsidiary of Ideon or
owned by CUC International, Ideon Merger Sub or by an other subsidiary of CUC
International) will be converted into the right to receive such number of shares
of CUC International Common Stock equal to the quotient obtained by dividing (x)
$13.50 by (y) the Ideon Average Stock Price, provided however, that if the Ideon
Average Stock Price is $22.00 or less the Ideon Conversion Number will be 0.6136
and if the Ideon Average Stock Price is $36.00 or more the Ideon Conversion
Number will be 0.375. The unaudited pro forma condensed combined financial
statements assume that all 27,981,831 shares of Ideon Common Stock outstanding
at March 31, 1996 will be converted in the Ideon Merger into approximately 13.8
million shares of CUC International Common Stock based on the Ideon Conversion
Number (assumed to be 0.4943). The effect of this transaction, accounted for in
accordance with the pooling-of-interests method, was to increase stated capital
in respect of CUC International Common Stock by approximately $138,000 and to
decrease CUC International's additional paid-in capital by approximately $16.6
million and to eliminate Ideon Common Stock and Ideon treasury stock.
(d) The pro forma information is based on the historical financial statements of
CUC International, the Company, Davidson and Ideon contained in the CUC 10-K,
the CUC 10-Q, the Company 10-Q, the Company Press Release, the Davidson 10-K,
the Davidson 10-Q, the Ideon 10-K and the Ideon 10-Q. Sierra's total revenues of
$22.2 million and net income of $0.7 million for the three months ended March
31, 1995 are included in Sierra's historical statements of income for the years
ended December 31, 1995 and March 31, 1995. Effective January 1, 1995, Ideon
changed its fiscal year end from October 31 to December 31. Ideon's results of
operations for the Ideon Transition Period have been excluded from CUC
International's unaudited pro forma condensed combined statements of income.
Ideon's revenues and net loss for the Ideon Transition Period were $34.7 million
and $(49.9) million, respectively.
(e) Income per common share from continuing operations has been computed based
upon the combined weighted average number of common and dilutive common
equivalent outstanding shares of CUC International Common Stock, Company Common
Stock, Davidson Common Stock and Ideon Common
81
<PAGE>
Stock for each period. Historical weighted average common and dilutive common
equivalent outstanding shares of Company Common Stock, Davidson Common Stock and
Ideon Common Stock for each period have been adjusted to reflect the Exchange
Ratio in respect of the Merger (i.e., 1.225), the exchange ratio in respect of
the Davidson Merger (i.e., .85) and the Ideon Conversion Number in respect of
the Ideon Merger (determined in accordance with the calculation set forth in
note (c) above). In addition, the weighted average number of common and dilutive
common equivalent outstanding shares have been adjusted for, and give effect to
in the case of CUC International, the 3:2 split of the CUC International Common
Stock effected on June 30, 1995, in the case of the Company, the 2:1 split of
the Company Common Stock effected on February 17, 1995 and in the case of
Davidson, the 2:1 split of the Davidson Common Stock effected on August 23,
1995.
(f) The unaudited pro forma condensed combined balance sheet includes
integration and transaction costs associated with the Ideon Merger as well as
costs relating to certain outstanding litigation matters, previously discussed
in Ideon's public filings, giving consideration to CUC International's intended
approach to these matters subsequent to the Merger, which are estimated by CUC
International's management to approximate $125.0 million ($80.0 million after
tax effect). Most of the reserve is related to these outstanding litigation
matters. In determining such portion, CUC International estimated the cost of
settling these litigation matters. In estimating such cost, CUC International
considered potential liabilities related to these matters and the estimated cost
of prosecuting and defending them (including out-of-pocket costs, such as
attorneys' fees, and the cost to CUC International of having its management
involved in numerous complex litigation matters). CUC International is unable at
this time to determine the estimated timing of the future cash outflows with
respect to this accrued liability. Although CUC International has attempted to
estimate the amounts that will be required to settle these litigation matters,
there can be no assurance that the actual aggregate amount of such settlements
will not exceed the amount of the reserve accrued. The reserve for these matters
will be expensed in the combined income statement subsequent to the closing of
the Ideon Merger, and any subsequent payments related to these matters will
reduce the amount of the reserve. CUC International considered all of these
litigation-related costs and liabilities, as well as integration and transaction
costs, in determining the agreed upon exchange ratio in respect of the Ideon
Merger.
In determining the amount of the reserve related to CUC International's
proposed integration and consolidation efforts, CUC International estimated the
significant severance costs to be accrued upon the consummation of the Ideon
Merger and costs relating to the expected obligations for certain third-party
contracts (e.g., existing leases and vendor agreements) to which Ideon is a
party and which are neither terminable at will nor automatically terminated upon
a change-in-control of Ideon. CUC International expects to incur significant
integration costs because Ideon's credit card registration and enhancement
services are substantially similar to CUC International's credit card
registration and enhancement services. All of the business activities related to
these operations currently performed by Ideon's Jacksonville, Florida office
will be transferred to CUC International's Comp-U-Card Division in Stamford,
Connecticut promptly after the consummation of the Merger. CUC also expects that
there will be additional consolidation affecting other parts of Ideon's business
that are substantially the same as CUC International's existing businesses. CUC
International does not expect any loss in revenue as a result of these
integration and consolidation efforts.
The unaudited pro forma condensed combined statements of income do not
include integration and transaction costs associated with the Ideon Merger as
well as costs relating to certain outstanding litigation matters previously
discussed in Ideon's public filings, giving consideration to CUC International's
intended approach to these matters, subsequent to the completion of the Ideon
Merger and costs and expenses associated with the Merger and the Davidson Merger
which are expected to approximate $25.0 million in the aggregate.
(g) Reclassification to conform Ideon's deferred membership income to CUC
International's presentation.
(h) To reflect Davidson's proposed acquisition of a warehouse facility,
excluding any costs of improvement of the facility which have not yet been
determined. The pro forma effect on the results of operations has been excluded
as the amounts involved are not significant to Davidson's and the pro forma
combined results of operations.
82
<PAGE>
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pro forma combined operating revenues for the three months ended April 30,
1996 are $425.6 million, which includes the Company's operations for the
three-month period ended March 31, 1996. The largest contributing factor to
revenue growth is the continual rapid growth of CUC International's membership
base. CUC International will utilize its existing membership base and
distribution channels to market Sierra's products. In addition, with CUC
International's plans for the electronic marketplace, Sierra will enable CUC
International to broaden its content much beyond its current offerings to
establish compelling content areas in the interactive world. Pro forma earnings
per common share for the three months ended April 30, 1996 are $0.21 which
includes the Company's operations for the three-month period ended March 31,
1996. CUC International believes that future results of operations will not be
materially affected by the Merger.
CUC International's operations have been funded principally with cash flow
from operations, while acquisitions have also been funded through the issuance
of CUC International Common Stock. Furthermore, after the consummation of the
Merger, cash flow from operations and existing CUC International credit
facilities is expected to 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 to date and that CUC
International's liquidity will not be adversely affected by the Merger.
In addition, the acquisitions of the Company and Davidson will enable CUC
International to offer educational and entertainment software to various
portions of CUC International's 48 million member database. Both the Company and
Davidson have extensive distribution channels (including computer and electronic
superstores, software specialty shops, mass merchants and, in the case of
Davidson, schools). These companies also have recurring revenue streams because
of their widely known software titles. CUC International's acquisition of Ideon
will strengthen CUC International's core membership services business, primarily
by adding over 13 million credit card enhancement members.
CUC International's management believes that the risks associated with its
acquisition of the Company and Davidson will not be material primarily because
no individual software title revenue represents more than 1% of the combined
consolidated pro forma revenues of CUC International, the Company and Davidson.
Both the Company's revenues and Davidson's revenues are subject to a degree of
seasonality, however CUC International believes that such seasonality will not
have any material impact on its future combined results of operations.
CUC International's management also believes that the risks associated with
its acquisition of Ideon will not be material, since Ideon's core business
generates a recurring revenue stream and CUC International believes that it will
be able to reduce costs by consolidating certain administrative, back-end and
marketing functions. Ideon is also involved in prosecuting or defending several
complex lawsuits. The majority of these involve a former Chairman of the Board
and Executive Management to SafeCard. SafeCard is Ideon's largest operating
subsidiary and, prior to Ideon's 1995 reorganization, was the public company
through which (directly or indirectly) Ideon's credit card registration and
other businesses were conducted. CUC International intends to reserve for the
outstanding litigation matters which have been previously discussed in Ideon's
public filing, after giving consideration to CUC's intended approach to these
matters as well as certain integration and transaction costs associated with the
Ideon merger.
The most recent "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for CUC International, the Company, Davidson and
Ideon appear in the CUC 10-Q; Company 10-Q; the Davidson 10-Q and the Ideon
10-Q.
83
<PAGE>
COMPARISON OF SHAREHOLDERS RIGHTS
At the Effective Time, holders of Company 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
Company Common Stock. The summary does not purport to be a complete statement of
the rights of holders of shares of CUC International Common Stock and shares of
Company Common Stock under, and is qualified in its entirety by reference to,
the Amended and Restated Articles of Incorporation (the "CUC International
Charter") and By-Laws (the "CUC International By-Laws") of CUC International and
the Restated Certificate of Incorporation (the "Company Charter") and By-Laws
(the "Company By-Laws") of the Company.
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 Company By-Laws provide that the Board of Directors of the
Company shall consist of three or more members.
Classified Board. Both the CUC International By-Laws and the Company 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. The Company Charter and the Company By-Laws provide
that a director may be removed only for cause and only by the affirmative vote
of the holders of at least 66 2/3% of the outstanding shares of capital stock
entitled to vote for the election of directors.
Indemnification of Directors and Officers. The CUC International By-Laws and
the Company 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--Interests 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; (iii) amendment of certain provisions of the CUC
International By-Laws dealing with shareholder meetings and directors; and (iv)
shareholder 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 Company Charter requires the approval of the holders of at least 66 2/3%
of the outstanding shares of capital stock entitled to vote for the election of
directors to amend the provisions of the Company Charter relating to the
following: (i) the election and terms of directors and newly-created
directorships, vacancies in directorships and removal of directors; (ii) actions
by written consent of shareholders; and (iii) certain business combinations. All
other amendments to the Company Charter
84
<PAGE>
must be approved by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock entitled to vote thereon.
AMENDMENTS TO THE BY-LAWS
Amendments to certain provisions of the CUC International By-Laws dealing
with shareholder meetings and directors must be approved by at least 80% of the
shares of outstanding stock entitled to vote thereon. Amendments to certain
provisions of the Company By-Laws dealing with the election and term of
directors and newly-created directorships, vacancies in directorships and
removal of directors must be approved by the holders of at least 66 2/3% of the
outstanding shares of capital stock entitled to vote for the election of
directors.
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 Company By-Laws provide that a quorum for the purpose of a
meeting of the shareholders of the Company shall consist of a majority of the
shares of capital stock entitled to vote at the meeting.
VOTE REQUIRED FOR MERGER AND CERTAIN OTHER TRANSACTIONS
Under the DGCL, the CUC International Charter and the Company 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.
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 Company Charter also includes a "fair price provision" which requires
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of capital stock entitled to vote for the election of directors, voting
together as a single class, to approve certain business combinations (including
mergers, recapitalizations and the issuance and transfer of securities of the
Company or a subsidiary having an aggregate fair market value of $10 million or
more) involving the Company or a subsidiary and an owner of more than 20% of the
outstanding shares of capital stock entitled to vote for 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.
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 shareholder," unless the certificate of incorporation of the
corporation contains a provision expressly electing not to be governed
85
<PAGE>
by Section 203. Neither the Company Charter nor the CUC International Charter
contains such an election.
CUMULATIVE VOTING
Under DGCL, shareholders are not entitled to cumulative voting in the
election of directors unless specifically provided for in the certificate of
incorporation. Neither the Company Charter nor the CUC International Charter
contains such a provision.
SPECIAL MEETINGS OF SHAREHOLDERS; ACTION BY CONSENT
The CUC International Charter and the CUC International By-Laws provide that
special meetings of shareholders 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 Company By-Laws provide that
special meetings of shareholders may be called by the Chairman of the Board, the
President, the Board of Directors, or shareholders holding shares representing
not less than 10% of the outstanding shares of capital stock entitled to vote at
the meeting.
The CUC International Charter provides that any action taken by shareholders
must be effected at an annual or special meeting and may not be effected by
written consent without a meeting. The Company Charter allows shareholder action
by written consent.
SHAREHOLDER PROPOSALS
If the Merger is not consummated within the time period currently
contemplated, the Company will hold its 1996 Annual Meeting of Shareholders. As
described in the Company's proxy statement relating to its 1995 Annual Meeting
of Shareholders, shareholder proposals for inclusion in the Company's proxy
statement and form of proxy relating to the Company's 1996 Annual Meeting of
Shareholders must have been received by the Company no later than March 16,
1996.
86
<PAGE>
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company, as
of June 17, 1996, with respect to the beneficial ownership of Company Common
Stock as of that date by (i) each shareholder known by the Company to be a
beneficial owner of more than 5% of Company Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv) all current
executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Kenneth A. and Roberta L. Williams (2).......................... 1,803,918 8.64%
3380 146th Place, SE
Suite 300
Bellevue, Washington 98007
The Equitable Companies Incorporated (3)........................ 1,677,100 8.04%
787 Seventh Avenue
New York, New York 10019
FMR Corp. (4)................................................... 997,010 4.78%
82 Devonshire Street
Boston, Massachusetts 02109
Fidelity Management & Research Company (4)...................... 739,210 3.54%
82 Devonshire Street
Boston, Massachusetts 02109
Roland Oskian (2)............................................... 100,104 *
Thomas L. Beckmen (2)........................................... 73,120 *
David C. Hodgson (2)(5)......................................... 52,620 *
Walter A. Forbes (2)............................................ 39,620 *
Michael A. Brochu (2)........................................... 21,549 *
Dennis Cloutier (2)............................................. 18,210 *
Jarold W. Bowerman (2).......................................... 7,000 *
Michael G. Berolzheimer (2)..................................... 6,620 *
Richard K. Thumann (2).......................................... 2,313 *
Marvin H. Green, Jr. (2)........................................ 3,620 *
Executive officers and directors as
a group (12 persons) (2)...................................... 2,128,694 10.2%
</TABLE>
- ------------
* less than 1%.
(1) Except as otherwise noted, the Company believes that each director,
executive officer and 5% or greater stockholder has sole voting and sole
investment power, subject to community property laws where applicable, with
respect to all shares shown in the table as beneficially owned by such
person. Each beneficial owner's percentage ownership is determined by
assuming that options beneficially owned by such person (but not those owned
by any other person) that are exercisable within 60 days have been
exercised. The number of shares outstanding at the close of business on June
17, 1996 was 20,869,369.
(2) Includes, as indicated in note (1) above, shares subject to options
exercisable within 60 days after June 17, 1996 in the following amounts:
23,200 shares for Mr. and Mrs. Williams; 8,000 shares for Mr. Oskian; 3,600
shares for Mr. Beckmen; 3,600 shares for Mr. Hodgson; 33,600 shares for Mr.
Forbes; 14,000 shares for Mr. Brochu; 18,000 shares for Mr. Cloutier; 7,000
shares for Mr. Bowerman; 6,600 shares for Mr. Berolzheimer; 2,100 shares for
Mr. Thumann; and 3,600 shares for Mr. Green.
(3) Based on the Schedule 13G filed with the Commission by AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
Mutuelle, Alpha Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle
(collectively, the "Mutuelles AXA"), as a group,
87
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AXA, The Equitable Companies Incorporated and their subsidiaries pursuant to
a joint filing agreement and dated February 9, 1996. The Equitable Companies
Incorporated are considered to beneficially own 1,677,100 shares, or 8.6% of
shares outstanding of the Company's Common Stock, to which the Mutuelles AXA
and AXA disclaim beneficial ownership.
(4) Based on the Schedule 13D/A filed by FMR with the Commission and dated June
3, 1996, FMR Corp. ("FMR") beneficially owns (1) through its wholly-owned
subsidiary, Fidelity Management & Research Company ("Fidelity"), as adviser
to certain investment companies, 739,210 shares of the Company's Common
Stock, as to which FMR, through its control of Fidelity, has the power to
dispose of the shares but not voting power, and (b) through FMTC, the
managing agents for the Accounts, 257,800 shares of the Company's Common
Stock as to which FMR has voting and dispositive power.
(5) Includes 4,000 shares owned beneficially by Mr. Hodgson's children.
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 May 31, 1996 of more than 5% of the then outstanding
shares of CUC International Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ----------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
W.P. Stewart & Co. Inc..................................... 9,668,149(1) 5.05%
527 Madison Avenue
New York, NY 10022
</TABLE>
- ------------
(1) W.P. Stewart & Co. Inc. filed a Schedule 13G statement, dated February 15,
1996, pursuant to Section 13(g) of the Exchange Act reflecting the
beneficial ownership of 9,668,149 shares of CUC International Common Stock.
W.P. Stewart & Co. Inc. has the power to make investment decisions over the
CUC International Common Stock for many unrelated clients, but has no
economic interest in such securities.
After giving effect to the Davidson Merger, Robert M. Davidson, Chairman and
Chief Executive Officer of Davidson, will be the beneficial owner of
approximately 13,000,106 shares of CUC International Common Stock (including
certain shares held in trusts to which Mr. Davidson and Janice G. Davidson, the
President of Davidson, exercise shared voting and investment power, but not
including certain shares owned by Mrs. Davidson as her sole and separate
property or owned by a certain trust for which Mrs. Davidson serves as trustee),
and Mrs. Davidson will be the beneficial owner of approximately 13,600,276
shares of CUC International Common Stock (including certain shares held in
trusts to which Mr. and Mrs. Davidson exercise shared voting and investment
power, but not including certain shares owned by Mr. Davidson as his sole and
separate property or owned by a certain trust for which he serves as trustee).
Based on the number of shares of Davidson Common Stock owned by Mr. Davidson and
Mrs. Davidson on March 18, 1996, they (collectively with certain trusts for
which they serve as fiduciaries) will beneficially own approximately 11% of the
then-outstanding shares of CUC International Common Stock (assuming consummation
of the Merger and the Davidson Merger, but not the Ideon Merger) and will
beneficially own approximately 10% of the then-outstanding shares of CUC
International Common Stock (assuming consummation of the Merger, the Davidson
Merger and the Ideon Merger).
88
<PAGE>
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 Company by Perkins Coie, Seattle, Washington.
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, 1996, 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
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, 1996 and April 30, 1995,
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 a review of such information. However, their separate
report, included in CUC International Inc.'s Quarterly Report on Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by reference, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted considering 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 the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the auditors
within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements and related financial statement
schedules of the Company incorporated in this Proxy Statement/Prospectus by
reference to the Company's Amended Quarterly Report on Form 10-Q/A for the
quarterly period ended December 31, 1995, 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.
The consolidated financial statements and the related consolidated financial
statement schedules incorporated in this Proxy Statement/Prospectus by reference
from Advance Ross Corporation's 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.
The consolidated financial statements and related financial statement
schedules of Davidson incorporated in this Proxy Statement/Prospectus by
reference to Davidson's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 have been audited by KPMG Peat Marwick 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.
The consolidated financial statements and related financial statement
schedules of Ideon incorporated in this Proxy Statement/Prospectus by reference
to Ideon's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 have been audited by Price Waterhouse LLP, independent
89
<PAGE>
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.
With respect to the unaudited consolidated financial information of Ideon
for the three-month periods ended March 31, 1996 and 1995 incorporated by
reference in this Proxy Statement/Prospectus, Price Waterhouse LLP reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate report, dated April
29, 1996, incorporated by reference herein, states that they did not audit and
they do not express an opinion on that unaudited consolidated financial
information. Price Waterhouse LLP has not carried out any significant or
additional audit tests beyond those which would have been necessary if their
report had not been included. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Securities
Act.
90
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of Directors of
Company 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
/s/ Kenneth A. Williams
........................................
KENNETH A. WILLIAMS
Chairman of the Board
and Chief Executive Officer
91
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 19, 1996,
AS AMENDED
AMONG
SIERRA ON-LINE, INC.
CUC INTERNATIONAL INC.
AND
LARRY ACQUISITION CORP.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE MERGER..................................................... A-6
SECTION 1.1. The Merger..................................................... A-6
SECTION 1.2. Effective Time................................................. A-6
SECTION 1.3. Closing of the Merger.......................................... A-7
SECTION 1.4. Effects of the Merger.......................................... A-7
SECTION 1.5. Certificate of Incorporation and Bylaws........................ A-7
SECTION 1.6. Directors...................................................... A-7
SECTION 1.7. Officers....................................................... A-7
SECTION 1.8. Conversion of Shares........................................... A-7
SECTION 1.9. Exchange of Certificates....................................... A-7
SECTION 1.10. Stock Options.................................................. A-9
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. A-10
SECTION 2.1. Organization and Qualification; Subsidiaries................... A-10
SECTION 2.2. Capitalization of the Company and its Subsidiaries............. A-11
SECTION 2.3. Authority Relative to this Agreement; Consents and Approvals... A-12
SECTION 2.4. SEC Reports; Financial Statements.............................. A-12
SECTION 2.5. Information Supplied........................................... A-13
SECTION 2.6. Consents and Approvals; No Violations.......................... A-13
SECTION 2.7. No Default..................................................... A-14
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes................. A-14
SECTION 2.9. Litigation..................................................... A-14
SECTION 2.10. Compliance with Applicable Law................................. A-14
SECTION 2.11. Employee Plans................................................. A-15
SECTION 2.12. Environmental Laws and Regulations............................. A-15
SECTION 2.13. Tax Matters.................................................... A-15
SECTION 2.14. Intangible Property............................................ A-15
SECTION 2.15. Opinion of Financial Advisor................................... A-16
SECTION 2.16. Brokers........................................................ A-16
SECTION 2.17. Accounting Matters............................................. A-16
SECTION 2.18. Material Contracts............................................. A-16
SECTION 2.19. Disclosure..................................................... A-17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION....... A-17
SECTION 3.1. Organization................................................... A-17
SECTION 3.2. Capitalization of Parent and its Subsidiaries.................. A-18
SECTION 3.3. Authority Relative to this Agreement........................... A-18
SECTION 3.4. SEC Reports; Financial Statements.............................. A-19
SECTION 3.5. Information Supplied........................................... A-19
SECTION 3.6. Consents and Approvals; No Violations.......................... A-19
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 3.7. No Default..................................................... A-20
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes................. A-20
SECTION 3.9. Litigation..................................................... A-20
SECTION 3.10. Compliance with Applicable Law................................. A-21
SECTION 3.11. Employee Plans................................................. A-21
SECTION 3.12. Environmental Laws and Regulations............................. A-21
SECTION 3.13. Tax Matters.................................................... A-21
SECTION 3.14. No Prior Activities............................................ A-22
SECTION 3.15. Brokers........................................................ A-22
SECTION 3.16. Accounting Matters............................................. A-22
SECTION 3.17. Disclosure..................................................... A-22
ARTICLE 4 COVENANTS...................................................... A-22
SECTION 4.1. Conduct of Business of the Company............................. A-22
SECTION 4.2. Conduct of Business of Parent.................................. A-24
SECTION 4.3. Preparation of S-4 and the Proxy Statement..................... A-25
SECTION 4.4. Other Potential Acquirors...................................... A-25
SECTION 4.5. Letter of the Company's Accountants............................ A-26
SECTION 4.6. Meetings....................................................... A-26
SECTION 4.7. Stock Exchange Listing......................................... A-26
SECTION 4.8. Access to Information.......................................... A-27
SECTION 4.9. Additional Agreements; Reasonable Best Efforts................. A-27
SECTION 4.10. Consents....................................................... A-27
SECTION 4.11. Public Announcements........................................... A-28
SECTION 4.12. Indemnification; Directors' and Officers' Insurance............ A-28
SECTION 4.13. Notification of Certain Matters................................ A-29
SECTION 4.14. Pooling........................................................ A-29
SECTION 4.15. Tax-Free Reorganization Treatment.............................. A-29
SECTION 4.16. Taxes.......................................................... A-30
SECTION 4.17. Employment and Other Agreements................................ A-30
SECTION 4.18. Employee Matters............................................... A-30
SECTION 4.19. Company Affiliates............................................. A-31
SECTION 4.20. Election to Parent Board....................................... A-31
SECTION 4.21. SEC Filings.................................................... A-31
SECTION 4.22. Guarantee of Performance....................................... A-31
SECTION 4.23. Acquisition.................................................... A-31
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER....................... A-32
SECTION 5.1. Conditions to Each Party's Obligations to Effect the Merger.... A-32
SECTION 5.2. Conditions to the Obligations of the Company................... A-32
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition........ A-33
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER................................. A-33
SECTION 6.1. Termination.................................................... A-33
SECTION 6.2. Effect of Termination.......................................... A-35
SECTION 6.3. Fees and Expenses.............................................. A-35
SECTION 6.4. Amendment...................................................... A-36
SECTION 6.5. Extension; Waiver.............................................. A-36
ARTICLE 7 MISCELLANEOUS.................................................. A-36
SECTION 7.1. Nonsurvival of Representations and Warranties.................. A-36
SECTION 7.2. Entire Agreement; Assignment................................... A-36
SECTION 7.3. Validity....................................................... A-37
SECTION 7.4. Notices........................................................ A-37
SECTION 7.5. Governing Law.................................................. A-37
SECTION 7.6. Descriptive Headings........................................... A-37
SECTION 7.7. Parties in Interest............................................ A-37
SECTION 7.8 Arbitration.................................................... A-37
SECTION 7.9. Severability................................................... A-38
SECTION 7.10. Specific Performance........................................... A-38
SECTION 7.11. Recapitalization............................................... A-38
SECTION 7.12. Subsidiaries................................................... A-38
SECTION 7.13. Brokers........................................................ A-38
SECTION 7.14. Counterparts................................................... A-38
</TABLE>
A-4
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
- --------------------------------------- --------------------------------------- ----------
<S> <C> <C>
Acquisition............................ Preamble............................... A-6
Affiliate Letter....................... Recitals............................... A-6
Certificates........................... Section 1.9(b)......................... A-8
Closing................................ Section 1.3............................ A-7
Closing Date........................... Section 1.3............................ A-7
Code................................... Recitals............................... A-6
Company................................ Preamble............................... A-6
Company Affiliate...................... Recitals............................... A-6
Company Board.......................... Section 2.3(a)......................... A-12
Company Disclosure Schedule ........... Section 2.1(b)......................... A-10
Company Plans.......................... Section 1.10(a)........................ A-9
Company SEC Reports.................... Section 2.4(a)......................... A-12
Company Stock Option(s)................ Section 1.10(a)........................ A-9
DGCL................................... Section 1.1............................ A-6
Effective Time......................... Section 1.2............................ A-7
Environmental Claim.................... Section 2.12(a)........................ A-15
Environmental Laws..................... Section 2.12(a)........................ A-15
ERISA.................................. Section 2.11........................... A-15
ESPP................................... Section 2.2(a)......................... A-11
Exchange Act........................... Section 2.2(c)......................... A-12
Exchange Agent......................... Section 1.9(a)......................... A-7
Financial Advisor...................... Section 2.15........................... A-16
GAAP................................... Section 2.4(a)......................... A-12
Governmental Entity.................... Section 2.6............................ A-13
HSR Act................................ Section 2.6............................ A-13
Lien................................... Section 2.2(b)......................... A-11
Material Adverse Effect................ Sections 2.1(a), 3.1(a)................ A-10, A-17
Merger................................. Section 1.1............................ A-6
Merger Consideration................... Section 1.8(a)......................... A-7
Notice of Superior Proposal............ Section 4.4(b)......................... A-26
NYSE................................... Section 1.9(f)......................... A-9
Parent................................. Preamble............................... A-6
Parent Common Stock.................... Section 1.8(a)......................... A-7
Parent Disclosure Schedule............. Section 3.2(a)......................... A-18
Parent Option.......................... Section 1.10(a)........................ A-9
Parent Permits......................... Section 3.10........................... A-21
Parent SEC Reports..................... Section 3.4(a)......................... A-19
Proxy Statement........................ Section 2.5............................ A-13
S-4.................................... Section 2.5............................ A-13
SEC.................................... Section 2.4(a)......................... A-12
Securities Act......................... Recitals............................... A-6
Shareholders Agreement................. Recitals............................... A-6
Share(s)............................... Section 1.8(a)......................... A-7
Subsidiaries........................... Section 7.12........................... A-38
Superior Proposal...................... Section 4.4(b)......................... A-26
Surviving Corporation.................. Section 1.1............................ A-6
Taxes.................................. Section 2.13........................... A-15
Third Party Acquisition................ Section 6.1(d)......................... A-34
</TABLE>
A-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 19, 1996 and as
amended on March , 1996, is among SIERRA ON-LINE, INC., a Delaware corporation
(the "Company"), CUC INTERNATIONAL INC., a Delaware corporation ("Parent"), and
LARRY ACQUISITION CORP., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("Acquisition").
WITNESSETH:
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition each
have, in light of and subject to the terms and conditions set forth herein, (i)
determined that the Merger (as defined in Section 1.1) is fair to their
respective shareholders and in the best interests of such shareholders and (ii)
approved the Merger in accordance with this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
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 of Shares
(as defined in Section 1.8(a)) are entering into the Shareholders Agreement, a
copy of which is attached hereto as Exhibit A (the "Shareholders Agreement");
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a "pooling-of-interests"; and
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 1.8(a)), of the Shares
beneficially owned by such Company Affiliate on the date hereof and (ii) the
transfer of the shares of Parent Common Stock (as defined in Section 1.8(a)) to
be received by such Company Affiliate in the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Acquisition hereby agree as
follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and in accordance with the Delaware
General Corporation Law (the "DGCL"), Acquisition shall be merged with and into
the Company (the "Merger"). Following the Merger, the Company shall continue as
the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of Acquisition shall cease.
SECTION 1.2. Effective Time. Subject to the provisions of this Agreement,
Parent, Acquisition 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
A-6
<PAGE>
Merger shall become effective upon such filing or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time").
SECTION 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article 5 (the "Closing Date"), at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, unless another time, date or place is agreed to in writing by the parties
hereto.
SECTION 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Acquisition shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5. Certificate of Incorporation and Bylaws. The Restated
Certificate of Incorporation of the Company in effect at the Effective Time
shall be the articles of incorporation of the Surviving Corporation until
amended in accordance with applicable law. The Bylaws of the Company in effect
at the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 1.6. Directors. The directors of the Company at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
SECTION 1.7. Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
SECTION 1.8. Conversion of Shares.
(a) At the Effective Time, each share of common stock, par value $0.01 per
share, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time (individually a "Share" and
collectively, the Shares") (other than (i) Shares held by any subsidiary of the
Company and (ii) Shares held by Parent, Acquisition or any other subsidiary of
Parent) shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be converted into and shall
become 1.225 fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Parent ("Parent Common Stock") (the "Merger Consideration").
(b) At the Effective Time, each outstanding share of the common stock, par
value $0.01 per share, of Acquisition shall be converted into one share of
common stock, par value $0.01 per share, of the Surviving Corporation.
(c) At the Effective Time, each Share held by Parent, Acquisition or any
subsidiary of Parent, Acquisition or the Company immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Acquisition, the Company or the holder thereof, be canceled, retired and
cease to exist and no payment shall be made with respect thereto.
SECTION 1.9. Exchange of Certificates.
(a) As of the Effective Time, Parent shall make available to The Bank of
Boston or another bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of Shares, for exchange in accordance with this Article I, through
A-7
<PAGE>
the Exchange Agent: (i) certificates representing the appropriate number of
shares of Parent Common Stock and (ii) cash to be paid in lieu of fractional
shares of Parent Common Stock (such shares of Parent Common Stock and such cash
are hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
1.8 in exchange for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") whose Shares were converted into the right to receive shares of
Parent Common Stock pursuant to Section 1.8: (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Parent
and Acquisition, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock and,
if applicable, a check representing the cash consideration to which such holder
may be entitled on account of a fractional share of Parent Common Stock, which
such holder has the right to receive pursuant to the provisions of this Article
I, and the Certificate so surrendered shall forthwith be canceled. In the event
of a transfer of ownership of Shares which is not registered in the transfer
records of the Company, a certificate representing the proper number of shares
of Parent Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.9, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock and cash in
lieu of any fractional shares of Parent Common Stock as contemplated by this
Section 1.9.
(c) No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
1.9(f) until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 1.9(f) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) In the event that any Certificate for Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon
the making of an affidavit of that fact by the holder thereof such shares of
Parent Common Stock and cash in lieu of fractional shares, if any, as may be
required pursuant to this Agreement; provided, however, that Parent may, in its
discretion, require the delivery of a suitable bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for exchange
of Shares in accordance with the terms hereof (including any cash paid pursuant
to Section 1.9(c) or 1.9(f)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be
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no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Shares which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall, upon surrender of his or her
Certificate or Certificates, be entitled to receive an amount of cash (without
interest) determined by multiplying the closing price for Parent Common Stock as
reported on the New York Stock Exchange (the "NYSE") Composite Transactions on
the business day two days prior to the Effective Date by the fractional share
interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
problems which would otherwise be caused by the issuance of fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed to the
shareholders of the Company for six months after the Effective Time shall be
delivered to Parent, upon demand, and any shareholders of the Company who have
not theretofore complied with this Article I shall thereafter look only to
Parent for payment of their claim for Parent Common Stock, as the case may be,
any cash in lieu of fractional shares of Parent Common Stock and any dividends
or distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of Shares,
or Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
SECTION 1.10. Stock Options. (a) At the Effective Time, each outstanding
option to purchase shares of Company Common Stock (a "Company Stock Option" or
collectively, "Company Stock Options") issued pursuant to the (i) 1987 Stock
Option Plan of the Company and the 1995 Stock Option and Award Plan (the "1995
Plan") of the Company and the Papyrus Design Group, Inc. 1992 Stock Option Plan
(collectively, the "Company Plans") and (ii) the Sierra On-Line, Inc. 1993 Stock
Option Grant Agreement with Kenneth A. Williams and the Sierra On-Line, Inc.,
1994 Stock Option Grant Agreement with Walter A. Forbes (collectively, the
"Non-Plan Option Agreements"), whether vested or unvested, shall be assumed by
Parent and shall constitute an option to acquire, on the same terms and subject
to the same conditions as were applicable under such Company Stock Option,
including, without limitation, term, exercisability, vesting schedule, status as
an "incentive stock option" under section 422 of the Code, acceleration and
termination provisions, the same number of shares of Parent Common Stock (each,
a "Parent Option") as the holder of such Company Stock 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, at a price per share equal to
(y) the aggregate exercise price for the shares of Company Common Stock
otherwise purchasable pursuant to such Company Stock Option divided by (z) the
number of full shares of Parent Common Stock deemed purchasable pursuant to such
Company Stock Option; provided, however, that the number of shares of Parent
Common Stock that may be purchased upon exercise of any such Parent Option shall
not include any fractional share and, upon exercise of the Parent Option, a cash
payment shall be made for any fractional share based upon the Closing Price (as
hereinafter defined) of a share of Parent Common Stock on the trading day
immediately preceding the date of exercise. "Closing Price" shall mean, on any
day, the last reported sale price of one share of Parent Common Stock on the
NYSE. Employment with the Company shall be credited to the optionees for
purposes of determining the number of vested shares of Parent Common Stock
subject to exercise under assumed Company Options after the Effective Time.
Parent agrees that the Parent Options shall become 100% vested and fully
exercisable in the
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event that, within two years after the Effective Time the holder's employment or
services are terminated by Parent or any of its affiliates without Cause or the
holder voluntarily terminates his or her employment or services with Good
Reason. "Cause" and "Good Reason" shall have the meanings set forth in the 1995
Plan. None of the Company Stock Options that are unvested at the Effective Time
shall become vested as a result of the execution and delivery of this Agreement
or the consummation of the Merger.
(b) As soon as practicable after the Effective Time, but not later than 30
days thereafter, Parent shall deliver to holders of Company Stock Options
notices informing such holders that such Company Stock Options have been assumed
by Parent and will constitute options to purchase shares of Parent Common Stock
on the same terms and subject to the same conditions as their Company Stock
Options (subject to the adjustments required by this Section 1.10 after giving
effect to the Merger).
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Parent Options in accordance with this Section 1.10. As soon as practicable
after the Effective Time, but no later than 30 days thereafter, Parent shall
file a registration statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), or another appropriate form with
respect to the shares of Parent Common Stock subject to the Parent 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 the Parent Options
remain outstanding.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Acquisition
as follows:
SECTION 2.1. Organization and Qualification; Subsidiaries.
(a) The Company and each of its subsidiaries (as defined in Section 7.12),
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Material Adverse Effect (as defined below) on the Company. When used in
connection with the Company or its subsidiaries, the term "Material Adverse
Effect" means any change or effect (i) that is or is reasonably likely to be
materially adverse to the properties, business, results of operations or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
whole, other than any change or effect arising out of general economic
conditions or conditions generally affecting the consumer software market or the
entertainment, education or personal productivity sectors of that market or (ii)
that may impair the ability of the Company to consummate the transactions
contemplated hereby.
(b) Except as set forth in Section 2.1(b) of the Disclosure Schedule
previously delivered by the Company to Parent (the "Company Disclosure
Schedule"), the Company has no subsidiaries and does not own, directly or
indirectly, beneficially or of record, any shares of capital stock or other
security of any other entity or any other investment in any other entity.
(c) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on the Company.
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(d) The Company has heretofore delivered to Parent accurate and complete
copies of the certificate or articles of incorporation and by-laws, as currently
in effect, of each of the Company and each of its subsidiaries.
SECTION 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized capital stock of the Company consists of: 40,000,000
Shares, of which, as of February 12, 1996, approximately 20,014,182 shares were
issued and outstanding, and 1,000,000 shares of preferred stock, par value $0.01
per share, no shares of which are outstanding. All of the issued and outstanding
shares of Company Common Stock have been validly issued, and are fully paid,
nonassessable and free of preemptive rights. As of February 12, 1996,
approximately 2,832,238 shares of Company Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding Company Stock Options issued pursuant to the Company
Plans and the Non-Plan Option Agreements, 191,981 shares of Company Common Stock
were reserved for issuance under the Company's 1995 Employee Stock Purchase Plan
(the "ESPP") and 1,668,571 shares of Company Common Stock were reserved for
issuance pursuant to the conversion of the Company's 6 1/2% Convertible
Subordinated Notes due 2001 (the "Convertible Notes"). The final purchase by
participants under the ESPP will occur no later than the business day
immediately preceding the Effective Time. The ESPP will terminate at the
Effective Time. Except as described in the Company SEC Reports (as defined in
Section 2.4(a)) or in Section 2.2(a) of the Company Disclosure Schedule, as of
the date hereof, since February 12, 1996, no shares of the Company's capital
stock have been issued other than pursuant to Company Stock Options already in
existence on such date, and, since February 12, 1996, no stock options have been
granted. Except as set forth above, as of the date hereof, there are outstanding
(i) no shares of capital stock or other voting securities of the Company, (ii)
no securities of the Company or its subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(iii) no options or other rights to acquire from the Company or its
subsidiaries, and no obligations of the Company or its subsidiaries to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company, and (iv) no
equity equivalents, interests in the ownership or earnings of the Company or its
subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "Company Securities"). There are no outstanding obligations of
the Company or its subsidiaries to repurchase, redeem or otherwise acquire any
Company Securities. Except as set forth in Section 2.2(a) of the Company
Disclosure Schedule, there are no stockholder agreements (other than the
Shareholders 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 capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien (as
defined below) or any other limitation or restriction (including any restriction
on the right to vote or sell the same, except as may be provided as a matter of
law). There are no securities of the Company or its subsidiaries convertible
into or exchangeable for, no options or other rights to acquire from the Company
or its subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly, of any capital stock or other ownership interests in, or
any other securities of, any subsidiary of the Company. There are no outstanding
contractual obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset (including, without limitation, any
security) any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
(c) The Company Common Stock constitutes the only class of securities of the
Company or its subsidiaries registered or required to be registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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SECTION 2.3. Authority Relative to this Agreement; Consents and Approvals.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company (the "Company Board") 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, with respect
to the Merger, the approval and adoption of this Agreement by the holders of a
majority of the then outstanding shares of Company Common Stock). This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a valid, legal and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
(b) The Company Board has, by unanimous vote of those present, duly and
validly approved, and taken all corporate actions required to be taken by the
Company Board for the consummation of, the transactions, including the Merger,
contemplated hereby and resolved to recommend that the shareholders of the
Company approve and adopt this Agreement; provided, however, that such approval
and recommendation may be withdrawn, modified or amended in the event that the
Company Board by majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law. No state takeover statute or similar statute
or regulation applies or purports to apply to the Merger, this Agreement or any
of the transactions contemplated hereby.
SECTION 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since January 1, 1993, each of
which has complied in all material respects with all applicable requirements of
the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. The Company has heretofore delivered to
Parent, in the form filed with the SEC (including any amendments thereto), (i)
its Annual Reports on Form 10-K for each of the fiscal years ended March 31,
1993, 1994 and 1995, (ii) all definitive proxy statements relating to the
Company's meetings of shareholders (whether annual or special) held since April
1, 1993 and (iii) all other reports or registration statements filed by the
Company with the SEC since April 1, 1993 (the "Company SEC Reports"). None of
such forms, reports or documents, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements 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 and fairly
present, in conformity with generally accepted accounting principles applied on
a consistent basis ("GAAP") (except as may be indicated in the notes thereto),
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and except that, in the case of financial statements
included therein which were later restated to account for one or more business
combinations accounted for as poolings-of-interests, such original financial
statements do not reflect such restatements). Since March 31, 1995, except as
set forth in the Company SEC Reports, there has not been any change, or any
application or request for any change, by the Company or any of its subsidiaries
in accounting principles, methods or policies for financial accounting or tax
purposes (subject, in the case of the unaudited interim financial statements, to
normal year-end adjustments).
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(b) The Company has heretofore made available to Parent a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Exchange
Act.
SECTION 2.5. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the proxy
statement relating to the meeting of the Company's shareholders, and, if
required, a meeting of Parent's shareholders, to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to shareholders and at
the times of the meeting or meetings of shareholders to be held in connection
with the Merger, 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 S-4 or the Proxy Statement, the Company shall promptly so
advise Parent and such event shall be so described, and such amendment or
supplement (which Parent shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as required by law, disseminated to the
shareholders of the Company. The Proxy Statement, insofar as it relates to the
meeting of the Company's shareholders to vote on the Merger, will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the filing and recordation of the
Certificate of Merger as required by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on the Company. Except as set
forth in Section 2.6 to the Company Disclosure Schedule, neither the execution,
delivery and performance of this Agreement by the Company 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 or articles
of incorporation or bylaws (or similar governing documents) of the Company or
any of its subsidiaries, (ii) 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, amendment, cancellation or acceleration or Lien)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not have a Material Adverse Effect on the
Company.
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SECTION 2.7. No Default. None of the Company or its subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its certificate or articles of incorporation or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or either of its subsidiaries is now a party or by which any of them or
any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company, its subsidiaries or any of their respective properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults that
would not have a Material Adverse Effect on the Company.
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by the Company in the Company SEC Reports, as
of December 31, 1995, none of the Company or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, which
would be required by GAAP to be reflected in, reserved against or otherwise
described in the consolidated balance sheet of the Company (including the notes
thereto) as of such date or which could reasonably be expected to have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, since December 31, 1995, the business of the
Company and its subsidiaries has been carried on only in the ordinary and usual
course, none of the Company or its subsidiaries has incurred any liabilities of
any nature, whether or not accrued, contingent or otherwise, which could
reasonably be expected to have, and there have been no events, changes or
effects with respect to the Company or its subsidiaries having or which could
reasonably be expected to have, a Material Adverse Effect on the Company.
SECTION 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports or disclosed in Section 2.9 of the Company Disclosure
Schedule, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries or any of their respective properties or assets which (a) could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or (b) as of the date hereof, questions the
validity of this Agreement or any action to be taken by the Company in
connection with the consummation of the transactions contemplated hereby or
could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by the Company,
none of the Company or its subsidiaries is subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen, could
reasonably be expected to have a Material Adverse Effect on the Company or would
prevent or delay the consummation of the transactions contemplated hereby.
SECTION 2.10. Compliance with Applicable Law. Except as publicly disclosed
by the Company in the Company SEC Reports, the Company and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which could not reasonably
be expected to have a Material Adverse Effect on the Company. Except as publicly
disclosed by the Company in the Company SEC Reports, the Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or warranty
is made in this Section 2.10 with respect to Environmental Laws (as defined in
Section 2.12(a)) and except for violations or possible violations which do not,
and, insofar as reasonably can be foreseen, will not, have a Material Adverse
Effect on the Company. Except as publicly disclosed by the Company in the
Company SEC Reports or as disclosed in Section 2.10 of the Company Disclosure
Schedule, to the best
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knowledge of the Company no investigation or review by any Governmental Entity
with respect to the Company or its subsidiaries is pending or threatened, nor,
to the best knowledge of the Company, has any Governmental Entity indicated an
intention to conduct the same, other than, in each case, those which the Company
reasonably believes will not have a Material Adverse Effect on the Company.
SECTION 2.11. Employee Plans. Except as disclosed in Section 2.11 of the
Company Disclosure Schedule, there are no "employee benefit plans" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by the Company or its subsidiaries
("Company ERISA Plans"). A complete and correct copy of each Company ERISA Plan
has been provided or made available to Parent. The Company ERISA Plans are in
compliance with the applicable provisions of ERISA, the Code and other
applicable law, except for instances of non-compliance that could not reasonably
be expected to have a Material Adverse Effect on the Company.
SECTION 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by the Company in the Company SEC Reports,
(i) each of the Company and its subsidiaries is in compliance with all
applicable federal, state and local laws and regulations relating to pollution
or protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), except for non-compliance that could not
reasonably be expected to have a Material Adverse Effect on the Company, which
compliance includes, but is not limited to, the possession by the Company and
its subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) none of the Company or its subsidiaries has received
written notice of, or, to the best knowledge of the Company, is the subject of,
any action, cause of action, claim, investigation, demand or notice by any
person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim") that could reasonably be expected
to have a Material Adverse Effect on the Company; and (iii) to the best
knowledge of the Company, there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by the Company in the Company SEC Reports,
there are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on the Company that are pending or, to the best
knowledge of the Company, threatened against the Company or its subsidiaries or,
to the best knowledge of the Company, against any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
or may have retained or assumed either contractually or by operation of law.
SECTION 2.13. Tax Matters. The Company and its subsidiaries have accurately
prepared in all material respects and duly filed with the appropriate federal,
state, local and foreign taxing authorities all tax returns, information returns
and reports that are, individually and in the aggregate, material and are
required to be filed with respect to the Company and its subsidiaries and have
paid in full or made adequate provision for the payment of all material Taxes
(as defined below). Neither the Company nor any of its subsidiaries is
delinquent in the payment of any material Taxes. As used herein, the term
"Taxes" means all federal, state, local and foreign taxes, including, without
limitation, income, profits, franchise, employment, transfer, withholding,
property, excise, sales and use taxes (including interest penalties thereon and
additions thereto).
SECTION 2.14. Intangible Property. The Company and its subsidiaries own or
possess adequate licenses or other valid rights to use all material patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, know-how and other proprietary rights and information used or
held for use in
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connection with the business of the Company and its subsidiaries as currently
conducted or as contemplated to be conducted, and the Company is unaware of any
assertion or claim challenging the validity of any of the foregoing which,
individually or in the aggregate, would have a Material Adverse Effect on the
Company. To the best knowledge of the Company, the conduct of the business of
the Company and its subsidiaries as heretofore and currently conducted has not
and does not conflict in any way with any patent, patent right, license,
trademark, trademark right, trade name, trade name right, service mark or
copyright of any third party that, individually or in the aggregate, would have
a Material Adverse Effect on the Company. To the best knowledge of the Company,
there are no infringements of any proprietary rights owned by or licensed by or
to the Company or any subsidiary which, individually or in the aggregate, would
have a Material Adverse Effect on the Company.
SECTION 2.15. Opinion of Financial Advisor. Robertson, Stephens & Company
LLC (the "Financial Advisor") has delivered to the Company Board its opinion,
dated the date of this Agreement, to the effect that, as of such date, the
Merger Consideration is fair to the holders of Shares from a financial point of
view, and such opinion has not been withdrawn or modified.
SECTION 2.16. Brokers. No broker, finder or investment banker (other than
the Financial Advisor, a true and correct copy of whose engagement agreement has
been provided to Acquisition or Parent) is entitled to any brokerage, finder's
or other fee or commission or expense reimbursement in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Company or any of its affiliates (including the Company
Affiliates). The Company shall be responsible for all such fees and expenses,
except as otherwise provided in Section 6.3.
SECTION 2.17. Accounting Matters. Neither the Company nor, to the best of
its knowledge, any of its affiliates or shareholders (including the Company
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." 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."
SECTION 2.18. Material Contracts.
(a) The Company has delivered or otherwise made available to Parent true,
correct and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which the Company
is a party affecting the obligations of any party thereunder) to which the
Company or any of its subsidiaries is a party or by which any of its properties
or assets are bound that are, material to the business, properties or assets of
the Company and its subsidiaries taken as a whole, including, without
limitation, to the extent any of the following are, individually or in the
aggregate, material to the business, properties or assets of the Company and its
subsidiaries taken as a whole, all: (i) employment, product design or
development, personal services, consulting, non-competition, severance, golden
parachute or indemnification contracts (including, without limitation, any
contract to which the Company is a party involving employees of the Company);
(ii) licensing, publishing, merchandising or distribution agreements; (iii)
contracts granting a right of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets of the Company (by merger,
purchase or sale of assets or stock or otherwise) entered into since January 1,
1993; (vi) contracts or agreements with any Governmental Entity; and (vii) all
commitments and agreements to enter into any of the foregoing (collectively,
together with any such contracts entered into in accordance with Section 4.1
hereof, the "Contracts"). Neither the Company nor any of its subsidiaries is a
party to or bound by any severance, golden parachute or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of the consummation of the transactions contemplated hereby.
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(b) Each of the Contracts is valid and enforceable in accordance with its
terms, and there is no default under any Contract so listed either by the
Company or, to the knowledge of the Company, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of notice or both
would constitute a default thereunder by the Company or, to the knowledge of the
Company, any other party, in any such case in which such default or event could
reasonably be expected to have a Material Adverse Effect on the Company.
(c) No party to any such Contract has given notice to the Company of or made
a claim against the Company with respect to any breach or default thereunder, in
any such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on the Company.
SECTION 2.19. Disclosure. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate
delivered by the Company to Acquisition or Parent pursuant to this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
when taken together in light of the circumstances in which they were made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 3.1. Organization.
(a) Each of Parent and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Material Adverse
Effect (as defined below) on Parent. When used in connection with Parent or
Acquisition, the term "Material Adverse Effect" means any change or effect that
is (i) materially adverse to the properties, business, results of operations or
condition (financial or otherwise) of Parent and its subsidiaries, taken as a
whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which Parent and its subsidiaries are
engaged or (ii) that may impair the ability of Parent and/or Acquisition to
consummate the transactions contemplated hereby.
(b) Parent has heretofore delivered to the Company accurate and complete
copies of the certificate of incorporation and bylaws, as currently in effect,
of Parent and Acquisition. Each of Parent and its subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Material Adverse Effect on Parent.
(c) Each of Parent and its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent.
(d) Parent has heretofore delivered to the Company accurate and complete
copies of the certificate of incorporation and by-laws of Parent as currently in
effect.
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SECTION 3.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of (i) 400,000,000
shares of Parent Common Stock, of which, as of January 31, 1996, approximately
189,000,000 shares of Parent Common Stock were issued and outstanding, and
3,000,000 shares of Parent Common Stock were held in treasury and (ii) 1,000,000
shares of preferred stock, $.01 par value per share, none of which is issued or
outstanding. All of the shares of Parent Common Stock have been validly issued,
and are fully paid, nonassessable and free of preemptive rights. As of January
31, 1996, approximately 29.7 million shares of Parent Common Stock were reserved
for issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding options. Except as described in the Parent SEC Reports
(as defined in Section 3.4(a)) and except as set forth in Section 3.2 of the
Disclosure Schedule previously delivered by Parent to the Company (the "Parent
Disclosure Schedule"), as of the date hereof, since January 31, 1996, no shares
of Parent's capital stock have been issued other than pursuant to stock options
already in existence on January 31, 1996, and no stock options have been
granted. Except (i) as described in the Parent SEC Reports, and (ii) as set
forth above, as of the date hereof, there are outstanding (A) no shares of
capital stock or other voting securities of Parent, (B) no securities of Parent
or its subsidiaries convertible into or exchangeable for shares of capital stock
or voting securities of Parent, (C) except as provided in the Davidson Agreement
(as defined in Section 4.23), no options or other rights to acquire from Parent
or its subsidiaries, and no obligations of Parent or its subsidiaries to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (D) no equity
equivalents, interests in the ownership or earnings of Parent or its
subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "Parent Securities"). There are no outstanding obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire any
Parent Securities. Except as set forth in the Parent SEC Reports, there are no
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 capital stock of Parent.
(b) All of the outstanding capital stock of Parent's subsidiaries (including
Acquisition) is owned by Parent, directly or indirectly, free and clear of any
Lien or any other limitation or restriction (including any restriction on the
right to vote or sell the same, except as may be provided as a matter of law).
There are no securities of Parent or its subsidiaries convertible into or
exchangeable for, no options or other rights to acquire from Parent or its
subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any subsidiary of Parent. There are no outstanding contractual
obligations of Parent or its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any subsidiary of Parent.
(c) The Parent Common Stock constitutes the only class of equity securities
of Parent or its subsidiaries registered or required to be registered under the
Exchange Act.
SECTION 3.3. Authority Relative to this Agreement. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
boards of directors of Parent and Acquisition and by Parent as the sole
shareholder of Acquisition, and no other corporate proceedings on the part of
Parent or Acquisition 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 Acquisition and constitutes a
valid, legal and binding agreement of each of Parent and Acquisition,
enforceable against each of Parent and Acquisition in accordance with its terms.
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SECTION 3.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents with the SEC
since February 1, 1993, each of which has complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, each as
in effect on the dates such forms, reports and documents were filed. Parent has
heretofore delivered to the Company, in the form filed with the SEC (including
any amendments thereto), (i) its Annual Reports on Form 10-K for each of the
fiscal years ended January 31, 1993, 1994 and 1995, (ii) all definitive proxy
statements relating to Parent's meetings of shareholders (whether annual or
special) held since February 1, 1993 and (iii) all other reports or registration
statements filed by Parent with the SEC since February 1, 1993 (the "Parent SEC
Reports"). None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of Parent included in the Parent 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 and fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and except that, in the case of financial statements
included therein which were later restated to account for one or more business
combinations accounted for as poolings-of-interests, such original financial
statements do not reflect such restatements). Since January 31, 1995, there has
not been any change, or any application or request for any change, by Parent or
any of its subsidiaries in accounting principles, methods or policies for
financial accounting or tax purposes.
(b) Parent has heretofore made available to the Company a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
previously had been filed by Parent with the SEC pursuant to the Exchange Act.
SECTION 3.5. Information Supplied. None of the information supplied or to be
supplied by Parent or Acquisition for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to shareholders and at the times of the
meeting of shareholders of the Company to be held in connection with the Merger,
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
Parent, 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 S-4 or
the Proxy Statement, Parent shall promptly so advise the Company and such event
shall be so described, and such amendment or supplement (which the Company shall
have a reasonable opportunity to review) shall be promptly filed with the SEC.
The S-4 will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and the filing and recordation of the
Certificate of Merger as required by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution
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and delivery by Parent or Acquisition of this Agreement or the consummation by
Parent or Acquisition of the transactions contemplated hereby, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice would not have a Material Adverse Effect on
Parent. Except as set forth in Section 3.6 of the Parent Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by Parent or
Acquisition nor the consummation by Parent or Acquisition of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the respective certificate of incorporation or bylaws (or similar
governing documents) of Parent or Acquisition or any of Parent's subsidiaries,
(ii) 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, amendment, cancellation or acceleration or Lien) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or Acquisition or any of Parent's subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Parent or Acquisition or any of Parent's subsidiaries or any of
their respective properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which would not have a Material Adverse Effect
on Parent.
SECTION 3.7. No Default. None of Parent or any of its subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its Articles of Incorporation or Bylaws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent, its
subsidiaries or any of their respective properties or assets, except in the case
of (ii) or (iii) for violations, breaches or defaults that would not have a
Material Adverse Effect on Parent.
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by Parent, as of October 31, 1995, none of
Parent or its subsidiaries had any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due or asserted or unasserted, which would be required by GAAP to be reflected
in, reserved against or otherwise described in the consolidated balance sheet of
Parent and its consolidated subsidiaries (including the notes thereto) as of
such date or which could reasonably be expected to have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, since October 31, 1995, the business of Parent and its subsidiaries has
been carried on only in the ordinary and usual course, none of Parent or its
subsidiaries has incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, which could reasonably be expected to have, and there have been no
events, changes or effects with respect to Parent or its subsidiaries having or
which could reasonably be expected to have, a Material Adverse Effect on Parent.
SECTION 3.9. Litigation. Except as publicly disclosed by Parent in the
Parent SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of Parent, threatened against Parent or any of its
subsidiaries or any of their respective properties or assets which (a) if
adversely determined, could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent or (b) as of the date hereof,
questions the validity of this Agreement or any action to be taken by Parent in
connection with the consummation of the transactions contemplated hereby or
could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by Parent in the
Parent SEC Reports, none of Parent or its subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, could reasonably be expected to have a Material Adverse
Effect on Parent or would prevent or delay the consummation of the transactions
contemplated hereby.
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SECTION 3.10. Compliance with Applicable Law. Except as publicly disclosed
by Parent in the Parent SEC Reports, Parent and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which could not reasonably
be expected to have a Material Adverse Effect on Parent. Except as publicly
disclosed by Parent in the Parent SEC Reports, Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure so
to comply could not reasonably be expected to have a Material Adverse Effect on
Parent. Except as publicly disclosed by Parent in the Parent SEC Reports, the
businesses of Parent and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 3.10 with respect to
Environmental Laws and except for violations or possible violations which do
not, and, insofar as reasonably can be foreseen, will not, have a Material
Adverse Effect on Parent. Except as publicly disclosed by Parent in the Parent
SEC Reports, to the best knowledge of Parent, no investigation or review by any
Governmental Entity with respect to Parent or its subsidiaries is pending or
threatened, nor, to the best knowledge of Parent, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which Parent reasonably believes will not have a Material Adverse Effect on
Parent.
SECTION 3.11. Employee Plans. All "employee benefit plans" as defined in
Section 3(3) of ERISA, maintained or contributed to by Parent and its
subsidiaries are in compliance with the applicable provisions of ERISA, the Code
and other applicable law, except for instances of non-compliance that could not
reasonably be expected to have a Material Adverse Effect on Parent.
SECTION 3.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by Parent in the Parent SEC Reports, (i)
each of Parent and its subsidiaries is in compliance with all Environmental
Laws, except for non-compliance that could not reasonably be expected to have a
Material Adverse Effect on Parent, which compliance includes, but is not limited
to, the possession by Parent and its subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof; (ii) none of Parent or its
subsidiaries has received written notice of, or, to the best knowledge of
Parent, is the subject of, any Environmental Claim that could reasonably be
expected to have a Material Adverse Effect on Parent; and (iii) to the best
knowledge of Parent, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Parent in the Parent SEC Reports, there
are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Parent that are pending or, to the best knowledge of
Parent, threatened against Parent or any of its subsidiaries or, to the best
knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or its subsidiaries has or may have retained or
assumed either contractually or by operation of law.
SECTION 3.13. Tax Matters. Parent and its subsidiaries have accurately
prepared in all material respects and duly filed with the appropriate federal,
state, local and foreign taxing authorities all tax returns, information returns
and reports that are, individually or in the aggregate, material and are
required to be filed with respect to Parent and its subsidiaries and have paid
in full or made adequate provision for the payment of all material Taxes.
Neither Parent nor any of its subsidiaries is delinquent in the payment of any
material Taxes.
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SECTION 3.14. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person or entity.
SECTION 3.15. Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Acquisition or any of
their affiliates.
SECTION 3.16. 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."
SECTION 3.17. Disclosure. No representation or warranty by Parent contained
in this Agreement and no statement contained in any certificate delivered by
Acquisition or Parent to the Company pursuant to this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading when taken
together in light of the circumstances in which they were made.
ARTICLE 4
COVENANTS
SECTION 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary 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, seek to keep available the service of its current
officers and employees and seek to 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 expressly
provided in this Agreement, prior to the Effective Time, neither the Company nor
any of its subsidiaries will, without the prior written consent of Parent, which
consent shall not be unreasonably withheld:
(a) amend its certificate or articles of incorporation or bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for the
grant of options to purchase up to 500,000 shares of Company Common Stock to
employees under the Company Plans, the sale of up to 191,981 shares of Company
Common Stock to employees under the ESPP, the issuance of up to 1,668,571 shares
of Company Common Stock pursuant to the conversion of the Convertible Notes in
accordance with the terms thereof and the issuance or sale of shares of Company
Common Stock
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pursuant to options granted under the Company Plans or the Non-Plan Option
Agreements (in each case, in the ordinary course of business and consistent with
past practice);
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, 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, or redeem or otherwise acquire any of its securities or any
securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business and in amounts not material to the Company and its
subsidiaries taken as a whole; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and its
subsidiaries, taken as a whole, and except for obligations of the wholly owned
subsidiaries of the Company; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to the wholly
owned subsidiaries of the Company or customary loans or advances to employees in
the ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (iv) pledge or otherwise
encumber shares of capital stock of the Company or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material Lien thereupon;
(g) except as may be required by law or as contemplated by this Agreement,
enter into, adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option (except for normal grants to newly hired or
current employees, consistent with past practice), stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
(except as set forth in Section 4.1(g) of the Company Disclosure Schedule and
except for normal increases in the ordinary course of business consistent with
past practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, and as required under existing
agreements or in the ordinary course of business generally consistent with past
practice) increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company and its subsidiaries taken as a whole, enter into any commitment or
transaction outside the ordinary course of business or grant any exclusive
distribution rights;
(i) except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting principles or
practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business or as required by
generally accepted accounting principles;
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(k) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any contract or
agreement, other than in the ordinary course of business or amend in any
material respect any of the Contracts or the agreements referred to in Section
2.18; (iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $500,000 or, in the aggregate, are in excess of $5
million; provided, that none of the foregoing shall limit any capital
expenditure already included in the Company's fiscal 1997 capital expenditure
budget provided to Parent prior to the date hereof; or (iv) enter into or amend
any contract, agreement, commitment or arrangement providing for the taking of
any action that would be prohibited hereunder;
(l) make or revoke any tax election or settle or compromise any tax
liability material to the Company and its subsidiaries taken as a whole or
change (or make a request to any taxing authority to change) any material aspect
of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Company and its subsidiaries or incurred in the ordinary course of business
consistent with past practice;
(n) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby; or
(o) take (other than to Parent in seeking its consent to the taking of any
such action), propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through 4.1(n) or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect in any material respect.
SECTION 4.2. Conduct of Business of Parent. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, Parent
will, and will cause each of its subsidiaries to, conduct its operations in the
ordinary 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, seek to keep available the service of its current officers and
employees and seek to 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 expressly provided in this
Agreement, prior to the Effective Time, Parent will not, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld:
(a) amend its certificate of incorporation (other than to increase the
number of authorized shares of Parent Common Stock) or bylaws;
(b) split, combine or reclassify any shares of its capital stock; declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock; 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; or redeem or otherwise acquire any of its securities;
(c) adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Parent;
(d) grant options to purchase, or make restricted stock grants with respect
to, in excess of 1,000,000 shares of Parent Common Stock under Parent's employee
stock option plans or stock purchase plans, except in connection with any
acquisition (by merger, consolidation, or acquisition of
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stock or assets) of any corporation, partnership or other business organization
or division thereof or any equity interest therein (including, without
limitation, in connection with the transactions contemplated by the Davidson
Agreement);
(e) except as set forth in Section 4.2(e) of the Parent Disclosure Schedule,
incur or assume any long-term or short-term debt or issue any debt securities
except for borrowings under existing lines of credit in the ordinary course of
business and in amounts not material to Parent and its subsidiaries taken as a
whole and except for other indebtedness not exceeding $100,000,000 in the
aggregate; or
(f) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(e).
SECTION 4.3. Preparation of S-4 and the Proxy Statement. Parent will, as
promptly as practicable, prepare, following receipt of notification from the SEC
that it has no further comments on the Proxy Statement, and file with the SEC
the S-4, containing a proxy statement/prospectus and a form of proxy, in
connection with the registration under the Securities Act of the shares of
Parent Common Stock 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 the Proxy Statement that will be the same proxy
statement/prospectus contained in the S-4 and a form of proxy, in connection
with the vote of the Company's stockholders with respect to the Merger. Parent
and the Company will, and will cause their accountants and lawyers to, use all
reasonable best efforts to have or cause the S-4 declared effective as promptly
as practicable, including, without limitation, causing their accountants to
deliver necessary or required instruments such as opinions, consents 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. The Company will use all reasonable best efforts to cause
the Proxy Statement to be mailed to its shareholders at the earliest practicable
date.
SECTION 4.4. Other Potential Acquirors. (a) The Company, its affiliates and
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its subsidiaries.
The Company may, directly or indirectly, furnish information and access, in each
case only in response to unsolicited requests therefor, to any corporation,
partnership, person or other entity or group pursuant to confidentiality
agreements, and may participate in discussions and negotiate with such entity or
group concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any subsidiary or division of the
Company, if such entity or group has submitted a proposal to the Company
(whether or not in writing) relating to any such transaction and the Company
Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so to comply with its fiduciary duties to shareholders
under applicable law. The Company Board shall provide a copy of any such written
proposal and a summary of any oral proposal to Parent or Acquisition within 24
hours after receipt thereof and thereafter keep Parent and Acquisition promptly
advised of any material development with respect thereto. Except as set forth
above, neither the Company nor any of its affiliates shall, nor shall the
Company authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than Parent and Acquisition, any affiliate or associate of Parent
and Acquisition or any designees of Parent and Acquisition) concerning any
merger, sale of assets, sale of shares of capital stock or similar transaction
involving the Company or any subsidiary or division of the Company; provided,
however, that nothing herein shall prevent the Company Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with regard to any tender offer;
provided, further, that nothing herein shall prevent the Company Board from
making
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such disclosure to the Company's shareholders as, in the good faith judgment of
the Company Board, after consultation with and based upon the advice of
independent legal counsel, is necessary to comply with its fiduciary duties to
shareholders under applicable law.
(b) Except as set forth in this Section 4.4, the Company Board shall not
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition (as defined below). Notwithstanding the
foregoing, if the Board of Directors of the Company, after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law, the Company Board 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 (i) after
providing reasonable written notice to Parent (a "Notice of Superior Proposal")
advising Parent that the Company Board has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal and (ii) if Parent does not
make within five days of Parent's receipt of the Notice of Superior Proposal, an
offer which the Company Board, after consultation with its financial advisors,
determines is superior to such Superior Proposal. 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,
more than 50% of the shares of Company Common Stock then outstanding or all or
substantially all the assets of the Company and otherwise on terms which the
Company Board 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 shareholders than the Merger.
SECTION 4.5. Letter of the Company's Accountants. The Company shall use all
reasonable best efforts to cause to be delivered to Parent a letter of Deloitte
& Touche LLP, the Company's independent auditors, dated a date within two
business days before the date on which the S-4 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.
SECTION 4.6. Meetings. The Company shall call a meeting of its shareholders
to be held as promptly as practicable for the purpose of voting upon this
Agreement and related matters. The Company and Acquisition will, through their
respective Boards of Directors recommend to their respective shareholders
approval of such matters; provided, however, that the Company Board may withdraw
its recommendation if the Company Board by a majority vote determines in its
good faith judgment, after consultation with and based upon the advice of
independent legal counsel, that it is necessary to do so to comply with its
fiduciary duties to shareholders under applicable law. Notwithstanding the
foregoing (but without limiting the provisions of Section 6.1(c)(vi)), the
Company Board may not withdraw its recommendation because of the trading price
of Parent Common Stock between the date hereof and the date of the Company's
shareholder's meeting. The Company and Parent shall coordinate and cooperate
with respect to the timing of such meeting and, subject to Section 4.23(c), the
Company shall use its best efforts to hold such meeting as soon as practicable
after the date hereof; provided, however, that the Company may postpone a
previously-scheduled meeting of Company shareholders in the event that the
Company Board by majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law and, at the time of such determination, the
Company has received a bona fide proposal to effect a Third Party Acquisition
that is a Superior Proposal and that has not been withdrawn.
SECTION 4.7. Stock Exchange Listing. Parent shall use all reasonable efforts
to cause the shares of Parent Common Stock to be issued in the Merger and the
shares of Parent Common Stock to be reserved for issuance upon exercise of
Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
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SECTION 4.8. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and Acquisition and their authorized representatives reasonable access to
all employees, plants, offices, warehouses and other facilities and to all books
and records of the Company and its subsidiaries, will permit Parent and
Acquisition to make such inspections as Parent and Acquisition may reasonably
require and will cause the Company's officers and those of its subsidiaries to
furnish Parent and Acquisition with such financial and operating data and other
information with respect to the business, properties and personnel of the
Company and its subsidiaries as Parent or Acquisition may from time to time
reasonably request, provided that no investigation pursuant to this Section
4.8(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Acquisition (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management and (ii) at the
earliest time they are available, such quarterly and annual financial statements
as are prepared for the Company's SEC filings, which (in the case of this clause
(ii)), shall be in accordance with the books and records of the Company.
(c) Each of Parent and Acquisition will hold and will cause its consultants
and advisors to hold in confidence all documents and information concerning the
Company and its subsidiaries furnished to Parent or Acquisition in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Confidentiality Agreement entered into between the Company and
Parent dated February 17, 1996.
SECTION 4.9. Additional Agreements; Reasonable Best Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
its reasonable best efforts to take, or cause to be taken, all action, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperation in the preparation and filing of the Proxy Statement and the S-4,
any filings that may be required under the HSR Act, and any amendments to any
thereof; (ii) the taking of all action reasonably necessary, proper or advisable
to secure any necessary consents under existing debt obligations of the Company
and its subsidiaries or amend the notes, indentures or agreements relating
thereto to the extent required by such notes, indentures or agreements or redeem
or repurchase such debt obligations; (iii) contesting any legal proceeding
relating to the Merger; and (iv) the execution of any additional instruments,
including the Certificate of Merger, necessary to consummate the transactions
contemplated hereby; provided, however, that the Company may postpone a
previously-scheduled meeting of Company shareholders in the event that the
Company Board by majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law and, at the time of such determination, the
Company has received a bona fide proposal to effect a Third Party Acquisition
that is a Superior Proposal and that has not been withdrawn. Subject to the
terms and conditions of this Agreement, Parent and Acquisition agree to use all
reasonable efforts to cause the Effective Time to occur as soon as practicable
after the shareholder vote with respect to the Merger. In case at any time after
the Effective Time any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto shall
take all such necessary action.
SECTION 4.10. Consents. Parent, Acquisition and the Company each will use
all reasonable efforts to obtain consents of all third parties and Governmental
Entities necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement.
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SECTION 4.11. Public Announcements. Each of Parent, Acquisition and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with the NYSE or the Nasdaq Stock
Market, as determined by Parent, Acquisition or the Company, as the case may be.
SECTION 4.12. Indemnification; Directors' and Officers' Insurance.
(a) Indemnification. To the extent, if any, not provided by an existing
right under one of the parties' directors and officers liability insurance
policies, from and after the Effective Time, Parent shall, to the fullest extent
permitted by applicable law, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof, or who becomes prior
to the Effective Time, a director, officer or employee of the parties hereto or
any subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement, arising out
of actions or omissions occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time) that are in whole
or in part (i) based on, or arising out of the fact that such person is or was a
director, officer or employee of such party or a subsidiary of such party or
(ii) based on, arising out of or pertaining to the transactions contemplated by
this Agreement. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) Parent shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to Parent, promptly
after statements therefor are received and otherwise advance to such Indemnified
Party upon request reimbursement of documented expenses reasonably incurred, in
either case to the extent not prohibited by the DGCL and upon receipt of any
affirmation and undertaking required by the DGCL, (ii) Parent will cooperate in
the defense of any such matter and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the DGCL and Parent's certificate of incorporation or
bylaws shall be made by independent counsel mutually acceptable to Parent and
the Indemnified Party; provided, however, that Parent shall not be liable for
any settlement effected without its written consent (which consent shall not be
reasonably withheld). The Indemnified Parties as a group may retain only one law
firm with respect to each related matter except to the extent there is, in the
opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
any two or more Indemnified Parties.
(b) Insurance. For a period of three years after the Effective Time, Parent
shall cause to be maintained in effect the policies of directors' and officers'
liability insurance maintained by the Company for the benefit of those persons
who are covered by such policies at the Effective Time (or Parent may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time), to the extent that such liability
insurance can be maintained annually at a cost to Parent not greater than 150
percent of the premium for the current Company directors' and officers'
liability insurance; provided that if such insurance cannot be so maintained or
obtained at such costs, Parent shall maintain or obtain as much of such
insurance as can be so maintained or obtained at a cost equal to 150 percent of
the current annual premiums of the Company for such insurance.
(c) Successors. In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set for in this
Section 4.12.
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(d) Survival of Indemnification. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification now existing in
favor of the employees, agents, directors or officers of the Company and its
subsidiaries with respect to their activities as such prior to the Effective
Time, as provided in the Company's certificate of incorporation or bylaws, in
effect on the date thereof or otherwise in effect on the date hereof, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time.
(e) Benefit. The provisions of this Section 4.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
SECTION 4.13. Notification of Certain Matters. The Company shall give prompt
notice to Parent and Acquisition, and Parent and Acquisition shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material failure of
the Company, Parent or Acquisition, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) 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 or agreement
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, (iv) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement, or
(v) any material adverse change in their respective financial condition,
properties, businesses, results of operations or prospects, taken as a whole,
other than changes resulting from general economic conditions; provided,
however, that the delivery of any notice pursuant to this Section 4.13 shall not
cure such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 4.14. Pooling. The Company and Parent each agrees that it will not
take any action which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes 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, that could be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests." 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 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. The Company will cause Deloitte & Touche LLP
to inform all Company Affiliates and other relevant employees as to those
actions that should or should not be taken by such persons so that the Merger
will be accounted for as a "pooling-of-interests" and will use its best efforts
to cause such Company Affiliates and employees to take or not take such actions
as Parent may be informed by any Governmental Entity are necessary to be taken
or not to be taken so that the Merger will be accounted for as a
"pooling-of-interests."
SECTION 4.15. Tax-Free Reorganization Treatment. The Company, Parent and
Acquisition shall execute and deliver to Perkins Coie, counsel to the Company, a
certificate substantially in the form agreed to by the parties on or prior to
the date hereof (with such changes as reasonably requested by such law firm) 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
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Acquisition 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 untrue) any of the representations in such previously-agreed certificate.
SECTION 4.16. Taxes. In respect of income 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, extend (and cause its
subsidiaries to extend) the filing of any such Tax returns until after the
Effective Time; provided, however, that the Company shall notify Parent of its
intention to file an extension (or cause any subsidiary to file an extension)
any such filing and shall not file an extension for a Tax return if Parent and
the Company agree that so extending the filing of such Tax return is not in the
best interests of either the Company or Parent. If any income Tax return that
has not yet been filed 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.
SECTION 4.17. Employment and Other Agreements. Parent shall, as of or prior
to the Effective Time, enter into an employment agreement (the "Employment
Agreement") with Kenneth A. Williams and non-competition agreements (the
"Non-Competition Agreements") with each of Kenneth A. Williams and Roberta L.
Williams, in each case in the form agreed to by the parties thereto on or prior
to the date hereof. On the date hereof, Roberta L. Williams is entering into a
personal services agreement with Parent.
SECTION 4.18. Employee Matters.
(a) Employees of the Company and its subsidiaries shall be treated after the
Merger no less favorably under the compensation and benefits programs of Parent
than other similarly situated employees of Parent and its subsidiaries.
(b) For a period of one year following the Merger, Parent shall and shall
cause its subsidiaries to maintain with respect to their employees who had been
employed by the Company or any of its subsidiaries (i) base salary or regular
hourly wage rates for each such employee at not less than the rate applicable
immediately prior to the Merger to such employee, and (ii) employee benefits (as
defined for purposes of Section 3(3) of ERISA), other than employee benefits as
to which the employees' interests are based upon the Shares) which are
substantially comparable in the aggregate to such employee benefits provided by
the Company and its subsidiaries immediately prior to the Merger.
(c) Parent and its subsidiaries shall credit employees of the Company and
its subsidiaries with their service prior to the Merger with Company and its
subsidiaries to the same extent such service was counted under the Company ERISA
Plans for purposes of determining eligibility to participate or vesting under
similar benefit plans provided by Parent after the Merger.
(d) Nothing contained herein shall be construed as requiring Parent or the
Surviving Corporation to continue any specific plans or to continue the
employment of any specific person.
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SECTION 4.19. Company Affiliates. 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 shares of Parent Common Stock
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 shares of Parent Common Stock 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.
SECTION 4.20. Election to Parent Board. Effective as of the Closing Date,
Parent shall increase the size of its Board of Directors (the "Parent Board") by
one director and shall cause Kenneth A. Williams to be appointed to the Parent
Board to fill the vacancy created for an initial term expiring on the third
anniversary of the date of Parent's first annual meeting of shareholders held
following the date hereof.
SECTION 4.21. SEC Filings. Each of Parent and the Company shall promptly
provide the other party (or its counsel) with copies of all filings made by the
other party or any of its subsidiaries with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 4.22. Guarantee of Performance. Parent hereby guarantees the
performance by Acquisition of its obligations under this Agreement.
SECTION 4.23. Acquisition.
(a) The Company hereby acknowledges that it has been advised by Parent that
Parent is, substantially simultaneously with the execution and delivery of this
Agreement, entering into an Agreement and Plan of Merger (the "Davidson
Agreement"), dated as of the date hereof, among Parent, Stealth Acquisition II
Corp. ("Merger Sub") and Davidson & Associates, Inc. ("Davidson") pursuant to
which Merger Sub will merge with and into Davidson and Davidson will become a
wholly-owned subsidiary of Parent (the "Davidson Merger") and the shareholders
and stock option holders of Davidson will receive, respectively, shares of
Parent Common Stock and options to purchase shares of Parent Common Stock in the
Davidson Merger.
(b) The parties hereto expressly acknowledge and agree that it shall not be
a condition to the respective obligations of any party hereto to effect the
Merger that the transactions contemplated by the Davidson Agreement shall have
been approved by the shareholders of Parent or Davidson or that such
transactions shall have been consummated.
(c) Notwithstanding anything to the contrary contained herein (including,
without limitation, in Sections 4.3, 4.6 and 4.9 hereof), the Company will
cooperate with all reasonable requests of Parent to coordinate the timing of the
shareholders meetings with respect to the transactions contemplated by this
Agreement and the Davidson Agreement; provided, however, that the Company may
postpone a previously-scheduled meeting of Company shareholders in the event
that the Company Board by majority vote determines in its good faith judgment,
after consultation with and based upon the advice of independent legal counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law and, at the time of such determination, the
Company has received a bona fide proposal to effect a Third Party Acquisition
that is a Superior Proposal and that has not been withdrawn. In addition, the
Company will provide Parent with all financial and other data regarding the
Company as may be requested by Parent in connection with the preparation of the
proxy statement and Form S-4 relating to the Davidson Merger.
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ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the shareholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired, and any other governmental or regulatory notices or
approvals required with respect to the transactions contemplated hereby shall
have been either filed or received;
(d) the S-4 shall have become effective under the Securities Act and shall
not be the subject of any stop order or proceedings seeking a stop order and
Parent shall have received all state securities laws or "blue sky" permits and
authorizations necessary to issue shares of Parent Common Stock in exchange for
the Shares in the Merger; and
(e) Parent shall have received a letter from E&Y stating that the Merger
will be accounted for under GAAP as a "pooling-of-interests," and such opinion
shall not have been withdrawn or modified in any material respect.
SECTION 5.2. Conditions to the Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) the representations of Parent and Acquisition contained in this
Agreement or in any other document delivered pursuant hereto shall be true and
correct in all material respects at and as of the Effective Time with the same
effect as if made at and as of the Effective Time, and at the Closing Parent and
Acquisition shall have delivered to the Company a certificate to that effect;
(b) each of the obligations of Parent and Acquisition to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time and
at the Closing Parent and Acquisition shall have delivered to the Company a
certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Company shareholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NYSE upon official notice of issuance;
(d) the opinion of Perkins Coie, counsel to the Company, addressed to the
Company and its shareholders 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 Parent, Acquisition, 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 into shares
of Parent Common Stock (other than with respect to cash received in lieu of
fractional shares of Parent Common Stock), dated the Closing Date and, if
required in connection with the Proxy Statement, dated on or about the date that
is two business days prior to the
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date the Proxy Statement is first mailed to shareholders of the Company shall
have been delivered and such opinion shall not have been withdrawn or modified
in any material respect;
(e) Parent shall have obtained the consent or approval of each person whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Parent; and
(f) there shall have been no events, changes or effects with respect to
Parent or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on Parent.
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations of the Company contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct in all
material respects at and as of the Effective Time with the same effect as if
made at and as of the Effective Time, and at the Closing the Company shall have
delivered to Parent and Acquisition a certificate to that effect;
(b) each of the obligations of the Company to be performed at or before the
Effective Time pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Effective Time and at the
Closing the Company shall have delivered to Parent and Acquisition a certificate
to that effect;
(c) each Company Affiliate and each shareholder which is a party to the
Shareholders Agreement shall have performed his or its respective obligations
under the applicable Affiliate Letter and/or the Shareholders Agreement (if
applicable), and Parent shall have received a certificate signed by each of them
to such effect;
(d) the Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger to any obligation, right or
interest of the Company or any subsidiary of the Company under any loan or
credit agreement, note, mortgage, indenture, lease or other agreement or
instrument, except for those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on the Company;
(e) there shall have been no events, changes or effects with respect to the
Company or its subsidiaries having or which could reasonably be expected to
have, a Material Adverse Effect on the Company;
(f) the Employment Agreement and the Services Agreement each shall be in
full force and effect; and
(g) the Non-Competition Agreements shall be in full force and effect.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time, but prior to the Effective Time:
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(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of competent
jurisdiction in the United States or other United States governmental authority
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by September 30, 1996; provided that no
party may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement, or if any representation or warranty of Parent or Acquisition
shall have become untrue, in either case such that the conditions set forth in
Section 5.2(a) would be incapable of being satisfied by September 30, 1996 (or
as otherwise extended), (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Parent or materially adversely affecting (or
materially delaying) the consummation of the Merger, and Parent or Acquisition,
as the case may be, has not cured such breach within twenty business days after
notice by the Company thereof, (iii) the Company enters into a definitive
agreement relating to a Superior Proposal in accordance with Section 4.4(b)
(provided that such termination shall not be effective until payment of the
amount required under Section 6.3(a)), (iv) the Company shall have convened a
meeting of its shareholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its shareholders, (v) the Company Board by a
majority vote determines in its good faith judgment, after consultation with and
based upon the advice of independent legal counsel, that it is necessary to do
so to comply with its fiduciary duties to shareholders, provided that such
termination under this clause (v) shall not effective unless at the time of such
determination the Company has received a bona fide proposal to effect a Third
Party Acquisition that is a Superior Proposal and that has not been withdrawn as
of the time of such termination (provided that such termination shall not be
effective until payment of the amount required under Section 6.3(a)), or (vi)
prior to the meeting of shareholders the Company, the Average Stock Price (as
defined below) is less than $29.00. The term "Average Stock Price" means a
fraction, the numerator of which is the sum of the Closing Price (as hereinafter
defined) for each trading day during the 15 consecutive trading days ending on
the first trading day that is at least 10 calendar days prior to the scheduled
date of such meeting of shareholders of the Company and the denominator of which
is 15. For purposes hereof, with respect to any trading day, the Closing Price
shall be equal to the per share closing price on the NYSE of Parent Common Stock
on such day, as reported in the New York Stock Exchange Composite Transactions;
or
(d) by Parent and Acquisition if (i) there shall have been a breach of any
representation or warranty on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by September 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by the Company of its covenants
or agreements hereunder having a Material Adverse Effect on the Company or
materially adversely affecting (or materially delaying) the consummation of the
Merger, and the Company has not cured such breach within twenty business days
after notice by Parent or Acquisition thereof, (iii) the Company Board shall
have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger, shall have recommended to the Company's shareholders a
Third Party Acquisition or shall have failed to call, give notice of, convene or
hold a shareholders' meeting to vote upon the Merger, or shall have adopted any
resolution to effect any of the foregoing, or (iv) the Company shall have
convened a meeting of its shareholders to vote upon the Merger and shall have
failed to obtain the requisite vote of its shareholders.
"Third Party Acquisition" means the occurrence of any of the following
events (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is
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defined in Section 13(d)(3) of the Exchange Act) or entity other than Parent,
Acquisition or any affiliate thereof (a "Third Party"); (ii) the acquisition by
a Third Party of more than 30% of the total assets of the Company and its
subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 30%
or more of the outstanding shares of Company Common Stock.
SECTION 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 6.2 and Sections 4.8(c), 6.3, 7.5, 7.8, 7.10
and 7.13 hereof. Nothing contained in this Section 6.2 shall relieve any party
from liability for any breach of this Agreement.
SECTION 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(d)(i) (in the case of a willful breach of representation
or warranty) or (ii) and, within twelve months thereafter, the Company
enters into an agreement with respect to a Third Party Acquisition (which is
consummated within twelve months after such termination), or a Third Party
Acquisition occurs, involving any party (or any affiliate thereof) (x) with
whom the Company (or its agents) had negotiations with a view to a Third
Party Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had
submitted a proposal or expressed an interest in a Third Party Acquisition,
in the case of each of clauses (x), (y) and (z) after the date hereof and
prior to such termination; or
(ii) Section 6.1(c)(iii) or (v) or 6.1(d)(iii);
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages, the Company shall pay to Parent the amount of $25
million as liquidated damages, as follows: (i) in the case of a termination
under Section 6.1(d)(i) or (ii), $12.5 million shall be paid on the date the
Company enters into an agreement with respect to a Third Party Acquisition and
$12.5 million shall be paid on the date of consummation of a Third Party
Acquisition under the circumstances described in Section 6.3(a)(i) above and
(ii) in the case of a termination under Section 6.1(c)(iii) or (v) or Section
6.1(d)(iii), $12.5 million shall be paid on the date of such termination
(except, in the case of a termination under Section 6.1(d)(iii), in which case
such $12.5 million shall be paid within 20 days following such termination) and
$12.5 million shall be paid upon consummation of a Third Party Acquisition
involving any party (or any affiliate thereof) (x) with whom the Company (or its
agents) had negotiations with a view to a Third Party Acquisition, (y) to whom
the Company (or its agents) furnished information with a view to a Third Party
Acquisition or (z) who had submitted a proposal or expressed an interest in a
Third Party Acquisition, in the case of each of clauses (x), (y) and (z) after
the date hereof and prior to such termination. It is specifically agreed that
the amount to be paid pursuant to this Section 6.3(a) represents liquidated
damages and not a penalty.
(b) Upon the termination of this Agreement pursuant to Sections 6.1(c)(iii)
or (v) or 6.1(d)(i), (ii) or (iii), the Company shall reimburse Parent,
Acquisition and their affiliates (not later than ten business days after
submission of statements therefor) for all actual documented out-of-pocket fees
and expenses, not to exceed $3,000,000, actually and reasonably incurred by any
of them or on their behalf in connection with the Merger and the consummation of
all transactions contemplated by this Agreement (including, without limitation,
fees payable to investment bankers, counsel to any of the foregoing, and
accountants). If Parent or Acquisition shall submit a request for reimbursement
hereunder, Parent or Acquisition will provide the Company in due course with
invoices or other reasonable evidence of such expenses upon request. The Company
shall in any event pay the amount requested (not to exceed
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$3,000,000) within ten business days of such request, subject to the Company's
right to demand a return of any portion as to which invoices are not received in
due course.
(c) Upon the termination of this Agreement pursuant to Sections 6.1(c)(i) or
(ii), Parent shall reimburse the Company and their affiliates (not later than
ten business days after submission of statements therefor) for all actual
documented out-of-pocket fees and expenses, not to exceed $3,000,000, actually
and reasonably incurred by any of them or on their behalf in connection with the
Merger and the consummation of all transactions contemplated by this Agreement
(including, without limitation, fees payable to investment bankers, counsel to
any of the foregoing, and accountants). If the Company shall submit a request
for reimbursement hereunder, the Company will provide Parent in due course with
invoices or other reasonable evidence of such expenses upon request. Parent
shall in any event pay the amount requested (not to exceed $3,000,000) within
ten business days of such request, subject to Parent's right to demand a return
of any portion as to which invoices are not received in due course.
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby. The cost of printing the S-4 and the Proxy Statement shall
be borne equally by the Company and Parent.
SECTION 6.4. Amendment. This Agreement may be amended by action taken by the
Company, Parent and Acquisition at any time before or after approval of the
Merger by the shareholders of the Company (if required by applicable law) but,
after any such approval, no amendment shall be made which requires the approval
of such shareholders under applicable law without such approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of the
parties hereto.
SECTION 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Acquisition shall together be
deemed one party and the Company shall be deemed the other party) may (i) extend
the time for the performance of any of the obligations or other acts of the
other party, (ii) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. Any agreement on the part of
either party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
either party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 7.2. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise; provided,
however, that Acquisition may assign any or all of its rights and obligations
under this Agreement to any subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
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SECTION 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
SECTION 7.4. 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 given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
if to Parent or Acquisition: CUC International Inc.
707 Summer Street
Stamford, CT 06901
Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 310-8007
if to the Company to: Sierra On-Line, Inc.
3380 146th Place S.E.
Ste. 300
Bellevue, WA 98007
Attention: Richard K. Thumann, Esq.
Facsimile: (206) 644-7397
with a copy to: Perkins Coie
1201 Third Avenue
40th Floor
Seattle, WA 98101-3099
Attention: Stephen A. McKeon, Esq.
Facsimile: (206) 583-8500
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof.
SECTION 7.6. Descriptive Headings. The descriptive headings 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.
SECTION 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.12 and 7.2 and except
that Kenneth A. Williams shall be a third party beneficiary of the provisions of
Section 4.20, nothing in this Agreement, express or implied, 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.
SECTION 7.8. 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 7.10) 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
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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.
SECTION 7.9. 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.
SECTION 7.10. 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 7.8, shall be in addition to any other
remedies, including arbitration, which any party may have under this Agreement
or otherwise.
SECTION 7.11. Recapitalization. Whenever (a) the number of outstanding
shares of Parent Common Stock is changed by reason of a subdivision or
combination of shares, whether effected by a recapitalization, 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 (including the Merger Consideration) and each specified per share
amount (other than par values) shall be adjusted accordingly.
SECTION 7.12. Subsidiaries. The term "subsidiary" shall mean, when used with
reference to any entity, any entity more than fifty percent (50%) of the
outstanding voting securities or interests (including membership interests) of
which are owned directly or indirectly by such former entity.
SECTION 7.13. Brokers. Except as otherwise provided in Section 6.3, the
Company agrees to indemnify and hold harmless Parent and Acquisition, and Parent
and Acquisition agree to indemnify and hold harmless the Company, from and
against any and all liability to which Parent and Acquisition, on the one hand,
or the Company, on the other hand, may be subjected by reason of any brokers,
finders or similar fees or expenses with respect to the transactions
contemplated by this Agreement to the extent such similar fees and expenses are
attributable to any action undertaken by or on behalf of the Company, or Parent
or Acquisition, as the case may be.
SECTION 7.14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
SIERRA ON-LINE, INC.
By: /s/ KENNETH A. WILLIAMS
..................................
Name: Kenneth A. Williams
Title: Chairman and Chief Executive
Officer
CUC INTERNATIONAL INC.
By: /s/ E. KIRK SHELTON
..................................
Name: E. Kirk Shelton
Title: President
LARRY ACQUISITION CORP.
By: /s/ E. KIRK SHELTON
..................................
Name: E. Kirk Shelton
Title: President
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ANNEX B
SHAREHOLDERS AGREEMENT
AGREEMENT, dated February 19, 1996 (this "Agreement"), by and among CUC
INTERNATIONAL INC., a Delaware corporation ("Parent"), and each of the other
parties signatory hereto (each, a "Shareholder" and, collectively, the
"Shareholders").
WITNESSETH:
WHEREAS, concurrently herewith, Parent, LARRY ACQUISITION CORP., a Delaware
corporation and a direct wholly-owned subsidiary of Parent ("Merger Sub"), and
SIERRA ON-LINE, INC., 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 Shareholders owns the number of shares, par value $.01
per share, of common stock of the Company (the "Shares" or "Company Common
Stock") set forth opposite such Shareholder's name on Schedule I hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholders agree, and the Shareholders
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 Shareholder 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 Shareholder shall vote (or cause to be voted) the
Shares held of record or Beneficially Owned (as defined below) by such
Shareholder, 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 Shareholder 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
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(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 Shareholder hereby
represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Shareholder is the record and Beneficial
Owner of the number of Shares set forth opposite such Shareholder's name on
Schedule I hereto. On the date hereof, the Shares set forth opposite such
Shareholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Shareholder. Such Shareholder 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 Shareholder's name on Schedule
I hereto, with no limitations, qualifications or restrictions on such
rights.
(b) Power; Binding Agreement. Such Shareholder has the legal capacity,
power and authority to enter into and perform all of such Shareholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Shareholder will not violate any other agreement to
which such Shareholder is a party including, without limitation, any voting
agreement, shareholder agreement or voting trust. This Agreement has been
duly and validly executed and delivered by such Shareholder and constitutes
a valid and binding agreement of such Shareholder, enforceable against such
Shareholder 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
Shareholder is Trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such Shareholder of the
transactions contemplated hereby. If such Shareholder is married and such
Shareholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Shareholder'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 Shareholder and the
consummation by such Shareholder of the transactions contemplated hereby and
(B) none of the execution and delivery of this Agreement by such
Shareholder, the consummation by such Shareholder of the transactions
contemplated hereby or compliance by such Shareholder 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 Shareholder is a party or by which such
Shareholder or any of such Shareholder's properties or assets may be bound,
or (2) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Shareholder or any of such
Shareholder's properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
investment banking arrangements and agreements between the Company and
Robertson, Stephens & Company LLC, no broker, investment banker, financial
adviser or other person is entitled to any broker's, finder's,
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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 Shareholder or any of its
affiliates or, to such shareholder's knowledge, the Company or any of its
affiliates.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Shareholder 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 Shareholder's Shares or any
interest therein; (ii) 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 Shareholder contained herein untrue or incorrect or have
the effect of preventing or disabling such Shareholder from performing such
Shareholder's obligations under this Agreement.
(f) Reliance by Parent. Such Shareholder understands and acknowledges
that Parent is entering into, and causing Merger Sub to enter into, the
Merger Agreement in reliance upon such Shareholder's execution and delivery
of this Agreement.
3. Stop Transfer; Restrictive Legend. (a) Each Shareholder agrees with, and
covenants to, Parent that such Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Shareholder'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.
(b) All certificates representing any of such Shareholder's Shares shall
contain the following legend:
"The securities represented by this certificate, including certain
voting and transfer rights with respect thereto, are subject to
the terms of a Shareholders Agreement, dated February 19, 1996,
among CUC International Inc., the Issuer and the parties listed on
the signature pages thereto, a copy of which is on file in the
principal office of the Issuer."
4. Termination. Except as otherwise provided herein, this Agreement shall
terminate upon the earlier of (a) termination of the Merger Agreement in
accordance with its terms and (b) the Effective Time.
5. Shareholder 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 Shareholder
signs solely in his or her capacity as the record and beneficial owner of such
Shareholder's Shares. Notwithstanding any other provision of this Agreement, no
Shareholder shall have any obligation under this Agreement to act or refrain
from acting in any manner inconsistent with such Shareholder's fiduciary duties
as a director of the Company.
6. Confidentiality. The Shareholders 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 Shareholder hereby agrees
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than such Shareholder's counsel and advisors, if any) without
the prior written consent of Parent, except for
B-3
<PAGE>
disclosures such Shareholder's counsel advises are necessary in order to fulfill
such Shareholder's obligations imposed by law, in which event such Shareholder
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.
7. 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 Shareholder agrees that this Agreement and the
obligations hereunder shall attach to such Shareholder'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 Shareholder'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 Shareholders, 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 Shareholder 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 shareholder shall be treated as a "Shareholder" for all
purposes of this Agreement.
(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 Shareholder: At the addresses set forth
on Schedule I hereto
with a copy to: Perkins Coie
1201 Third Avenue
40th Floor
Seattle, Washington 98101-3099
Telephone: (206) 583-8534
Facsimile: (206) 583-8500
Attention: Stephen A. McKeon, Esq.
B-4
<PAGE>
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 LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(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.
(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.
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<PAGE>
(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.
IN WITNESS WHEREOF, Parent and each Shareholder have caused this Agreement
to be duly executed as of the day and year first above written.
CUC INTERNATIONAL INC.
By: /s/ E. KIRK SHELTON
__________________________________________
Name: E. Kirk Shelton
Title: President
/s/ KENNETH A. WILLIAMS
_____________________________________________
Kenneth A. Williams
/s/ ROBERTA L. WILLIAMS
_____________________________________________
Roberta L. Williams
AGREED TO AND ACKNOWLEDGED
(with respect to Section 4):
SIERRA ON-LINE, INC.
By: /s/ RICHARD K. THUMANN
____________________________________________
Name: Richard K. Thumann
Title: Vice-President
B-6
<PAGE>
SCHEDULE I TO
SHAREHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OWNED
- ------------------------------------------------------ ----------------------
<S> <C>
Kenneth A. Williams and Roberta L. Williams........... 1,676,698
</TABLE>
B-7
<PAGE>
ANNEX C
OPINION OF ROBERTSON, STEPHENS & COMPANY LLC
February 19, 1996
PRIVILEGED AND CONFIDENTIAL
Board of Directors
Sierra On-Line, Inc.
3380 146th Place SE, Suite 300
Bellevue, WA 98007
Members of the Board:
You have asked our opinion with respect to the fairness to holders of Sierra
On-Line, Inc. ("Sierra") common stock ("Sierra Common Stock"), from a financial
point of view and as of the date hereof, of the exchange ratio (the "Exchange
Ratio") of 1.225 shares of CUC International Inc. ("CUC") common stock ("CUC
Common Stock") for each issued and outstanding share of Sierra Common Stock,
pursuant to the Agreement and Plan of Merger, dated as of February 19, 1996 (the
"Agreement").
Under the terms of the Agreement, a wholly-owned subsidiary of CUC will
merge with and into Sierra (the "Merger"), and upon consummation of the Merger,
Sierra will become a wholly-owned subsidiary of CUC and the holders of Sierra
Common Stock will become holders of CUC Common Stock. In the Merger, each issued
and outstanding share of Sierra Common Stock will be converted into that number
of fully paid and nonassessable shares of CUC Common Stock equal to the Exchange
Ratio. Outstanding options and warrants to acquire Sierra Common Stock will be
converted into options and warrants to acquire CUC Common Stock on similar
terms. Sierra may terminate the Agreement if the average closing share price of
CUC Common Stock is less than $29.00 for the fifteen trading days immediately
preceding the tenth calendar day prior to the Sierra stockholder meeting
concerning the Merger. Under certain specified conditions related to the
termination of the Agreement, CUC may be entitled to a fee of up to $25 million.
The Merger is intended to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
to be accounted for as a "pooling of interests." The terms and conditions of the
Merger are set out more fully in the Agreement.
For purposes of this opinion we have: (i) reviewed financial information on
Sierra and CUC furnished to us by both companies, including certain internal
financial analyses and forecasts prepared by the management of Sierra and CUC;
(ii) reviewed publicly available information; (iii) held discussions with the
management of Sierra and CUC concerning the businesses, past and current
business operations, financial condition and future prospects of both companies,
independently and combined; (iv) reviewed the Agreement; (v) reviewed the stock
price and trading history of Sierra and CUC; (vi) reviewed the contribution by
each company to pro forma combined revenue, operating income, pre-tax income and
net income; (vii) reviewed the valuations of publicly traded companies which we
deemed comparable to Sierra and CUC; (viii) compared the financial terms of the
Merger with other transactions which we deemed relevant; (ix) analyzed the pro
forma earnings per share of the combined company; (x) prepared a discounted cash
flow analysis of Sierra and CUC; (xi) held discussions with the management of
CUC concerning CUC's intention to acquire Davidson & Associates, Inc.
("Davidson") in a tax-free reorganization to be accounted for as a "pooling of
interests" and the terms of such proposed acquisition; (xii) reviewed publicly
available financial information on Davidson; (xiii) held discussions with the
management of Sierra and CUC concerning the future
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<PAGE>
prospects of a combined company comprised of Sierra, CUC and Davidson; and (xiv)
made such other studies and inquiries, and reviewed such other data, as we
deemed relevant.
In connection with our opinion, we have not however independently verified
any of the foregoing information and have relied on all such information being
complete and accurate in all material respects. Furthermore, we did not obtain
any independent appraisal of the properties or assets and liabilities of Sierra
or CUC. With respect to the financial and operating forecasts of Sierra and CUC
which we have reviewed, we have assumed that such forecasts have been reasonably
prepared in good faith on the basis of reasonable assumptions, reflect the best
available estimates and judgments of such respective managements and that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated by the managements of Sierra and CUC. We have also
assumed that the Merger will be accounted for as a "pooling of interests" under
GAAP. This opinion is necessarily based upon market, economic, and other
conditions that exist and can be evaluated as of the date of this letter, and on
information available to us as of the date hereof.
Robertson, Stephens & Company has provided certain investment banking
services to Sierra from time to time, including acting as lead underwriter for
Sierra's 6 1/2% convertible subordinated notes offering. In addition, Robertson,
Stephens & Company maintains a market in shares of Sierra Common Stock.
Furthermore, Robertson, Stephens & Company has acted as financial advisor to
Sierra in connection with the Merger for which a portion of our fees is due and
payable upon delivery of this opinion and the remaining portion of our fees is
due and payable contingent upon the closing of the Merger.
Our opinion is directed to the Board of Directors of Sierra and is not
intended to be and does not constitute a recommendation to any stockholder of
Sierra as to how such stockholder should vote on the proposed Merger.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to holders of Sierra
Common Stock from a financial point of view.
Very truly yours,
ROBERTSON, STEPHENS & COMPANY LLC
By: Robertson, Stephens & Company Group, L.L.C.
/s/ EDWIN DAVID HETZ
...........................................
Authorized Signatory
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<PAGE>
ANNEX D
OPINION OF PERKINS COIE
Sierra On-Line, Inc. June 21, 1996
Suite 300
3380-146th Place S.E.
Bellevue, WA 98007
RE: MERGER OF LARRY ACQUISITION CORP, A DELAWARE CORPORATION
("ACQUISITION") AND A WHOLLY OWNED SUBSIDIARY OF CUC INTERNATIONAL,
INC., A DELAWARE CORPORATION ("PARENT") INTO SIERRA ON-LINE, INC., A
DELAWARE CORPORATION (THE "COMPANY")
Ladies and Gentlemen:
We have been asked, as counsel to the Company, to render this opinion
regarding the material U.S. federal income tax consequences of the merger (the
"Merger") of Acquisition into the Company pursuant to that certain Agreement and
Plan of Merger, dated as of February 19, 1996 (the "Agreement"). Capitalized
terms not otherwise defined herein shall have the same meanings given to them in
the Agreement or if not defined therein as described in the Registration
Statement on Form S-4 of Parent (Registration No. 333- ) (the
"Registration Statement") filed with respect to the Merger and the Proxy
Statement/Prospectus contained therein (the "Proxy/Prospectus"). This opinion
letter is rendered pursuant to Section 5.2(d) of the Agreement.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Agreement, the Proxy/Prospectus, and such other documents as we have deemed
necessary or appropriate as a basis for the conclusions set forth below. We have
relied, as to matters of fact, solely upon those statements and representations
by officers and representatives of the Company contained in that certain Sierra
On-Line, Inc. Certificate dated the date hereof and attached hereto as Exhibit
B, upon statements and representations by officers and representatives of Parent
contained in that certain CUC International, Inc. Certificate dated the date
hereof and attached hereto as Exhibit C (collectively, the "Tax Certificates"),
upon statements and representations by certain significant shareholders of the
Company attached hereto as Exhibit A (the "Shareholders' Certificates"), and
upon the assumptions contained herein. Without the Tax Certificates and the
Shareholders' Certificates, we would not render this opinion.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
Treasury Regulations promulgated thereunder and the pertinent judicial
authorities and interpretative rulings of the Internal Revenue Service (the
"IRS").
In rendering the opinions set forth below we have assumed that (1) the
representations contained in the Tax Certificates and the Shareholders'
Certificates are true as of the date hereof and as of the Effective Time of the
Merger (it being understood that our opinion is conditioned on the written
confirmation of the continuing accuracy of those representations at the
Effective Time), (2) the historic shareholders of the Company have not disposed
of shares of Company Common Stock in contemplation of the Merger and do not have
any plan or intention, existing as of the Effective Time, to dispose of a number
shares of Parent Common Stock received in the Merger such that the holdings of
Parent Common Stock by all historic shareholders of the Company would be reduced
to less than fifty percent of the total value, measured at the Effective Time,
of the Merger Consideration, (3) the Merger will be consummated in accordance
with the Agreement, (4) all signatures on all documents we examined are genuine,
all documents submitted to us as originals are authentic and all documents
submitted to us as
D-1
<PAGE>
Sierra On-Line, Inc.
certified or photostatic copies are in conformity to the original documents, and
(5) the Merger qualifies as a merger under the General Corporation Law of the
State of Delaware.
Based on the facts and assumptions set forth above and upon our examination
of the Agreement, the Proxy/Prospectus and the relevant legal authorities, it is
our opinion that:
(A) The Merger of Acquisition into the Company will be a reorganization
described in Section 368(a) of the Code. Code Sec. 368(a)(1)(A) and (a)(2)(E).
Parent, Acquisition and the Company will each be "a party to such
reorganization" described in Section 368(b) of the Code.
(B) No gain or loss will be recognized by the Company, Acquisition or Parent
as a result of the Merger. Code Sec.Sec. 361, 357(a).
(C) No gain or loss will be recognized by the shareholders of the Company on
the exchange of their Company Common Stock solely for Parent Common Stock. Code
Sec. 354(a)(1).
(D) The payment of cash to a holder of Company Common Stock in lieu of a
fractional share interest in Parent Common Stock will be treated as if the
fractional share had been distributed as part of the exchange and then redeemed
by Parent. Clark v. Commissioner, 489 U.S. 726 (1989). The cash payment will
result in a capital gain or loss if it is substantially disproportionate or not
essentially equivalent to a dividend under Section 302(b) of the Code.
(E) The section of the Proxy/Prospectus entitled "Certain Federal Income Tax
Consequences" accurately reflects our opinion as to the matters discussed
therein.
Our opinion is limited to the specific matters described in paragraphs (A)
through (E) above. We give no opinion with respect to other tax matters, whether
federal, state or local, that may relate to the Merger. Although we believe that
the opinion covers the material federal income tax consequences of the Merger,
it may not address issues that are material to an individual shareholder based
on his or her particular tax situation. No ruling will be requested from the IRS
regarding the Merger. Our opinion is not binding on the IRS and does not
constitute a guarantee that the IRS will not challenge the tax treatment of the
Merger.
We caution that our opinion is based on the federal income tax laws as they
exist on the date hereof. It is possible that subsequent changes in the tax law
could be enacted and applied retroactively to the Merger and that such changes
could result in a materially different result than the result described in the
opinions above.
This opinion is furnished to you solely in connection with the Merger and is
intended for your use and the use of your shareholders and may not be provided
to or relied upon by others without our express written consent.
Very truly yours,
/s/ Perkins Coie
Perkins Coie
D-2
<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. Such indemnification 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 is permitted to 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.
CUC International'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, CUC International's Restated Certificate of Incorporation, as
amended, contains a provision eliminating the personal liability of a director
to CUC International or its stockholders for monetary damages for breach of
fiduciary duty as a director, subject to certain exceptions.
CUC International maintains policies insuring its offcers and directors
against certain civil liabilities, including liabilities under the Securities
Act.
II-1
<PAGE>
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
2(a) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
Internaional Inc., Stealth Acquisition I Corp. and Davidson & Associates, Inc.
(filed as Exhibit 2 to CUC International's Current Report on Form 8-K dated March
11, 1996).*
2(b) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
International Inc., Larry Acquisition Corp. and Sierra On-Line, Inc. (filed as
Exhibit 2 to CUC International's Current Report on Form 8-K dated March 11,
1996).*
2(c) Agreement and Plan of Merger dated as of April 19, 1996, among CUC International
Inc., IG Acquisition Corp. and Ideon Group, Inc. (filed as Exhibit 10.21 to CUC
International's Annual Report on Form 10-K for the fiscal year ended January 31,
1996, dated April 10, 1996)*
4 Form of 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 as to the legality of CUC International's Common Stock.
8 Tax Opinion of Perkins Coie.
9(a) Shareholders Agreement dated as of February 19, 1996, among CUC International
Inc. and the holders of Davidson Common Stock party thereto (filed as Exhibit 10A
to CUC International's Current Report on Form 8-K dated March 11, 1996).*
9(b) Shareholders Agreement dated as of February 19, 1996, among CUC International
Inc. and the holders of Sierra On-Line, Inc. Common Stock party thereto (filed as
Exhibit 10B to CUC International's Current Report on Form 8-K dated March 11,
1996).*
15.1 Letter from Ernst & Young LLP re: unaudited interim financial information
15.2 Letter from Price Waterhouse LLP re: unaudited interim financial information
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Perkins Coie
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP
23.5(a) Consent of Deloitte & Touche LLP
23.5(b) Consent of Deloitte & Touche LLP
23.6 Consent of Price Waterhouse LLP
24 Power of Attorney (included as part of the signature page of this Registration
Statement).
</TABLE>
- ------------
* Incorporated herein by reference.
(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, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (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, as amended) 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.
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<PAGE>
(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, as amended, and is used in connection with an
offering of securities subject ot 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, as amended, 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, as amended, 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, as
amended, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the
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
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, as amended, and
will be goverened 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 21st day of
June, 1996.
CUC INTERNATIONAL INC.
By: /s/ WALTER A. FORBES
..................................
Walter A. Forbes
Chief Executive Officer and
Chairman of the
Board of Directors
POWER OF ATTORNEY
KNOWN 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 met 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 virture hereof.
II-4
<PAGE>
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/ WALTER A. FORBES Chief Executive Officer and Chairman June 21, 1996
....................................... of the Board (Principal Executive
Walter A. Forbes Officer)
/s/ COSMO CORIGLIANO Executive Vice President and Chief June 21, 1996
....................................... Financial Officer (Principal
Cosmo Corigliano Financial and Accounting Officer)
/s/ BARTLETT BURNAP Director June 21, 1996
.......................................
Bartlett Burnap
/s/ T. BARNES DONELLEY Director June 21, 1996
.......................................
T. Barnes Donelley
/s/ STEPHEN A. GREYNER Director June 21, 1996
.......................................
Stephen A. Greyner
/s/ CHRISTOPHER K. MCLEOD Director June 21, 1996
.......................................
Christopher K. McLeod
/s/ BURTON C. PERFIT Director June 21, 1996
.......................................
Burton C. Perfit
/s/ ROBERT P. RITTENIER Director June 21, 1996
.......................................
Robert P. Rittenier
/s/ STANLEY M. RUMBOUGH, JR. Director June 21, 1996
.......................................
Stanley M. Rumbough, Jr.
/s/ E. KIRK SHELTON Director June 21, 1996
.......................................
E. Kirk Shelton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- --------------------------------------------------------------------------------- --------
<C> <S> <C>
2(a) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
Internaional Inc., Stealth Acquisition I Corp. and Davidson & Associates, Inc.
(filed as Exhibit 2 to CUC International's Current Report on Form 8-K dated March
11, 1996).*
2(b) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
International Inc., Larry Acquisition Corp. and Sierra On-Line, Inc. (filed as
Exhibit 2 to CUC International's Current Report on Form 8-K dated March 11,
1996).*
2(c) Agreement and Plan of Merger dated as of April 19, 1996, among CUC International
Inc., IG Acquisition Corp. and Ideon Group, Inc. (filed as Exhibit 10.21 to CUC
International's Annual Report on Form 10-K for the fiscal year ended January 31,
1996, dated April 10, 1996)*
4 Form of 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 as to the legality of CUC International's Common Stock.
8 Tax Opinion of Perkins Coie.
9(a) Shareholders Agreement dated as of February 19, 1996, among CUC International
Inc. and the holders of Davidson Common Stock party thereto (filed as Exhibit 10A
to CUC International's Current Report on Form 8-K dated March 11, 1996).*
9(b) Shareholders Agreement dated as of February 19, 1996, among CUC International
Inc. and the holders of Sierra On-Line, Inc. Common Stock party thereto (filed as
Exhibit 10B to CUC International's Current Report on Form 8-K dated March 11,
1996).*
15.1 Letter from Ernst & Young LLP re: unaudited interim financial information
15.2 Letter from Price Waterhouse LLP re: unaudited interim financial information
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Perkins Coie
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP
23.5(a) Consent of Deloitte & Touche LLP
23.5(b) Consent of Deloitte & Touche LLP
23.6 Consent of Price Waterhouse LLP
24 Power of Attorney (included as part of the signature page of this Registration
Statement).
</TABLE>
- ------------
* Incorporated herein by reference.
(c) See exhibits 5 and 8 in Item 21(a) above.
EXHIBIT 5
ROBERT T. TUCKER
ATTORNEY AT LAW
61 PURCHASE ST. (914) 967-8105
RYE, N.Y. 10580 FAX: (914) 967-8161
June 21, 1996
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 25,564,977 shares of common stock par value $ .01 per share of CUC
(the "Shares") to be issued to the shareholders of Sierra On-Line, Inc.
("Sierra") in connection with the merger of CUC's wholly owned subsidiary,
Larry Acquisition Corp. ("Merger Sub"), into and with Sierra, all as set
forth in the Agreement and Plan of Merger dated February 19, 1996, among
CUC, Sierra 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, 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.
<PAGE>
Page 2
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 Sierra in accordance with the Merger
Agreement, will be legally issued, fully paid and non-assessable.
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
PERKINS COIE
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1201 THIRD AVENUE 40TH FLOOR - SEATTLE, WASHINGTON 98101-3099
TELEPHONE: (206) 583-8888 - FACSIMILE: (206) 583-8500
June 21, 1996
Sierra On-Line, Inc.
Suite 300
3380-146th Place S.E.
Bellevue, WA 98007
Re: Merger of Larry Acquisition Corp, a Delaware corporation
("Acquisition") and a wholly owned subsidiary of CUC
International, Inc., a Delaware corporation ("Parent") Into
Sierra On-Line, Inc., a Delaware corporation (the "Company")
Ladies and Gentlemen:
We have been asked, as counsel to the Company, to render this opinion
regarding the material U.S. federal income tax consequences of the merger (the
"Merger") of Acquisition into the Company pursuant to that certain Agreement
and Plan of Merger, dated as of February 19, 1996 (the "Agreement").
Capitalized terms not otherwise defined herein shall have the same meanings
given to them in the Agreement or if not defined therein as described in the
Registration Statement on Form S-4 of Parent (the "Registration Statement")
filed with respect to the Merger and the Proxy Statement/Prospectus contained
therein (the "Proxy/Prospectus"). This opinion letter is rendered pursuant
to Section 5.2(d) of the Agreement.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Agreement, the Proxy/Prospectus, and such other documents as we have deemed
necessary or appropriate as a basis for the conclusions set forth below. We
have relied, as to matters of fact, solely upon those statements and
representations by officers and representatives of the Company contained in
that certain Sierra On-Line, Inc. Certificate dated the date hereof and attached
hereto as Exhibit B, upon statements and representations by officers and
representatives of Parent contained in that certain CUC International, Inc.
Certificate dated the date hereof and attached hereto as Exhibit C
(collectively, the "Tax Certificates"), upon statements and representations by
certain significant shareholders of the Company attached hereto as Exhibit A
(the "Shareholders' Certificates"), and upon the assumptions contained herein.
Without the Tax Certificates and the Shareholders' Certificates, we would not
render this opinion.
<PAGE>
Sierra On-Line, Inc.
June 14, 1996
Page 2
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), Treasury Regulations promulgated thereunder and the pertinent
judicial authorities and interpretative rulings of the Internal Revenue
Service (the "IRS").
Assumptions
In rendering the opinions set forth below we have assumed that (1) the
representations contained in the Tax Certificates and the Shareholders'
Certificates are true as of the date hereof and as of the Effective Time
of the Merger (it being understood that our opinion is conditioned on the
written confirmation of the continuing accuracy of those representations
at the Effective Time), (2) the historic shareholders of the Company have
not disposed of shares of Company Common Stock in contemplation of the
Merger and do not have any plan or intention, existing as of the Effective
Time, to dispose of a number shares of Parent Common Stock received in the
Merger such that the holdings of Parent Common Stock by all historic
shareholders of the Company would be reduced to less than fifty percent
of the total value, measured at the Effective Time, of the Merger
Consideration, (3) the Merger will be consummated in accordance with the
Agreement, (4) all signatures on all documents we examined are genuine, all
documents submitted to us as originals are authentic and all documents
submitted to us as certified or photostatic copies are in conformity to
the original documents, and (5) the Merger qualifies as a merger under the
General Corporation Law of the State of Delaware.
Opinion
Based on the assumptions set forth above and upon our examination of the
Agreement, the Proxy/Prospectus and the relevant legal authorities, it is
our opinion that:
(A) The Merger of Acquisition into the Company will be a reorganization
described in Section 368(a) of the Code. Code Section 368(a)(1)(A) and
(a)(2)(E). Parent, Acquisition and the Company will each be "a party to such
reorganization" described in Section 368(b) of the Code.
(B) No gain or loss will be recognized by the Company, Acquisition or
Parent as a result of the Merger. Code Sections 361, 357(a).
<PAGE>
Sierra On-Line, Inc.
June 14, 1996
Page 3
(C) No gain or loss will be recognized by the shareholders of the
Company on the exchange of their Company Common Stock solely for Parent
Common Stock. Code Sec. 354(a)(1).
(D) The payment of cash to a holder of Company Common Stock in lieu
of a fractional share interest in Parent Common Stock will be treated as if
the fractional share had been distributed as part of the exchange and then
redeemed by Parent. Clark v. Commissioner, 489 U.S. 726 (1989). The cash
payment will result in a capital gain or loss if it is substantially
disproportionate or not essentially equivalent to a dividend under Section
302(b) of the Code.
(E) The section of the Proxy Prospectus entitled "Certain Federal
Income Tax Consequences" accurately reflects our opinion as to the matters
discussed therein.
Our opinion is limited to the specific matters described in paragraphs
(A) through (E) above. We give no opinion with respect to other tax
matters, whether federal, state or local, that may relate to the Merger.
Although we believe that the opinion covers the material federal income tax
consequences of the Merger, it may not address issues that are material to
an individual shareholder based on his or her particular tax situation. No
ruling will be requested from the IRS regarding the Merger. Our opinion is
not binding on the IRS and does not constitute a guarantee that the IRS
will not challenge the tax treatment of the Merger.
We caution that our opinion is based on the federal income tax laws as
they exist on the date hereof. It is possible that subsequent changes in
the tax law could be enacted and applied retroactively to the Merger and
that such changes could result in a materially different result than the
result described in the opinions above.
This opinion is furnished to you solely in connection with the Merger
and is intended for your use and the use of your shareholders and may not
be provided to or relied upon by others without our express written
consent.
Very truly yours,
/s/ Perkins Coie
----------------
PERKINS COIE
<PAGE>
EXHIBIT A
June 14, 1996
TO: Ken and Roberta Williams
RE: Agreement and Plan of Merger dated as of February 19, 1996 by and
among CUC International, Inc. ("Parent"), Larry Acquisition Corp.
("Acquisition"), a wholly-owned subsidiary of Parent, and Sierra On-
Line, Inc. (the "Company")
Dear Mr. and Mrs. Williams:
As counsel to the Company, we have been requested to provide our tax
opinion concerning the proposed Merger of Acquisition into the Company
under the Internal Revenue Code of 1986, as amended. As part of the basis
for our opinions, we are asking for representations from certain
shareholders of the Company that they have no present intent to sell any
Parent shares received in the Merger. The representations will not
preclude a holder from deciding after the Merger to sell his or her Parent
shares.
Your representation will be effective by signing and dating the
representation set out below, and returning this letter in the self-
addressed, stamped envelope. We will rely on your representations in
rendering our tax opinions. We would appreciate receiving your
representation as soon as possible and in any event no later than the day
before the scheduled closing of the Merger. If you have any questions,
please call Richard K. Thumann, General Counsel and Vice President of the
Company.
Very truly yours,
/s/ Perkins Coie
Perkins Coie
REPRESENTATION: The undersigned represents that as of the date below
and continuing through the Effective Time of the Merger, the undersigned
has no present plan or intention to sell, exchange or otherwise dispose of
any shares of Parent Common Stock to be received in the Merger, except that
the undersigned may have a plan to sell, exchange or otherwise dispose of
up to 10% of the shares of Parent Common Stock received by the undersigned
in the Merger in exchange for shares of the Company Common Stock that were
outstanding on the date of the above Agreement.
Date: June 14, 1996 By /s/ Kenneth Williams
------------------ -- ------------------------------
By /s/ Roberta Williams
-- ------------------------------
<PAGE>
EXHIBIT B
SIERRA ON-LINE, INC.
CERTIFICATE
Sierra On-Line, Inc. (the "Company"), a Delaware corporation,
recognizes that this Certificate will be relied upon by Perkins Coie in
delivering its opinions regarding the tax consequences of the proposed
merger (the "Merger") of Larry Acquisition Corp. ("Acquisition"), a
Delaware corporation and a wholly owned subsidiary of CUC International,
Inc., a Delaware corporation ("Parent") with and into the Company pursuant
to that certain Agreement and Plan of Merger by and among the Company,
Acquisition and Parent, dated as of February 19, 1996 (the "Agreement").
Capitalized terms not otherwise defined herein shall have the same meaning
as stated in the Agreement or, if not defined therein, in the Proxy
Statement/Prospectus contained in the Registration Statement on Form S-4
filed by Parent with the Securities and Exchange Commission in connection
with the Merger. The Company hereby certifies that to the best knowledge
and belief of the management of the Company, after due inquiry and
investigation, the facts and assumptions relating to the Merger, insofar as
they relate to the Company, that are described in the opinion letter from
Perkins Coie to the Company dated the date hereof, 1996 (a copy of which
you acknowledge has been provided to you) and the following statements are
true, correct and complete in all material respects as of the date of this
letter:
(a) The exchange ratio in the Merger and the formula set forth in the
Agreement pursuant to which shares of Company Common Stock will be exhanged
for Parent Common Stock, are the result of arm's length bargaining.
Accordingly, the fair market value of Parent Common Stock to be issued to
the Company shareholders in the Merger will be, at the Effective Time of
the Merger, approximately equal to the fair market value of the shares of
Company Common Stock surrendered in exchange therefor.
(b) In the Merger, shareholders of the Company owning 100% of the
shares (other than fractional shares) of Company Common Stock outstanding
at the Effective Time of the Merger, which is the only class of stock of
the Company, will exchange their shares of Company Common Stock solely for
Parent Common Stock.
(c) Cash payments to Company shareholders in lieu of issuing
fractional shares of Parent Common Stock in the Merger are being undertaken
solely for the purpose of saving Parent the expense and inconvenience of
issuing and transferring fractional shares of Parent Common Stock, and are
not separately bargained for consideration.
<PAGE>
(d) The Company has no plan or intention to issue additional shares
of stock that would result in Parent losing control (within the meaning of
Section 368(c) of the Code) of the Company.
(e) The Company will continue its historic business or use a
significant portion of its historic business assets in a business after the
Merger. The Company has no plan or intention to liquidate or to sell or
otherwise dispose of any of its assets, except for transfers of assets to a
corporation controlled, within the meaning of Section 368(c) of the Code,
by the Company that are described in Treasury Regulation Section
1.368-2(j)(4), transfers in the ordinary course of business or payment of
expenses incurred pursuant to the Merger (including payments with respect
to fractional shares).
(f) Compensation currently being paid under contract to shareholder-
employees of the Company approximately equals the value of the services
currently being performed by such individuals and was established pursuant
to arm's length negotiations. Compensation to be paid to shareholder-
employees of the Company who, after the Merger, continue employment with
the Company, and/or accept employment with Parent will not exceed the value
of the services to be performed by such individuals and has been established
independently of negotiations on the consideration for the shares of Company
Common Stock to be transferred to Parent in the Merger. Consequently, no
portion of any such compensation to be paid to such individuals is in exchange
for the shares of Company Common Stock owned by such individuals prior to the
Merger and none of the shares of Parent Common Stock to be received by such
individuals pursuant to the Merger is intended to be separate consideration
for or allocable to any services to be performed by, or any employment
agreement entered into with, such individuals.
(g) There is no plan or intention by the Company shareholders who own
five percent or more of the Company stock as of the date of the Merger and
the management of the Company knows of no plan or intention on the part of
the remaining Company shareholders to sell or otherwise dispose of any of
the shares of Parent Common Stock to be received by them in the Merger
which would reduce their holding of Parent Common Stock to a number of
shares having, in the aggregate, a value as of the Effective Time of the
Merger of less than 50% of the total value of the Company Common Stock
outstanding immediately prior to the Effective Time of the Merger. For
purposes of this representation, fractional shares of Company Common Stock
surrendered for cash and shares of Company Common Stock sold, redeemed or
otherwise disposed of prior or subsequent to and as part of the Merger will
be considered as outstanding immediately prior to the Effective Time of the
Merger. The
-2-
<PAGE>
Company has no plan or intention to acquire or redeem by purchase or
otherwise any shares of Company Common Stock prior to the Effective Time of
the Merger.
(h) The Company at the Effective Time of the Merger will possess, and
will have the plan and intention to retain, after the Merger, assets
representing at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets of each of the
Company and Acquisition respectively held by them immediately prior to the
Merger. For this purpose, assets held by the Company prior to the Merger
will include all amounts used by the Company to pay its reorganization
expenses or to pay Company shareholders in lieu of fractional shares. In
this connection, the Company has not and prior to the Effective Time of the
Merger will not engage in any redemptions or pay any dividends or make any
other distributions with respect to any shares of its outstanding stock
(except for regular, normal dividends).
(i) The Company has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in the Company that, if exercised or converted, would affect
Parent's acquisition or retention of control of the Company (within the
meaning of Section 368(c) of the Code).
(j) Parent and the Company will each pay their respective expenses
incurred in connection with the Merger and any other transactions
contemplated by the Agreement.
(k) There is no intercorporate debt between the Company on the one
hand and Acquisition or Parent on the other.
(l) The Company is participating in the Merger for good and valid
business reasons and not for tax purposes.
(m) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(n) On the date of the Merger, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(o) The Company is not 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.
-3-
<PAGE>
(p) The Agreement represents the full and complete agreement among
Parent, Acquisition and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
(q) The factual statements of or about the Company in the Form S-4 for
the Merger are accurate.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed this 14th day of June ,1996.
----- -----------
SIERRA ON-LINE, INC.
By /s/ Michael A. Brochu
-------------------------
Name: Michael A. Brochu
Title: President
-------------------------
-4-
<PAGE>
EXHIBIT C
CUC INTERNATIONAL, INC.
CERTIFICATE
CUC INTERNATIONAL, INC. ("Parent"), a Delaware corporation,
recognizes that this Certificate will be relied upon by Perkins Coie in
delivering its opinions regarding the tax consequences of the proposed
merger (the "Merger") of Larry Acquisition Corp. ("Acquisition"), a
Delaware corporation and a wholly owned subsidiary of Parent, with and into
Sierra On-Line, Inc. (the "Company"), a Delaware corporation, pursuant to
that certain Agreement and Plan of Merger by and among the Company,
Acquisition and Parent, dated as of February 19, 1996 (the "Agreement").
Capitalized terms not otherwise defined herein shall have the same meaning
as stated in the Agreement or, if not defined therein, in the Proxy
Statement/Prospectus contained in the Registration Statement on Form S-4
filed by Parent with the Securities and Exchange Commission in connection
with the Merger. Parent hereby certifies that to the best knowledge and
belief of Parent, after due inquiry and investigation, the facts and
assumptions relating to the Merger, insofar as they relate to Parent and
Acquisition, that are described in the opinion letter from Perkins Coie to
the Company dated the date hereof (a copy of which you acknowledge has been
provided to you) and the following statements are true, correct and
complete in all material respects as of the date of this letter:
(a) The exchange ratio in the Merger and the formula set forth in the
Agreement pursuant to which shares of Parent Common Stock will be exchanged
for Company Common Stock, are the result of arm's-length bargaining.
Accordingly, the fair market value of Parent Common Stock to be issued to
Company shareholders in the Merger will be, at the Effective Time of the
Merger, approximately equal to the fair market value of the shares of
Company Common Stock surrendered in exchange therefor.
(b) The Parent Common Stock to be issued to Company shareholders in
the Merger and pursuant to the Agreement will be voting stock.
(c) In the Merger, shares of Company Common Stock possessing control
(within the meaning of Section 368(c) of the Code) of the Company will be
exchanged solely for Parent Common Stock.
(d) Cash payments to the Company shareholders in lieu of issuing
fractional shares of Parent Common Stock in the Merger are being undertaken
solely for the purpose of saving Parent the expense and inconvenience of
issuing and transferring fractional shares of Parent Common Stock, and are
not separately bargained for consideration.
(e) Parent has no plan or intention to cause the Company to issue
additional shares of stock that would result in Parent losing control
(within the meaning of Section 368(c) of the Code) of the Company.
<PAGE>
(f) Parent has no plan or intention to liquidate the Company or merge
the Company with any corporation (including Parent) and intends to cause
the Company to continue the Company's historic business or to use a
significant portion of its historic business assets in a business after the
Merger. Parent has no plan or intention to sell or otherwise dispose of any
of its shares of Company Common Stock or to cause the Company to sell or
otherwise dispose of any of its assets, except for transfers of assets to a
corporation controlled, within the meaning of Section 368(c) of the Code, by
the Company that are described in Treasury Regulation Section 1.368-2(j)(4),
transfers in the ordinary course of business or payment of expenses incurred
pursuant to the Merger (including payments with respect to fractional shares).
(g) Parent has no plan or intention to make any distributions in
respect of shares of Parent Common Stock following the Merger, other than
regular cash dividiends declared and paid in the ordinary course of
business.
(h) Compensation to be paid to shareholder-employees of the Company
who, after the Merger, continue employment with the Company, and/or accept
employment with Parent, will not exceed the value of the services to be
performed by such individuals and has been established independently of
negotiations on the consideration for the shares of Company Common
Stock to be transferred to Parent in the Merger. Consequently, no portion
of any such compensation to be paid to such individuals is in exchange for
the shares of Company Common Stock owned by such individuals prior to the
Merger and none of the shares of Parent Common Stock to be received by such
individuals pursuant to the Merger is intended to be separate consideration
for or allocable to any services to be performed by, or any employment
agreement entered into with, such individuals.
(i) Parent has no plan or intention to cause the Company, after the
Merger, to dispose of assets which would result in the Company failing to
retain assets representing at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of
each of the Company and Acquisition respectively held by them prior to the
Merger. For this purpose, assets held by the Company prior to the Merger
will include all amounts used by the Company to pay its reorganization
expenses or to pay the Company shareholders in lieu of fractional shares.
For purposes of this representation, assets transferred from Parent to
Acquisition are not included as assets of Acquisition immediately before
the Merger where such assets are used (i) to pay creditors of the Company
or (ii) to enable Acquisition to satisfy state minimum capitalization
requirements (where the money is returned to Parent as part of the
transaction).
(j) Parent, Acquisition, and the Company will each pay their
respective expenses incurred in connection with the Merger and any other
transactions contemplated by the Agreement.
(k) There is no intercorporate debt between the Company on the one
hand and Acquisition or Parent on the other.
-2-
<PAGE>
(l) Acquisition has been formed solely in order to consummate the
transactions contemplated by the Agreement and at no time will Acquisition
conduct any business activities or other operations of any kind other than those
necessary to consummate such transactions. Acquisition has no liabilities to be
assumed by the Company and will not transfer to the Company any assets subject
to liabilities in the Merger.
(m) Neither Parent nor Acquisition nor any other direct or indirect
subsidiary of Parent owns beneficially or has owned during the past five years
any stock or securities of the Company.
(n) Parent is participating in the Merger for good and valid business
reasons and not for tax purposes.
(o) Parent has no plan or intention to redeem or otherwise reacquire any
of the Parent Stock issued in the Merger.
(p) Neither Parent nor Acquisition is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(q) Immediately before the Merger, Parent will be in control of
Acquisition.
(r) The Merger Agreement represents the full and complete agreement among
Parent, Acquisition, and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
(s) The factual statements of or about Parent or Acquisition contained in
the Form S-4 for the Merger are accurate.
IN WITNESS WHEREOF, Parent has caused this Certificate to be duly executed
this 14th day of June, 1996.
---- ----
CUC International, Inc.
By /s/ Cosmo Corigliano
-----------------------------
Name: Cosmo Corigliano
Title: Chief Financial Officer
-3-
EXHIBIT 15.1
Letter Re: Unaudited Interim Financial Information
June 19, 1996
Board of Directors and Shareholders'
CUC International Inc.
We are aware of the incorporation by reference in the Proxy Statement of
Sierra On-Line, Inc. that is made a part of the Registration Statement (Form
S-4) and Prospectus of CUC International Inc. for the registration of
25,523,745 shares of its common stock of our report dated May 22, 1996
relating to the unaudited condensed consolidated interim financial statements
of CUC International Inc. that are included in its Forms 10-Q for the quarter
ended April 30, 1996.
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.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
EXHIBIT 15.2
[PRICE WATERHOUSE LETTERHEAD]
June 18, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
We are aware that CUC International Inc. has included our report dated April 29,
1996, of Ideon Group, Inc. (issued pursuant to the provisions of Statement on
Auditing Standards No. 71), in the Prospectus constituting part of CUC
International Inc.'s Registration Statement on Form S-4 (related to Sierra
On-Line, Inc.) to be filed on or about June 18, 1996. We are also aware of our
responsibilities under the Securities Act of 1933.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
EXHIBIT 23.2
PERKINS COIE
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1201 THIRD AVENUE, 40TH FLOOR - SEATTLE, WASHINGTON 98101-3099
TELEPHONE: 206 583-8888 - FACSIMILE: 206 583-8500
June 21, 1996
Sierra On-Line, Inc.
3380 146th Place S.E.
Bellevue, WA 98007
RE: REGISTRATION STATEMENT OF CUC INTERNATIONAL INC. ON FORM S-4
Ladies and Gentlemen:
We hereby consent to the use of our opinion addressed to you dated
June 14, 1996 relating to certain tax consequences of the proposed merger
(the "Merger") of Sierra On-Line, Inc. and Larry Acquisition Corp., a
wholly owned subsidiary of CUC International Inc. ("CUC"), as Exhibit 8
to the Registration Statement on Form S-4 relating to the Merger to be
filed by CUC with the Securities and Exchange Commission.
Sincerely,
/s/ Perkins Coie
Perkins Coie
EXHIBIT 23.3
Accountants' Consent
The Board of Directors
Davidson & Associates, Inc.
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the proxy
statement/prospectus relating to Sierra On-Line, Inc. and CUC
International, Inc. and the Form S-4 of CUC International, Inc. which
includes such proxy statement, dated June, 1996.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Long Beach California
June 19, 1996
Exhibit 23.4
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 19, 1996, incorporated by reference in the
Proxy Statement of Sierra On Line, Inc. that is made a part of the
Registration Statement (Form S-4) and Prospectus of CUC International Inc.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
June 19, 1996
EXHIBIT 23.5(a)
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 of Sierra On-Line, Inc., which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
June 17, 1996
EXHIBIT 23.5(b)
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 February 13, 1996 on the
consolidated financial statements of Sierra On-Line, Inc. and subsidiaries for
the year ended March 31, 1995, appearing in the Quarterly Report on Form 10-Q/A
(filed with the Securities and Exchange Commission on May 15, 1996) for the
quarterly period ended December 31, 1995 of Sierra On-Line, Inc. and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
June 19, 1996
Exhibit 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of CUC
International Inc. (related to Sierra On-Line, Inc.) of our report dated
February 2, 1996, appearing on page 39 of the Ideon Group, Inc. Annual
Report on Form 10-K for the year ended December 31, 1995. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
June 18, 1996
