AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
(203) 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. ROGER S. AARON, ESQ.
WEIL, GOTSHAL & MANGES LLP SKADDEN, ARPS, SLATE, MEAGHER
767 FIFTH AVENUE & FLOM
NEW YORK, NEW YORK 10153 919 THIRD AVENUE
(212) 310-8000 NEW YORK, NEW YORK 10022
(212) 735-3000
</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 IG Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of CUC International Inc., a Delaware
corporation (the "CUC International"), with and into Ideon Group, Inc., a
Delaware corporation ("Ideon"), as described in the Agreement and Plan of Merger
dated as of April 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.... 17,170,469 $36.06 $619,167,112.14 $213,505.90
</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., 0.6136 shares of
CUC Common Stock for each outstanding share of common stock, $.01 par value,
of Ideon ("Ideon 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 in the Merger by the holders of Ideon Common
Stock ($36.06 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 26, 1996).
(3) The registration fee for the CUC Common Stock registered hereby,
$213,505.90, 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) $36.06, the average of the high and low sale prices per share of CUC
Common Stock as reported in the NYSE Composite Transactions on June 26,
1996, and (y) 17,170,469. A fee of $84,837.47 was paid on May 22, 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 Ideon 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 $128,668.43 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 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[IDEON LETTERHEAD]
JULY 1, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of Ideon Group, Inc. ("the Company") to be held at 10:00 a.m., local time, on
Wednesday, August 7, 1996, at The Marriott Hotel, 4670 Salisbury Road,
Jacksonville, Florida 32256 (the "Meeting").
The purpose of the Meeting is to consider a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of April 19, 1996 (the "Merger
Agreement"), by and among the Company, CUC International Inc., a Delaware
corporation ("CUC International"), and IG Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of CUC International ("Merger Sub"),
pursuant to which Merger Sub will be merged with and into the Company (the
"Merger"), and the Company will become a wholly-owned subsidiary of CUC
International.
Subject to the terms and conditions of the Merger Agreement, when the Merger
is consummated, each issued and outstanding share of common stock, $.01 par
value, of the Company ("Company Common Stock") (other than shares of Company
Common Stock held in the treasury of the Company or by any subsidiary of the
Company or shares of Company Common Stock owned by CUC International, Merger Sub
or any other subsidiary of CUC International) will be cancelled and converted
automatically into the right to receive that number of shares of common stock,
$.01 par value, of CUC International ("CUC International Common Stock") equal to
the quotient obtained by dividing $13.50 by the average closing price per share
of CUC International Common Stock during the 15 consecutive trading day period
ending on the second calendar day immediately preceding the Meeting, provided
that if such second calendar is not a trading day, the measurement period will
end on the next calendar day immediately preceding such second calendar day that
is a trading day and, in any case, CUC International will not issue fewer than
0.3750 or more than 0.6136 shares of CUC International Common Stock for each
share of Company Common Stock (the "Conversion Number"); all as more fully
described in the accompanying Proxy Statement/Prospectus which shareholders are
encouraged to read carefully and in its entirety.
It is intended that the Company's shareholders will not recognize gain or
loss for federal income tax purposes to the extent CUC International Common
Stock is received in exchange for Company Common Stock in the Merger, although
the receipt of cash in lieu of fractional shares will be taxable.
FOR THE REASONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS,
YOUR BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE MERGER AGREEMENT
AND MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
SHAREHOLDERS, (II) HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND (III) RECOMMENDS THAT YOU VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE MEETING.
In determining to approve and recommend approval and adoption of the Merger
Agreement, your Board of Directors has carefully reviewed and considered the
terms and conditions of the Merger Agreement, as well as other factors. In
addition, the Board has received the opinion, dated as of April 19, 1996, of
Lazard Freres & Co. LLC, the Company's financial advisor, to the effect that, as
of such date and based upon its views and analyses of the matters and subject to
the assumptions and qualifications set forth therein, the Conversion Number is
fair from a financial point of view to the holders of Company Common Stock. The
full text of such opinion is set forth as Annex B to the accompanying Proxy
Statement/Prospectus.
<PAGE>
At the Meeting, you will also be asked to (i) elect three directors, two
directors to hold office until the earliest of the 1999 Annual Meeting of
Shareholders, the consummation of the Merger or the election, appointment and
qualification of their respective successors, and one director to hold office
until the earliest of the 1998 Annual Meeting of Shareholders, the consummation
of the Merger or the election, appointment or qualification of such director's
successor; and (ii) ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants for the year ending December 31, 1996 or until
the Merger is consummated. Your Board of Directors has nominated Adam W.
Herbert, Jr., Eugene Miller and Thomas F. Petway, III to be elected as
directors.
If the shareholders approve and adopt the Merger Agreement at the Meeting
and the Merger is consummated, from and after the Effective Time and until their
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Sub will become the directors of the
Company as the surviving corporation of the Merger. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE AT THE MEETING FOR THE (I) ELECTION OF ADAM
W. HERBERT, JR., EUGENE MILLER AND THOMAS F. PETWAY, III AS DIRECTORS AND (II)
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
Attached to this letter is a Proxy Statement/Prospectus which will provide
you with a detailed description of the terms of the Merger, the Merger Agreement
and the transactions contemplated thereby, information on the director nominees
identified above and other important information relating to the Company, CUC
International and Merger Sub. Please read the Proxy Statement/Prospectus
carefully and in its entirety.
ONLY SHARES OF CUC INTERNATIONAL COMMON STOCK WILL BE ISSUED IN THE MERGER.
SUCH SHARES ARE LISTED ON THE NEW YORK STOCK EXCHANGE, INC. AND AS A RESULT,
HOLDERS OF COMPANY COMMON STOCK WILL NOT HAVE ANY APPRAISAL RIGHTS UNDER
APPLICABLE DELAWARE LAW.
Only holders of record of shares of Company Common Stock at the close of
business on June 21, 1996 are entitled to notice of and to vote at the Meeting
and any adjournments or postponements thereof.
It is important that your shares of Company Common Stock be represented and
voted at the Meeting. Whether or not you plan to attend, please take a moment to
sign, date and promptly mail the enclosed proxy card and return it in the
enclosed prepaid envelope. If you are present at the Meeting, you may, of
course, withdraw your proxy and vote your shares in person.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY CARD.
Sincerely,
EUGENE MILLER
Chairman and Chief Executive Officer
<PAGE>
IDEON GROUP, INC.
7596 CENTURION PARKWAY
JACKSONVILLE, FLORIDA 32256
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-------------------
TO BE HELD ON WEDNESDAY, AUGUST 7, 1996
TO THE SHAREHOLDERS OF IDEON GROUP, INC.:
The 1996 Annual Meeting of Shareholders (the "Meeting") of Ideon Group, Inc.
("the Company") will be held at 10:00 a.m., local time, on Wednesday, August 7,
1996, at The Marriott Hotel, 4670 Salisbury Road, Jacksonville, Florida 32256
for the following purposes:
. to consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of April 19, 1996 (the "Merger
Agreement"), by and among the Company, CUC International Inc., a
Delaware corporation ("CUC International"), and IG Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of CUC International
("Merger Sub"), pursuant to which:
-- Merger Sub will be merged with and into the Company (the
"Merger"), with the Company surviving the Merger as a wholly-owned
subsidiary of CUC International; and
-- at the effective time of the Merger (the "Effective Time"), each
share of the Company's common stock, $.01 par value ("Company
Common Stock") (other than shares of Company Common Stock held in
the treasury of the Company or by any subsidiary of the Company or
shares of Company Common Stock owned by CUC International, Merger
Sub or any other subsidiary of CUC International), will be
cancelled and converted automatically into the right to receive
that number of shares of CUC International common stock, $.01 par
value ("CUC International Common Stock"), equal to the quotient
obtained by dividing $13.50 by the average closing price per share
of CUC International Common Stock on the New York Stock Exchange,
Inc. (the "NYSE") as reported on the NYSE Composite Tape during
the 15 consecutive trading day period ending on the second
calendar day immediately preceding the Meeting; provided that if
such second calendar day is not a trading day, the measurement
period will end on the next calendar day immediately preceding
such second calendar day that is a trading day, and, in any case,
CUC International will not issue fewer than 0.3750 or more than
0.6136 shares of CUC International Common Stock for each share of
Company Common Stock, all as more fully set forth in the Merger
Agreement and described in the accompanying Proxy
Statement/Prospectus which shareholders should read carefully and
in its entirety;
. to elect three directors, two directors to hold office until the
earliest of the 1999 Annual Meeting of Shareholders, the consummation
of the Merger or the election or appointment and qualification of their
respective successor, and one director to hold office until the
earliest of the 1998 Annual Meeting of Shareholders, the consummation
of the Merger or the election or appointment and qualification of such
director's successor;
. to ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31, 1996 or until
the Merger is consummated; and
. to transact such other business as may properly come before the Meeting
or any adjournments or postponements thereof. Additional information
relating to these matters is set forth in the accompanying Proxy
Statement/Prospectus which should be read carefully and in its
entirety.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY
AND ITS SHAREHOLDERS, (II) HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND (III) RECOMMENDS THAT SHAREHOLDERS OF THE
COMPANY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE MEETING.
IN ADDITION, THE BOARD OF DIRECTORS HAS NOMINATED ADAM W. HERBERT, JR., EUGENE
MILLER AND THOMAS F. PETWAY, III FOR ELECTION AS DIRECTORS AND RECOMMENDS THAT
THE SHAREHOLDERS OF THE COMPANY VOTE FOR THE ELECTION OF SUCH PERSONS AS
DIRECTORS TO HOLD OFFICE AS SPECIFIED ABOVE. THE BOARD OF DIRECTORS HAS ALSO
APPOINTED PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS AND
RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE FOR THE RATIFICATION OF
SUCH FIRM AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
If the Company's shareholders approve and adopt the Merger Agreement at the
Meeting and the Merger is consummated, from and after the Effective Time and
until their successors are duly elected or appointed and qualified in accordance
with applicable law, the directors of Merger Sub will become the directors of
the Company, as the surviving corporation in the Merger.
Only holders of record of shares of Company Common Stock at the close of
business on June 21, 1996 (the "Record Date") are entitled to notice of and to
vote at the Meeting and any adjournments or postponements thereof. ONLY SHARES
OF CUC INTERNATIONAL COMMON STOCK WILL BE ISSUED IN THE MERGER. SUCH SHARES ARE
LISTED ON THE NYSE AND AS A RESULT, HOLDERS OF COMPANY COMMON STOCK WILL NOT
HAVE ANY APPRAISAL RIGHTS UNDER APPLICABLE DELAWARE LAW.
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, holders of Company Common Stock immediately prior to the
Effective Time will own in the aggregate, approximately 5% to 7% of the CUC
International Common Stock outstanding immediately after the Effective Time.
Whether or not you plan to attend the Meeting, please sign, date and
promptly mail your proxy card. Your cooperation is appreciated.
By Order of the Board of Directors
July 1, 1996 LISA ORMAND
Vice President and Corporate Secretary
YOUR VOTE IS VERY IMPORTANT!
PLEASE SIGN, DATE AND MAIL YOUR PROXY CARD.
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE CALL
D.F. KING & CO., INC., WHICH IS ASSISTING US, TOLL-FREE AT 1-800-431-9633.
<PAGE>
[FORM OF DEFINITIVE PROXY CARD]
IDEON GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Ideon Group, Inc., a Delaware corporation
("Ideon"), hereby appoints Kevin L. Bouchillon and Marshall L. Burman, and each
of them, the true and lawful attorneys-in-fact and proxies of the undersigned,
with full power of substitution, to vote all shares of common stock, $.01 par
value, of Ideon which the undersigned would be entitled to vote if personally
present at the 1996 Annual Meeting of Shareholders of Ideon to be held on
Wednesday, August 7, 1996, and at any and all adjournments or postponements
thereof (the "Meeting").
X Please mark your votes as in this example.
THE BOARD OF DIRECTORS OF IDEON UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSALS LISTED ON THIS PROXY CARD
<TABLE>
<S> <C> <C> <C> <C>
1. Approval and adoption of the Agreement and Plan of Merger (the "Merger FOR AGAINST ABSTAIN
Agreement"), dated as of April 19, 1996, by and among Ideon Group, Inc., / / / / / /
CUC International Inc. and IG Acquisition Corp., pursuant to which IG
Acquisition Corp. will be merged with and into Ideon Group, Inc. and
Ideon Group, Inc. will become a wholly-owned subsidiary of CUC
International Inc.
2. Election of Adam W. Herbert, Jr. as director to hold office until the FOR WITHHOLD AUTHORITY
1998 Annual Meeting of Shareholders / / / /
3. Election of Thomas F. Petway, III as director to hold office until the FOR WITHHOLD AUTHORITY
1999 Annual Meeting of Shareholders / / / /
4. Election of Eugene Miller as director to hold office until the 1999 FOR WITHHOLD AUTHORITY
Annual Meeting of Shareholders / / / /
5. Ratification of the appointment of Price Waterhouse LLP as the Company's FOR AGAINST ABSTAIN
independent accountants / / / / / /
</TABLE>
The proxies are hereby authorized to vote in their discretion upon all other
matters which may properly come before the Annual Meeting.
If the shareholders approve and adopt the Merger Agreement and the Merger is
consummated, until successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of Merger Sub will be directors of
the Company.
This Proxy will be voted as directed, but if no direction is indicated, it will
be voted "FOR" items (1), (2), (3), (4) and (5), and in the discretion of the
proxies on such other matters as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS TO THE LEFT. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD
SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE, OR
GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN IN
FULL CORPORATE NAME BY PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
Dated:________________________________________, 1996
__________________________________________________
__________________________________________________
Signature(s)
<PAGE>
PROXY STATEMENT/PROSPECTUS
[LOGO]
IDEON GROUP, INC. [LOGO]
7596 CENTURION PARKWAY CUC INTERNATIONAL INC.
JACKSONVILLE, FLORIDA 32256 707 SUMMER STREET
(904) 218-1800 STAMFORD, CONNECTICUT 06901
(203) 324-9261
PROXY STATEMENT RELATING TO THE 1996
ANNUAL MEETING OF SHAREHOLDERS OF IDEON GROUP, INC.
TO BE HELD ON WEDNESDAY, AUGUST 7, 1996
PROSPECTUS RELATING TO 17,170,469 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 Ideon Group, Inc., a
Delaware corporation (the "Company" or "Ideon"), in connection with the
solicitation of proxies by the Company's Board of Directors for use at the 1996
Annual Meeting of Shareholders of the Company, to be held at The Marriott Hotel,
4670 Salisbury Road, Jacksonville, Florida 32256 on Wednesday, August 7, 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 21, 1996
of Company Common Stock will be requested to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of April 19,
1996 (the "Merger Agreement"), by and among CUC International Inc., a Delaware
corporation ("CUC International"), IG Acquisition Corp., a Delaware corporation
and wholly-owned "Subsidiary" (as defined in "Summary--Certain Definitions") 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 of
Company Common Stock held in the treasury of the Company or by any Subsidiary of
the Company or shares of Company Common Stock owned by CUC International, Merger
Sub or any other Subsidiary of CUC International) will be converted into the
right to receive that number of shares of common stock, $.01 par value, of CUC
International ("CUC International Common Stock") equal to the quotient obtained
by dividing $13.50 by the "Average Stock Price" (as defined in "Summary--Certain
Definitions"); provided that if the Average Stock Price is $22.00 or less, the
"Conversion Number" (as defined in "Summary--Certain Definitions") will be
0.6136, and if the Average Stock Price is $36.00 or more, the Conversion Number
will be 0.3750, 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 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--No
Fractional Shares;" and "The Merger Agreement--Conversion of Shares; Merger
Consideration."
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 21, 1996, holders of Company Common Stock immediately prior to the
Effective Time will own, in the aggregate, approximately 5% to 7% of the CUC
International Common Stock outstanding immediately after the Effective Time. See
"Information Concerning CUC International--Other CUC International Business
Combinations."
SEE "RISK FACTOR" APPEARING ON PAGE 36 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY SHAREHOLDERS OF THE COMPANY.
The market price of shares of CUC International Common Stock is inherently
subject to fluctuation. Accordingly, 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. In
addition, 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 December 31, 1996, and is subject to termination prior to such
date upon the occurrence of certain events. Upon termination of the Merger
Agreement under certain circumstances, the Company may be required to reimburse
CUC International for certain out-of-pocket fees and expenses incurred by CUC
International (including certain professional advisory fees) not to exceed $1.0
million. Moreover, under certain circumstances specified in the Merger
Agreement, if a "Third-Party Acquisition" (as defined in "Summary--Certain
Definitions") is consummated within one year of such termination, upon such
consummation, the Company may be required to pay to CUC International $7.0
million as liquidated damages, together with reimbursement of certain expenses
not to exceed $1.0 million (to the extent not previously paid). See "The Merger
Agreement--Termination; Fees and Expenses."
(COVER PAGE CONTINUES)
<PAGE>
(COVER PAGE CONTINUED)
This Proxy Statement/Prospectus is also being furnished to holders of
Company Common Stock in connection with the (i) election of three directors to
the Company's Board of Directors, two directors to hold office until the
earliest of the 1999 Annual Meeting of Shareholders, the consummation of the
Merger or the election or appointment and qualification of their respective
successors, and one director to hold office until the earliest of the 1998
Annual Meeting of Shareholders, the consummation of the Merger or the election
or appointment and qualification of such director's successor, and (ii)
ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31, 1996 or until the
Merger is consummated.
CUC International Common Stock and Company Common Stock are both traded on
the New York Stock Exchange, Inc. ("NYSE"). The closing sale prices of CUC
International Common Stock and Company Common Stock were $31.125 and $12.25,
respectively, on April 19, 1996 (the last trading day preceding the public
announcement of the Merger) and were $35.75 and $13.50, respectively, on June
26, 1996 (the latest practicable date preceding the mailing of this Proxy
Statement/Prospectus for which such prices were available).
Effective on February 19, 1996, CUC International and Stealth Acquisition I
Corp., a California corporation and 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, simultaneously with the execution and delivery of the Davidson Merger
Agreement, CUC International and Larry Acquisition Corp., a Delaware corporation
and wholly-owned Subsidiary of CUC International ("LAC"), entered into an
Agreement and Plan of Merger (the "Sierra Merger Agreement") with Sierra
On-Line, Inc., a Delaware corporation ("Sierra"), providing for the merger of
LAC with and into Sierra, with Sierra as the surviving corporation in such
merger (the "Sierra Merger"). THE MERGER, THE DAVIDSON MERGER AND THE SIERRA
MERGER ARE INDEPENDENT TRANSACTIONS AND THE CONSUMMATION OF NONE OF SUCH
TRANSACTIONS IS CONDITIONED OR DEPENDENT UPON THE CONSUMMATION OF ANY OF THE
OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO APPLICABLE LAW AND THE COMPANY'S
AND CUC INTERNATIONAL'S 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 SIERRA MERGER. SIMILARLY, NEITHER DAVIDSON'S SHAREHOLDERS
NOR SIERRA'S SHAREHOLDERS, AS SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN
RESPECT OF THE MERGER. For additional information regarding the terms of the
Davidson Merger and the Sierra 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 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 July 1,
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 NOR
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 JULY 1, 1996.
(END OF COVER PAGE)
<PAGE>
AVAILABLE INFORMATION
Each of CUC International, the Company, Davidson and Sierra 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, Davidson, Sierra and the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 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 may also be obtained, at prescribed rates, from the Public Reference
Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, periodic reports, proxy statements and other information filed by CUC
International and the Company, respectively, 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 Davidson and Sierra, respectively, may
be inspected at the offices of the NASDAQ Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
If the Merger is consummated, CUC International will continue to file
periodic reports, proxy statements and other information with the Commission
pursuant to the Exchange Act and, 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
being offered 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, 7596 CENTURION PARKWAY, JACKSONVILLE, FLORIDA 32256, ATTENTION:
SECRETARY, TELEPHONE: (904) 218-1800. TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE JULY 24, 1996.
EXCEPT FOR THE DESCRIPTIONS OF THE SIERRA MERGER AND THE DAVIDSON MERGER,
ALL DISCLOSURES CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING SIERRA AND DAVIDSON, RESPECTIVELY, ARE DERIVED
FROM SIERRA'S AND DAVIDSON'S PUBLICLY AVAILABLE DOCUMENTS REFERRED TO BELOW AND
HAVE BEEN INCLUDED OR INCORPORATED BY REFERENCE HEREIN WITH THE CONSENT OF
SIERRA AND DAVIDSON, RESPECTIVELY. 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
(i)
<PAGE>
REGARDING DAVIDSON OR SIERRA 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 SIERRA HAVE BEEN PUBLICLY DISCLOSED.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by CUC International (File No. 1-10308), the
Company (File No. 1-11465), Davidson (File No. 0-21280) and Sierra (File No.
0-17154), 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 Reports on Form 8-K, filed with the Commission on April
22, 1996, March 12, 1996, February 22, 1996 and February 21, 1996; (iii) 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"); (iv) 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 August 15, 1989; (v) the Company'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 the Company's Amendment No. 1 to its 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 the Company'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 "Company 10-K"); (vi) the Company's Current
Reports on Form 8-K, filed with the Commission on April 23, 1996, February 26,
1996 and February 7, 1996; (vii) the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission on May 15, 1996, as
amended by Amendment No. 1 to the Company'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 "Company 10-Q") (the "Company 10-Q"), (viii) 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"), (ix) Davidson's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1996, filed with the
Commission on May 14, 1996 (the "Davidson 10-Q"), (x) Sierra's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995, filed with the Commission on
June 29, 1995 (the "Sierra 10-K"); (xi) Sierra's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1995, filed with the Commission on August
17, 1995; (xii) Sierra's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, filed with the Commission on November 15, 1995; (xiii)
Sierra'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 Amendement
No. 1 to Sierra's Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 31, 1995, filed with the Commission on May 15, 1996 (the "Sierra
10-Q"); (xiv) Sierra's Current Reports on Form 8-K, filed with the Commission on
March 1, 1996 and December 6, 1995, respectively; (xv) the description of Sierra
Common Stock contained in Sierra's registration statement on Form 8-A, filed
with the Commission on September 15, 1988.
All documents filed with the Commission by CUC International, the Company,
Davidson and Sierra respectively, pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the date of the
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
hereof. All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
the notes thereto) contained in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding sentence.
(ii)
<PAGE>
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CUC INTERNATIONAL OR 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.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. (i)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... (ii)
SUMMARY............................................................................... 1
SUMMARY SELECTED FINANCIAL DATA....................................................... 24
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA......................... 29
RISK FACTOR........................................................................... 36
INFORMATION CONCERNING CUC INTERNATIONAL.............................................. 36
INFORMATION CONCERNING THE COMPANY.................................................... 44
THE MEETING........................................................................... 46
General............................................................................. 46
Matters to Be Considered at the Meeting............................................. 46
Record Date; Quorum; Voting at the Meeting.......................................... 46
Proxies............................................................................. 47
PROPOSAL I--THE MERGER................................................................ 49
Background of the Merger............................................................ 49
Reasons for the Merger; Recommendation of the Company's Board of Directors.......... 58
Opinion of the Company's Financial Advisor.......................................... 60
Certain Consequences of the Merger.................................................. 66
Management of the Company After the Merger.......................................... 67
Conduct of the Business of CUC International and the Company if the Merger is Not
Consummated........................................................................... 67
Material Contacts Between CUC International and the Company......................... 67
Interests of Certain Persons in the Merger.......................................... 67
Indemnification of Directors and Officers........................................... 69
Accounting Treatment................................................................ 69
Certain Federal Income Tax Considerations........................................... 70
Regulatory Approvals................................................................ 71
Federal Securities Law Consequences................................................. 72
Stock Exchange Listing.............................................................. 72
No Appraisal Rights................................................................. 72
THE MERGER AGREEMENT.................................................................. 73
The Merger.......................................................................... 73
Conversion of Shares; Merger Consideration.......................................... 73
Adjustment of Conversion Number..................................................... 73
Exchange of Stock Certificates...................................................... 73
Dividends, Transfer Taxes........................................................... 74
No Fractional Shares................................................................ 75
Cancellation of Shares.............................................................. 75
Stock Options....................................................................... 75
Restricted Stock.................................................................... 76
Representations and Warranties...................................................... 76
Certain Covenants................................................................... 76
Conditions.......................................................................... 81
Termination......................................................................... 82
Fees and Expenses................................................................... 83
Amendments; No Waivers.............................................................. 84
Confidentiality Agreement........................................................... 84
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS................................................................ 85
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET.................................. 86
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME................................................................. 87
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................. 91
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................ 93
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 94
Directors........................................................................... 94
Amendments to the Charters.......................................................... 95
Amendments to the By-laws........................................................... 95
Quorum.............................................................................. 95
Vote Required for Merger and Certain Other Transactions............................. 95
Business Combinations Following a Change of Control................................. 95
Cumulative Voting................................................................... 96
Special Meetings of Shareholders; Action by Consent................................. 96
PROPOSAL II--ELECTION OF DIRECTORS.................................................... 97
Nominees for Election............................................................... 97
DIRECTORS' FEES AND OTHER COMPENSATION................................................ 99
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION............................... 100
EXECUTIVE COMPENSATION................................................................ 103
Summary Compensation Table.......................................................... 103
Option Grants in Transition Period and Last Fiscal Year............................. 104
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
Values................................................................................ 105
STOCK PERFORMANCE GRAPH............................................................... 106
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 107
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS....................... 108
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT..................................... 110
PROPOSAL III--RATIFICATION OF INDEPENDENT ACCOUNTANTS................................. 110
OTHER MATTERS......................................................................... 110
1997 SHAREHOLDER PROPOSALS............................................................ 110
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND COMPANY
MANAGEMENT............................................................................ 111
PRINCIPAL HOLDERS OF CUC INTERNATIONAL COMMON STOCK................................... 113
LEGAL MATTERS......................................................................... 113
EXPERTS............................................................................... 114
</TABLE>
ANNEXES
<TABLE>
<S> <C> <C>
Annex A Agreement and Plan of Merger, dated as of April 19, 1996, by and among CUC
International, IG Acquisition Corp. and the Company........................ A-1
Annex B Opinion of Lazard Freres & Co. LLC......................................... B-1
</TABLE>
(v)
<PAGE>
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 AND IN THEIR ENTIRETY. UNLESS OTHERWISE DEFINED
HEREIN, ALL CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. 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 SPLITS OF THE DAVIDSON COMMON STOCK DAVIDSON
("DAVIDSON COMMON STOCK"), EFFECTED IN DECEMBER 1992 AND ON AUGUST 23, 1995, (C)
HAVE BEEN ADJUSTED FOR AND GIVE EFFECT TO THE 2:1 SPLIT OF THE SIERRA COMMON
STOCK, EFFECTED ON MARCH 3, 1995, AND (D) ASSUME THAT (I) OUTSTANDING OPTIONS TO
PURCHASE SHARES OF COMPANY COMMON STOCK (OTHER THAN OPTIONS HELD BY THE
COMPANY'S DIRECTORS WHICH, PURSUANT TO THE MERGER AGREEMENT, WILL BE CONVERTED
AT THE EFFECTIVE TIME INTO THE RIGHT TO RECEIVE SHARES OF CUC INTERNATIONAL
COMMON STOCK AS DESCRIBED IN "THE MERGER AGREEMENT--STOCK OPTIONS") WILL NOT BE
EXERCISED PRIOR TO THE EFFECTIVE TIME, (II) OUTSTANDING OPTIONS TO PURCHASE
SHARES OF CUC INTERNATIONAL COMMON STOCK BE EXERCISED FOR SHARES OF CUC
INTERNATIONAL COMMON STOCK PRIOR TO THE EFFECTIVE TIME, (III) OUTSTANDING
OPTIONS TO PURCHASE SHARES OF DAVIDSON COMMON STOCK WILL NOT BE EXERCISED PRIOR
TO THE DAVIDSON EFFECTIVE TIME AND (IV) OUTSTANDING OPTIONS TO PURCHASE SHARES
OF SIERRA COMMON STOCK AND SIERRA'S 6 1/2% CONVERTIBLE SUBORDINATED NOTES DUE
2001 WILL NEITHER BE EXERCISED NOR CONVERTED INTO SHARES OF SIERRA COMMON STOCK,
AS THE CASE MAY BE, PRIOR TO THE SIERRA EFFECTIVE TIME.
IN ADDITION, UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS ASSUMES THAT 0.4943 SHARES OF CUC INTERNATIONAL COMMON
STOCK WILL BE ISSUED IN THE MERGER FOR EACH SHARE OF COMPANY COMMON STOCK
OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME (I.E., REPRESENTING THE
AVERAGE OF THE MINIMUM CONVERSION NUMBER OF 0.3750 (APPLICABLE IF THE AVERAGE
STOCK PRICE IS $36.00 OR MORE) AND THE MAXIMUM CONVERSION NUMBER OF 0.6136
(APPLICABLE IF THE AVERAGE STOCK PRICE IS $22.00 OR LESS)), AND FURTHER ASSUMES
THAT THE VALUE OF THE SHARES OF CUC INTERNATIONAL COMMON STOCK ISSUED IN THE
MERGER IN RESPECT OF SUCH SHARES OF COMPANY COMMON STOCK WILL BE $13.50.
THE MERGER, THE DAVIDSON MERGER AND THE SIERRA MERGER ARE INDEPENDENT
TRANSACTIONS AND THE CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED OR
DEPENDENT UPON THE 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 SIERRA
MERGER. SIMILARLY, NEITHER HOLDERS OF DAVIDSON COMMON STOCK NOR SIERRA COMMON
STOCK, AS SUCH, ARE ENTITLED TO NOTICE OR TO VOTE IN RESPECT OF THE MERGER.
1
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES
<S> <C>
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 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.
IG ACQUISITION CORP. ........ Merger Sub, a Delaware corporation and 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.
IDEON GROUP, INC. ........... The Company 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, the Company's largest operating Subsidiary, is a
leader in providing credit card enhancement and continuity
products and services. SafeCard serves over 160 credit
card issuers and has approximately 13 million subscribers
and, during 1995, contributed approximately 80% of the
Company's consolidated revenue. SafeCard markets
subscriptions for continuity services it provides to
subscribers by mail and telephone. Continuity services
typically continue on an annual basis for some period of
time unless cancelled by the subscriber. SafeCard is based
in Jacksonville, Florida and has an operational facility
located in Cheyenne, Wyoming.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
On February 16, 1996, SafeCard completed its acquisition of
United Bank Services ("UBS"), a provider of value-added
products and services through a diverse group of financial
institutions, including banks, credit unions and other
financial services companies. UBS offers a wide range of
credit card enhancement services, including CardMiles, a
universal airline frequent flyer rewards program, travel
insurance enhancements, customer loyalty programs and
credit card merchant reward programs. The operations of
UBS have been consolidated with the operations of
SafeCard. UBS is based in Norman, Oklahoma.
Wright Express 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 private 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. Wright Express is based in
South Portland, Maine.
National Leisure Group 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. National Leisure Group is based
in Boston, Massachusetts.
For a more detailed description of the business and
properties of the Company, see "Information Concerning the
Company" and the Company 10-K, which is incorporated
herein by reference.
The Company's principal executive offices are located at
7596 Centurion Parkway, Jacksonville, Florida 32256, and
its telephone number at such offices is (904) 218-1800.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
1996 ANNUAL MEETING OF SHAREHOLDERS
TIME, DATE AND PLACE......... The Meeting will be held at 10:00 a.m., local time, on
Wednesday, August 7, 1996, at The Marriott Hotel, 4670
Salisbury Road, Jacksonville, Florida 32256.
PURPOSE OF THE MEETING....... The purpose of the Meeting is to consider and vote upon (i)
a proposal to approve and adopt the Merger Agreement, (ii)
the election of three directors to the Company's Board of
Directors, two directors to hold office until the earliest
of the 1999 Annual Meeting of Shareholders, the
consummation of the Merger or their respective successors
are duly elected or appointed and qualified, and one
director to hold office until the earliest of the 1998
Annual Meeting of Shareholders, the consummation of the
Merger or such director's successor is duly elected or
appointed and qualified, (iii) the ratification of the
appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31,
1996 or until the Merger is consummated, and (iv) such
other business as may properly be presented at the
Meeting.
If the shareholders approve and adopt the Merger Agreement
at the Meeting and the Merger is consummated, from and
after the Effective Time and until their successors are
duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Sub will become
the directors of the Company as the surviving corporation
of the Merger.
RECORD DATE; SHARES ENTITLED
TO VOTE...................... Only holders of record of shares of Company Common Stock at
the close of business on June 21, 1996 (the "Record Date")
are entitled to notice of and to vote at the Meeting. At
the Record Date, there were 27,983,164 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 839 holders
of record. See "The Meeting--Record Date; Quorum; Voting
at the Meeting."
QUORUM; VOTE REQUIRED........ The presence, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Company
Common Stock entitled to vote at the Meeting will
constitute a quorum for the transaction of business at the
Meeting. The affirmative vote of the holders of a majority
of the issued and outstanding shares of Company Common
Stock entitled to vote thereon at the Meeting is necessary
to approve and adopt the Merger Agreement. The affirmative
vote of the holders of a majority of the issued and
outstanding shares of Company Common Stock present in
person or represented by proxy and entitled to vote
thereon at the Meeting is necessary to ratify the
appointment of the Company's independent accountants. The
affirmative vote of the holders of a plurality of the
issued and outstanding shares of Company Common Stock
present in person or represented by proxy and entitled to
vote thereon at the Meeting is necessary to elect the
Company's directors. Under applicable rules of the "NYSE"
(as defined below), brokers that hold shares in "street
name" have the authority to vote on certain items when
they have not received
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
instructions from the beneficial owners of such shares.
Accordingly, broker non-votes will have the practical
effect of voting against ratification of the Board of
Directors' appointment of the Company's independent
accountants and will have no effect on the outcome of the
election of directors. Brokers may not vote shares of
Company Common Stock as to the approval and adoption of
the Merger Agreement held for customers without specific
instructions from such customers. With regard to the
election of directors, brokers may vote in favor of or
withhold with respect to each nominee; votes that are
withheld will be excluded entirely from the vote and will
have no effect on the outcome of the election. 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 of Company Common
Stock will be voted FOR approval and adoption of the
Merger Agreement, ratification of the appointment of the
Company's independent accountants, the election of the
Board of Directors' three nominees for director and, in
the discretion of the proxy holder, as to any other matter
that may be properly 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 "The Meeting-- Proxies."
OWNERSHIP OF COMPANY
COMMON STOCK BY COMPANY
MANAGEMENT AND CERTAIN
OTHER PERSONS.............. As of the Record Date, the executive officers, nominees and
directors of the Company (17 persons as a group)
beneficially owned approximately 3.1% of the outstanding
Company Common Stock. 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 Company Management."
</TABLE>
5
<PAGE>
THE MERGER
<TABLE>
<S> <C>
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 of Company Common Stock held by
the Company as treasury stock or by any Subsidiary of
the Company or shares owned by CUC International, Merger
Sub or any other Subsidiary of CUC International) will
be converted into the right to receive that number of
shares of CUC International Common Stock equal to the
quotient obtained by dividing $13.50 by the "Average
Stock Price" (as defined below); provided that if the
Average Stock Price is $22.00 or less, the "Conversion
Number" (as defined below) will be 0.6136, and if the
Average Stock Price is $36.00 or more, the Conversion
Number will be 0.3750; and (iii) at the Effective Time,
each holder of a certificate representing shares of
Company Common Stock will 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 into which the shares of Company Common
Stock have been converted in the Merger, certain
dividend payments, if applicable, and cash payable in
lieu of fractional share interests, all in accordance
with the terms and subject to the conditions of the
Merger Agreement. See "The Merger Agreement--Conversion
of Shares; Merger Consideration; The Merger Agreement--
Dividends, Transfer Taxes;" and "The Merger Agreement--
No Fractional Shares."
In the event of any stock split, combination,
reclassification or stock dividend with respect to CUC
International Common Stock, any change or conversion of
CUC International Common Stock into other securities or
any other dividend or distribution with respect to CUC
International Common Stock (other than quarterly cash
dividends issued in the ordinary course consistent with
past practice) and any distribution by CUC International
of shares of capital stock to any of its affiliates, or
if a record date with respect to any of the foregoing
should occur prior to the Effective Time, appropriate
and proportionate adjustments will be made to the
Conversion Number for purposes of determining the amount
of CUC International Common Stock to be issued in the
Merger in respect of each share of Company Common Stock.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 Sierra
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 5% 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 Sierra Merger is not),
the total number of shares of CUC International Common
Stock outstanding immediately following the Effective
Time will be 235,409,026 and the shareholders of the
Company immediately prior to the Effective Time will
own, in the aggregate, approximately 6% of the CUC
International Common Stock outstanding immediately after
the Effective Time. If the Sierra 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 the
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
6% of the CUC International Common Stock outstanding
immediately after the Effective Time. If neither the
Sierra Merger nor the Davidson 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
205,369,420 and the shareholders of the Company
immediately prior to the Effective Time will own, in the
aggregate, approximately 7% of the CUC International
Common Stock outstanding immediately after the Effective
Time. See "The Merger-- Certain Consequences of the
Merger" and "Unaudited Pro Forma Condensed Combined
Financial Statements."
STOCK OPTIONS; RESTRICTED
STOCK.......................... Not later than the Effective Time, each outstanding option
to purchase shares of Company Common Stock (an "Option")
granted under any stock option or compensation plan or
arrangement of the Company (other than any "stock
purchase plan" within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"),
and except with respect to Options held by any director
of the Company as described below) in effect on the date
of the Merger Agreement ("Company Stock Plans"), whether
or not vested or exercisable, will become and represent
an option to purchase the number of shares of CUC
International Common Stock (a "Substitute Option"),
rounded up to the nearest whole share, determined by
multiplying (x) the number of shares of Company Common
Stock subject to such Option immediately prior to the
Effective Time by (y) the Conversion Number, at an
exercise price per share of CUC International Common
Stock (increased to the nearest whole cent) equal to the
exercise price per share of Company Common Stock
immediately prior to the Effective Time divided by the
Conversion Number; provided, however, that in the case
of any
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
option to purchase shares of Company Common Stock that
qualifies as an incentive stock option under Section 422
of the Code, the conversion formula described above will
be adjusted as necessary to comply with Section 424(a)
of the Code.
Except as described above, after the Effective Time, each
Substitute Option will be exercisable upon the same
terms and conditions as were applicable to the related
Option immediately prior to the Effective Time.
Notwithstanding the foregoing, each Option held by any
director of the Company at the Effective Time will be
converted into the right to receive that number of
shares of CUC International Common Stock determined by
multiplying (x) the number of shares of Company Common
Stock such director could have purchased had such holder
exercised such Option in full immediately prior to the
Effective Time by (y) a fraction, the numerator of which
will be the excess, if any, of (i) the Conversion Number
multiplied by the Average Stock Price over (ii) the
applicable exercise price of such Option, and the
denominator of which will be the Average Stock Price.
See "The Merger--Interests of Certain Persons in the
Merger" and "The Merger Agreement--Stock Options."
In addition, any unvested shares of restricted stock of
the Company, however granted, will, to the extent
required in the plan, agreement or instrument pursuant
to which such restricted stock was granted, vest and
become free of all restrictions immediately prior to the
Effective Time and will be convertible into CUC
International Common Stock pursuant to the terms and
subject to the conditions of the Merger Agreement. See
"The Merger Agreement--Restricted Stock."
EXCHANGE OF CERTIFICATES....... Promptly after the Effective Time, The Bank of Boston, a
commercial bank selected by CUC International having
capital of not less than $500.0 million or another
entity or person acceptable to CUC International and the
Company, as exchange agent (the "Exchange Agent"), will
mail to each holder of record of a certificate (or
certificates) which immediately prior to the Effective
Time represented outstanding shares of Company Common
Stock, written 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 such
holder is entitled to receive in the Merger based upon
the Conversion Number. 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--Exchange of Stock Certificates."
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,
American Stock Transfer and Trust, 40 Wall Street, New
York, New York 10005, (800) 937-5449, Attention: Isaac
Kagan, of such fact to arrange for the issuance of
replacement certificates.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
CUC INTERNATIONAL REASONS FOR
THE MERGER..................... CUC International's Board of Directors believes that (i)
the combination of CUC International's membership services
business with the Company's strong market position in
credit card protection services will enhance CUC
International's product offerings and complement its
client and membership bases, and (ii) the addition of
the Company's sizeable client base presents prospects
for marketing CUC International's core shopping, auto,
and other membership services to the Company's
customers.
RECOMMENDATIONS OF THE
COMPANY'S BOARD OF DIRECTORS;
REASONS FOR THE MERGER......... The Company's Board of Directors unanimously (i) has
determined that the Merger Agreement and the Merger are
fair to, and in the best interests of, the Company and
its shareholders, (ii) has approved the Merger Agreement
and the transactions contemplated thereby and (iii)
recommends that the shareholders of the Company vote FOR
approval and adoption of the Merger Agreement at the
Meeting. The Company's Board of Directors'
recommendation is based upon a number of factors
described in this Proxy Statement/Prospectus. See "The
Merger--Reasons for the Merger; Recommendation of the
Company's Board of Directors."
The Company's Board of Directors also unanimously
recommends that the shareholders of the Company vote at
the Meeting FOR the (i) election of Adam W. Herbert,
Jr., Eugene Miller and Thomas F. Petway, III, as
directors and (ii) ratification of the appointment of
Price Waterhouse LLP as the Company's independent
accountants. See "Election of Directors" and
"Ratification of Independent Accountants."
OPINION OF THE COMPANY'S
FINANCIAL ADVISOR.............. Lazard Freres & Co. LLC ("Lazard") 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 April 19, 1996, to
the effect that as of such date, based upon its views
and analyses and subject to the assumptions and
qualifications set forth therein, the Conversion Number
is fair, from a financial point of view, to the
Company's shareholders. The full text of the written
opinion of Lazard, which sets forth its views and
analyses of the matters, is attached to this Proxy
Statement/Prospectus as Annex B and should be read
carefully and in its entirety. Lazard's opinion is
directed only to the fairness of the Conversion Number
from a financial point of view. Lazard's opinion does
not address any other aspect of the Merger or related
transactions and does not constitute a recommendation to
any shareholder of the Company as to how such
shareholder of the Company should vote at the Meeting.
See "The Merger--Opinion of the Company's Financial
Advisor."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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 NYSE 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."
The Company has no present intention to amend its Amended
and Restated Certificate of Incorporation or By-laws
prior to the Effective Time.
MANAGEMENT OF THE COMPANY AFTER
THE MERGER...................... Pursuant to the Merger Agreement, the members of the
Board of Directors of Merger Sub 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. See "The Merger-- Management of
the Company After the Merger" and "The
Merger--Interests of Certain Persons in 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 consummation of the Davidson Merger and/or the
Sierra Merger).
In addition, on February 13, 1996, the Company and CUC
International entered into an agreement (the
"Confidentiality Agreement"), whereby CUC International
agreed, among other things, to keep confidential
certain non-public, confidential or proprietary
information of the Company furnished to CUC
International by or on behalf of the Company for
purposes of evaluating a possible business combination.
The Confidentiality Agreement provides that, for a
period of two years, neither CUC International nor any
of CUC International's representatives will, unless
specifically invited in writing to do so by the
Company, (i) acquire any of the Company Common Stock;
(ii) make any solicitation of proxies or seek to
influence any person with respect to the voting of any
of the Company Common Stock; (iii) except as otherwise
required by applicable law, make any public
announcement with respect to any business combination
involving the Company or any of its Subsidiaries; (iv)
form, join or in any way participate in a "group" (as
defined in Section 13(d)(3) of the Exchange Act)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
in connection with Company Common Stock; (v) otherwise
act to seek to control or influence the Company's
management, Board of Directors or policies; or (vi)
enter into any agreements in connection with any of the
foregoing (the transactions referred to in clauses (i)
through (vi) above being hereafter referred to as the
"Prohibited Transactions"). The foregoing agreements of
CUC International with respect to the Prohibited
Transactions terminate upon the commencement by the
Company or any other person of an offer to acquire the
Company, whether by means of merger, consolidation or
the acquisition of all or substantially all of the
outstanding stock or assets of the Company. 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. Generally, as more fully described in "The
Merger Agreement--Stock Options," at the Effective
Time, each outstanding Option granted under the Company
Stock Plans 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 Company Common Stock
subject to such Option immediately prior to the
Effective Time by (y) the Conversion Number, at an
exercise price per share of CUC International Common
Stock equal to the exercise price per share of Company
Common Stock immediately prior to the Effective Time,
divided by the Conversion Number.
Options held by the Company's directors will
automatically be converted in the Merger into the right
to receive such number of shares of CUC International
Common Stock determined by multiplying (x) the number
of shares of Company Common Stock such director could
have purchased had such director exercised his Options
in full immediately prior to the Effective Time by (y)
a fraction, the numerator of which will be the excess,
if any, of (i) the Conversion Number multiplied by the
Average Stock Price over (ii) the applicable exercise
price of such Option, and the denominator of which will
be the Average Stock Price. As of the Record Date, the
directors, nominees and executive officers of the
Company (17 persons as a group) owned Options to
purchase up to an aggregate of 1,320,000 shares of
Company Common Stock, of which Options to purchase,
652,750 shares of Company Common Stock are currently
exercisable, and the directors (six persons as a group)
owned outstanding Options to purchase up to an
aggregate of 415,000 shares of Company Common Stock, of
which Options to purchase, 402,250 shares of Company
Common Stock are currently exercisable.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
See "The Merger--Interests of Certain Persons in the
Merger."
INDEMNIFICATION AND INSURANCE. The Merger Agreement
preserves the indemnification rights of the officers
and directors of the Company and contains certain
additional agreements of CUC International and the
surviving corporation to maintain directors' and
officers' insurance and to defend and hold harmless the
"Indemnitees" (as defined below) from and against
"Indemnifiable Claims" (as defined below). See "The
Merger Agreement--Certain Covenants."
EFFECTIVE TIME OF THE MERGER.... The Merger will become effective on the date that a
Certificate of Merger is filed with the Secretary of
State of the State of Delaware or at such time
thereafter as provided in the Certificate of Merger.
CUC International and the Company currently intend that
the Effective Time will occur promptly after approval
and adoption of the Merger Agreement at the Meeting.
CONDITIONS TO THE MERGER........ The obligations of CUC International, Merger Sub and the
Company to consummate the Merger are subject to the
satisfaction of certain conditions, including approval
and adoption of the Merger Agreement by the requisite
vote of the holders of Company Common Stock; approval
for listing on the NYSE of all shares of CUC
International Common Stock issuable in the Merger; the
expiration of any applicable waiting period in respect
of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")
(such waiting period having expired on June 23, 1996);
there not having been issued or in effect any provision
of any applicable law or regulation or any judgment,
injunction, order or decree prohibiting consummation of
the Merger (or any of the transactions contemplated by
the Merger Agreement); the Company having received a
letter, subject to customary qualifications, from its
independent accountants, Price Waterhouse 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; CUC International having received a letter
from Ernst & Young LLP, its independent auditors, 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 (except that the foregoing will not be a
condition to the Company's obligations if either Price
Waterhouse LLP or Ernst & Young LLP is unable to
deliver such letter because the Company has breached
certain of its representations, warranties or covenants
in the Merger Agreement regarding accounting for the
Merger as a pooling-of-interests or the Company or any
of its affiliates shall have taken or failed to take
any other action that, in the opinion of either Ernst &
Young LLP or Price Waterhouse LLP, would prevent CUC
International from accounting for the Merger as a
pooling-of-interests); and the Registration Statement
(of
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
which this Proxy Statement/Prospectus is a part) having
become effective under the Securities Act and no order
suspending such effectiveness having been issued and
remaining in effect.
The obligations of CUC International and Merger Sub to
consummate the Merger are subject to the satisfaction
of certain conditions, including the accuracy in all
material respects of the representations and warranties
of the Company and the performance in all material
respects of the covenants and obligations of the
Company under the Merger Agreement, and the performance
by each "Company Affiliate" (as defined below) of his
obligations under the applicable "Affiliate Letter" (as
defined below).
The obligations of 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 of CUC International and
Merger Sub and the performance in all material respects
of the covenants and obligations of CUC International
and Merger Sub under the Merger Agreement; and the
receipt by the Company of an opinion from Skadden,
Arps, Slate, Meagher & Flom ("Skadden, Arps"), in form
and substance reasonably satisfactory to the Company
and dated the Effective Time, as to certain tax
matters, including, among other things, that based on
the facts, representations and assumptions set forth in
such opinion, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of
the Code. See "The Merger--Certain Federal Income Tax
Considerations" and "The Merger Agreement--Conditions."
The foregoing conditions to the Merger, except those
conditions which cannot be waived as a practical matter
to permit consummation of the Merger or cannot be
waived under applicable law, are subject to waiver by
CUC International, Merger Sub and the Company, as
applicable, at any time prior to the Effective Time.
TERMINATION OF THE MERGER
AGREEMENT....................... The Merger Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time
(i) by the mutual written consent of the Company and
CUC International; (ii) by either the Company or CUC
International if the Merger has not been consummated on
or prior to the "Outside Termination Date" (as defined
below); provided that such right of termination will
not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the
cause of or resulted in the failure to consummate the
Merger by such date; (iii) by either the Company or CUC
International if any law or regulation that makes
consummation of the Merger illegal is in effect or if
any judgment, injunction, order or decree enjoining CUC
International or the Company from consummating the
Merger is entered and such judgment, injunction, order
or decree is final and nonappealable; (iv) by the
Company if a breach of any representation, warranty,
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
covenant or agreement on the part of CUC International
or Merger Sub has occurred and such breach has not been
cured within 20 business days after notice by the
Company thereof; (v) by CUC International and Merger
Sub if a breach of any representation, warranty,
covenant or agreement on the part of the Company has
occurred and such breach has not been cured within 20
business days after notice by CUC International or
Merger Sub thereof; (vi) by CUC International or Merger
Sub if (A) the Board of Directors of the Company or any
committee thereof has withdrawn, modified or changed in
a manner adverse to CUC International or Merger Sub its
recommendation of the Merger or the Merger Agreement or
has approved or recommended a "Superior Proposal" (as
defined below) or (B) the Company has entered into a
definitive agreement with respect to an "Acquisition
Proposal" (as defined below); (vii) by the Company upon
entering into a definitive agreement with respect to a
Superior Proposal pursuant to a determination by the
Company's Board of Directors, based upon the advice of
the Company's outside legal counsel, that the failure
to enter into such agreement would be reasonably likely
to be inconsistent with the Board of Directors'
fiduciary duties; provided that the Company complies
with certain notification and procedural requirements
specified in the Merger Agreement and reimburses CUC
International for "Buyer's Expenses" (as defined below)
of up to a maximum of $1.0 million simultaneously with
its termination of the Merger Agreement; or (viii) by
CUC International, Merger Sub or the Company if the
Company's shareholders do not approve and adopt the
Merger Agreement at the Meeting. See "The Merger
Agreement--Termination."
FEES AND EXPENSES; LIQUIDATED
DAMAGES......................... Upon the terms and subject to the conditions of the
Merger Agreement (including certain notification and
other procedural requirements described in "The Merger
Agreement--Certain Covenants; No Solicitation"), the
Company has agreed to reimburse CUC International for
Buyer's Expenses of up to a maximum of $1.0 million, if
the Company enters into a definitive agreement with
respect to a Superior Proposal and the Merger Agreement
is terminated either by CUC International and Merger
Sub or by the Company by reason thereof. In addition,
the Company has agreed that if the Merger Agreement is
terminated and (i) within 12 months thereafter the
Company enters into a definitive agreement with respect
to a "Third-Party Acquisition" (as defined below) which
is consummated within such 12-month period (or within
such 12-month period a Third-Party Acquisition
otherwise occurs and is consummated) or (ii) prior to
the date on which the Merger Agreement is terminated,
the Company (or its agents) engage in negotiations
with, furnish information to, or receive a proposal
from, a "Third-Party" (as defined below) with respect
to a Third-Party Acquisition (and in the case of such
negotiations or submission of information, the
Third-Party makes or announces a proposal for a
Third-Party
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Acquisition), then, in all such cases, the Company will
pay to CUC International on the date such Third-Party
Acquisition is consummated (if consummated within 12
months after the date the Merger Agreement is
terminated) $7.0 million as liquidated damages,
together with reimbursement of Buyer's Expenses
(without duplication of any such Buyer's Expenses
previously paid to CUC International under the
circumstances described in "The Merger Agreement--
Termination"). See "The Merger Agreement--Fees and
Expenses."
Except as described above, the Merger Agreement provides
that all fees and expenses incurred in connection with
the Merger, the Merger Agreement and the transactions
contemplated thereby will be paid by the party
incurring such fees and expenses irrespective of
whether the Merger is consummated.
NO APPRAISAL RIGHTS............. Holders of Company Common Stock are not entitled to
appraisal rights under the "DGCL" (as defined below) in
connection with the Merger because such shares are
listed on the NYSE 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."
NO SOLICITATION................. Pursuant to the Merger Agreement, the Company has agreed
that the Company and its Subsidiaries will not, and the
Company will use its reasonable best efforts to ensure
that the respective officers, directors and employees
of the Company and its Subsidiaries, and any investment
banker, financial advisor, attorney, accountant or
other representative or agent retained by it or any of
its Subsidiaries (collectively, "Representatives"),
will not (i) solicit, initiate or encourage (including
by way of furnishing information) any Acquisition
Proposal or (ii) participate or engage in negotiations
or discussions, or disclose any non-public information
relating to the Company or any Subsidiary of the
Company or afford access to the properties, books or
records of the Company or any Subsidiary of the
Company, regarding any Acquisition Proposal; provided
that if the Company's Board of Directors determines,
based upon the advice of outside legal counsel to the
Company, that the failure to engage in such
negotiations or discussions or to provide such
information would be reasonably likely to be
inconsistent with the fiduciary duties of the Company's
Board of Directors under applicable law, the Company
may, in response to an Acquisition Proposal and subject
to compliance with the terms and conditions of the
Merger Agreement, furnish information with respect to
the Company and its Subsidiaries pursuant to a
confidentiality agreement and participate in
negotiations regarding such Acquisition Proposal.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
In addition, the Company has agreed that neither it nor
its Board of Directors nor any committee thereof will
(i) withdraw, modify or change in a manner adverse to
CUC International its approval or recommendation to the
Company's shareholders of the Merger Agreement and the
Merger (or propose to do so) or (ii) approve or
recommend, or cause the Company to enter into an
agreement with respect to, any Acquisition Proposal (or
propose to do so), unless the Board determines, based
upon the advice of the Company's outside legal counsel,
that the failure to take any of the actions described
in clauses (i) or (ii) above would be reasonably likely
to be inconsistent with the Board of Directors'
fiduciary duties; and provided that the Acquisition
Proposal in respect of which the Company either
withdraws, modifies or changes its recommendation (as
described above) or enters into an agreement (as
described above) constitutes a Superior Proposal and
prior to entering into such agreement the Company
complies with certain notification and other procedural
requirements specified in the Merger Agreement. See
"The Merger Agreement--Certain Covenants; No
Solicitation;" "The Merger Agreement--Termination" and
"The Merger Agreement--Fees and Expenses."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................. It is a condition to consummation of the Merger that the
Company receive an opinion from Skadden, Arps to the
effect that, among other things, the Merger will
constitute a reorganization within the meaning of
Section 368(a) of the Code, and no gain or loss will be
recognized by the shareholders of the Company upon the
exchange of their shares of Company Common Stock solely
for shares of CUC International Common Stock pursuant
to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of CUC
International Common Stock. See "The Merger--Certain
Federal Income Tax Considerations."
ACCOUNTING TREATMENT............ The Merger is intended to qualify as a
pooling-of-interests for accounting and financial
reporting purposes. The obligations of CUC
International and the Company to consummate the Merger
are subject, among other things, to the Company having
received a letter, subject to customary qualifications,
from its independent accountants, Price Waterhouse 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; CUC International having received a letter
from Ernst & Young LLP, its independent auditors, 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 (except that the foregoing will not be a
condition to the Company's obligations if either Price
Waterhouse LLP or Ernst & Young LLP is unable to
deliver such letter because the Company has breached
certain of its
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
representations, warranties or covenants in the Merger
Agreement regarding accounting for the Merger as a
pooling-of-interests or the Company or any of its
affiliates shall have taken or failed to take any other
action that, in the opinion of either Ernst & Young LLP
or Price Waterhouse LLP, would prevent CUC
International from accounting for the Merger as a
pooling-of-interests). See "The Merger--Accounting
Treatment."
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 description 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 Davidson Effective Time (other than shares held by
CUC International or SAC or held by any other
Subsidiary of CUC International or 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,
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) agreed to vote their shares for the
adoption of the Davidson Merger Agreement at the
special meeting of the holders of Davidson Common Stock
to vote in respect of the Davidson Merger Agreement
(the "Davidson Meeting") presently scheduled to be held
on July 24, 1996 (the "Davidson Shareholders
Agreement"). Accordingly, assuming that such
shareholders will vote for the 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
that Robert M. Davidson, Davidson's Chairman of the
Board and Chief Executive Officer, and Janice G.
Davidson, Davidson's President, respectively, will
become members of CUC International's
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Board of Directors effective upon consummation of the
Davidson Merger.
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 and financial
reporting purposes, is subject to the satisfaction of
certain conditions. Davidson has the right (but is not
required) to terminate the Davidson Merger Agreement
and abandon the Davidson Merger if, among other things,
the average stock price (over a prescribed measurement
period ending approximately 10 calendar days prior to
the date of the Davidson Meeting) of CUC International
Common Stock is less than $29.00.
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 SIERRA MERGER. Simultaneously with the execution and
delivery of the Davidson Merger Agreement, CUC
International entered into the Sierra Merger Agreement
providing for the Sierra Merger. Pursuant to the Sierra
Merger Agreement, among other things, each share of
Sierra Common Stock outstanding immediately prior to
the Sierra Effective Time (other than shares held by
CUC International or LAC or held by any other
Subsidiary of CUC International or any Subsidiary of
Sierra) will, by virtue of the Sierra Merger, be
converted into 1.225 fully paid and non-assessable
shares of CUC International Common Stock.
In addition, at the time of the execution of the Sierra
Merger Agreement, the holders of approximately 9% of
the outstanding shares of Sierra Common Stock (which
consist of Sierra's Chairman and Chief Executive
Officer, and a director of Sierra, respectively) agreed
to vote their shares for
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
the adoption of the Sierra Merger Agreement at the
special meeting of Sierra's shareholders in respect of
the Sierra Merger Agreement (the "Sierra Meeting")
presently scheduled to be held on July 24, 1996 (the
"Sierra Shareholders Agreement"). In addition, pursuant
to the Sierra Merger Agreement, CUC International has
agreed that Kenneth A. Williams (Chairman of the Board
and Chief Executive Officer of Sierra) will become a
member of the Board of Directors of CUC International,
effective upon consummation of the Sierra Merger. See
"Information Concerning CUC International--The Sierra
Merger."
Consummation of the Sierra 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 and financial
reporting purposes, is subject to the satisfaction of
certain conditions. Sierra has the right (but is not
required) to terminate the Sierra Merger Agreement and
abandon the Sierra Merger if, among other things, the
average stock price (over a prescribed measurement
period ending approximately 10 calendar days prior to
the date of the Sierra Meeting) of CUC International
Common Stock is less than $29.00.
According to the Sierra 10-K, Sierra is a leading
publisher and distributor of interactive entertainment,
education and personal productivity software titles for
multimedia personal computers ("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. Sierra 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, Sierra sells
primarily through independent distributors in specified
territories and, in the United Kingdom, directly to
software retailers. Sierra is continually evaluating
new and potentially promising distribution channels,
including on-line distribution through commercial
on-line services and the Internet. During Sierra's most
recent fiscal year, Sierra has 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. Sierra released 29 new
internally-developed titles in fiscal 1996
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
(ending March 31, 1996) and acquired an additional 18
titles in the entertainment, education, simulation and
person productivity categories. 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.
THE MERGER, THE DAVIDSON MERGER AND THE SIERRA MERGER ARE
INDEPENDENT TRANSACTIONS AND THE CONSUMMATION OF NONE
OF SUCH TRANSACTIONS IS CONDITIONED OR DEPENDENT UPON
THE CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS.
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 SIERRA
MERGER. SIMILARLY, NEITHER HOLDERS OF DAVIDSON COMMON
STOCK NOR SIERRA COMMON STOCK, AS SUCH, ARE ENTITLED TO
NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER.
CERTAIN DEFINITIONS............. The following capitalized terms used in this Proxy
Statement/Prospectus have the following respective
meanings:
"ACQUISITION PROPOSAL" means any inquiry, offer or
proposal from any person relating to any direct or
indirect acquisition or purchase of a substantial
portion of the assets of the Company or any of its
Subsidiaries or of over 20% of any class of equity
interests of the Company or any of its Subsidiaries,
any tender or exchange offer that if consummated would
result in any person beneficially owning a 20% or more
equity interest of any class of equity securities of
the Company or any of its Subsidiaries, or any merger,
consolidation, business combination, sale of
substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries, other
than the transactions contemplated by the Merger
Agreement.
"AFFILIATE LETTER" means each letter delivered to CUC
International by each person who, within the meaning of
Rule 145 under the Securities Act, is an "affiliate" of
the Company ("Company Affiliate").
"AVERAGE STOCK PRICE" means the average closing price per
share of CUC International Common Stock on the NYSE as
reported on the NYSE Composite Tape during the 15
consecutive trading day period (the "Measurement
Period") ending on the second calendar day immediately
preceding the Meeting; provided, however, that if such
second calendar day is not a trading day, the
Measurement Period will end on the next calendar day
immediately preceding such second calendar day that is
a trading day.
"BUYERS' EXPENSES" means documented out-of-pocket fees
and expenses reasonably and actually incurred or paid
by or on behalf of CUC International in connection with
the Merger and the consummation of any of the
transactions
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
contemplated by the Merger Agreement, including
reasonable fees and expenses of counsel, accountants,
experts, financial advisors and consultants to CUC
International, in an aggregate amount not to exceed
$1.0 million.
"CLOSING DATE" means the date specified by CUC
International, Merger Sub and the Company for the
closing of the Merger to take place no later than the
third business day after the satisfaction or waiver of
all of the conditions to the consummation of the Merger
set forth in the Merger Agreement, unless another date
is agreed to in writing by CUC International, Merger
Sub and the Company.
"CODE" means the Internal Revenue Code of 1986, as
amended.
"COMMISSION" means the United States Securities and
Exchange Commission, or any successor United States
federal public or governmental authority thereto.
"COMPANY'S EXPENSES" means documented out-of-pocket fees
and expenses reasonably and actually incurred or paid
by or on behalf of the Company in connection with the
Merger and the consummation of any of the transactions
contemplated by the Merger Agreement, including
reasonable fees and expenses of counsel, accountants,
experts, financial advisors and consultants to the
Company, in an aggregate amount not to exceed $1.0
million.
"CONVERSION NUMBER" means the applicable number of duly
authorized, validly issued, fully paid and
nonassessable shares of CUC International Common Stock
equal to the quotient obtained by dividing (x) $13.50
by (y) the Average Stock Price; provided, however, that
if the Average Stock Price is $22.00 or less the
Conversion Number will be 0.6136, and if the Average
Stock Price is $36.00 or more the Conversion Number
will be 0.3750. The term "Conversion Number" as used in
this Proxy Statement/Prospectus has the same meaning as
the term "Exchange Ratio" as used in Lazard's written
opinion, dated April 19, 1996, presented to the
Company's Board of Directors as of such date. The full
text of such opinion is set forth as Annex B hereto.
"CUC INTERNATIONAL ZERO COUPON NOTES" means the Zero
Coupon Convertible Subordinated Notes due June 6, 1996
of CUC International.
"DAVIDSON COMMON STOCK" means the Common Stock, $.00025
par value, of Davidson.
"DAVIDSON EFFECTIVE TIME" means the effective time of the
Davidson Merger.
"DGCL" means the Delaware General Corporation Law, as
amended.
"EXPENSES" includes reasonable attorneys' fees and all
other costs, charges and expenses paid or incurred in
connection with investigating, defending, being a
witness in, participating in (including on appeal) or
preparing to defend any Indemnifiable Claim.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
"GAAP" means United States generally accepted accounting
principles.
"GOVERNMENTAL ENTITY" any governmental body, agency,
official or authority.
"HALMOS ENTITY" means any of Peter Halmos, Steven Halmos,
Halmos Trading and Investment Company, The Halmos
Foundation, Creditline Corporation, Continuity
Marketing Corporation and High Plains Capital
Corporation.
"INDEMNITY AGREEMENT" means any agreement providing for
indemnification by the Company or any Subsidiary of the
Company of any Indemnitee (i) in effect on the date of
the Merger Agreement (or entered into thereafter in
accordance with the provisions of the Merger Agreement)
and listed on schedules to the Merger Agreement (unless
entered into after the date of the Merger Agreement in
accordance with the provisions thereof) or (ii) in
effect on the date of the Merger Agreement and listed
in the Company's public filings with the Commission.
"INDEMNITEES" means those individuals who at or prior to
the Effective Time were officers, directors or
employees of the Company or any of its Subsidiaries,
and the heirs, executors, trustees, fiduciaries and
administrators of such officers, directors or
employees, other than for purposes of this definition,
any Halmos Entity.
"INDEMNIFIABLE CLAIM" means any loss, Expense, claim,
damage, liability, judgment or amount paid in
settlement in respect of any threatened, pending or
completed claim, action, suit or proceeding, whether
criminal, civil, administrative or investigative, based
upon or arising out of or relating to the fact that
such person is or was a director, officer or employee
of the Company or any of its Subsidiaries, and arising
out of acts or omissions occurring on or prior to the
Effective Time, including, without limitation, in
respect of acts or omissions in connection with the
Merger Agreement and the transactions contemplated
thereby.
"LIEN" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance
of any kind.
"MATERIAL ADVERSE EFFECT" means a material adverse effect
on the condition (financial or otherwise), business,
assets or results of operations of the Company and its
Subsidiaries or of CUC International and Merger Sub, as
the case may be, in each case taken as a whole, that is
not a result of general changes in the economy or the
industries in which such entities operate.
"NYSE" means the New York Stock Exchange, Inc.
"OUTSIDE TERMINATION DATE" means December 31, 1996, as
such date may be extended by mutual agreement of the
Company, CUC International and Merger Sub pursuant to
the Merger Agreement.
"PERSON" means an individual, a corporation, a limited
liability company, a partnership, an association, a
trust or any other
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
entity or organization, including a government or
political subdivision or any agency or instrumentality
thereof.
"PLANS" means each bonus, deferred compensation,
incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization or other
medical, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension or
retirement plan, program, agreement or arrangement, and
each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any
trade or business, whether or not incorporated, that
together with the Company would be deemed a "single
employer" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), for
the benefit of any employee or former employee of the
Company, whether formal or informal and whether legally
binding or not.
"SIERRA COMMON STOCK" means the Common Stock, $.01 par
value, of Sierra.
"SIERRA EFFECTIVE TIME" means the effective time of the
Sierra Merger.
"SUBSIDIARY" means, with respect to any Person, any
corporation or other legal entity of which such Person
owns, directly or indirectly, more than 50% of the
outstanding stock or other equity interests the holders
of which are entitled to vote for the election of the
board of directors or other governing body of such
corporation or other legal entity.
"SUPERIOR PROPOSAL" means any bona fide Acquisition
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 of the
assets of the Company, and otherwise on terms which the
Board of Directors of the Company determines in its
good faith judgment (based upon the advice of a
financial advisor of nationally recognized reputation)
to be more favorable to the holders of Company Common
Stock 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 35% of the total assets of the Company and
its Subsidiaries, taken as a whole; or (iii) the
acquisition by a Third-Party of 35% or more of the
outstanding shares of Company Common Stock.
RISK FACTOR..................... SEE "RISK FACTOR" ON PAGE 36 FOR A DISCUSSION OF CERTAIN
MATTERS WHICH SHOULD BE CONSIDERED BY HOLDERS OF COMPANY
COMMON STOCK IN CONSIDERING WHETHER TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
</TABLE>
23
<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 YEAR ENDED DECEMBER
31, 1995, THE TWO MONTHS ENDED DECEMBER 31, 1994 AND THE FOUR YEARS ENDED
OCTOBER 31, 1994, FOR DAVIDSON FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 AND
FOR SIERRA FOR THE FIVE YEARS ENDED MARCH 31, 1995, ARE DERIVED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY, DAVIDSON
AND SIERRA, RESPECTIVELY. EACH OF THE COMPANY'S AND DAVIDSON'S SELECTED
FINANCIAL DATA FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS DERIVED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND DAVIDSON,
RESPECTIVELY. CUC INTERNATIONAL'S SELECTED FINANCIAL DATA AS OF APRIL 30, 1996
AND FOR THE THREE MONTHS THEN ENDED IS DERIVED FROM CUC INTERNATIONAL'S
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. SIERRA'S SELECTED FINANCIAL DATA
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1995 IS DERIVED FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF SIERRA. SIERRA'S SELECTED FINANCIAL DATA
FOR THE YEAR ENDED MARCH 31, 1996 IS DERIVED FROM SIERRA'S FINANCIAL RESULTS FOR
SUCH PERIOD RELEASED ON MAY 14, 1996 (THE "SIERRA PRESS RELEASE"). THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY, DAVIDSON
AND SIERRA INCLUDE ALL ADJUSTMENTS, CONSISTING OF NORMAL RECURRING RESERVES AND
ACCRUALS, WHICH MANAGEMENT OF EACH ENTITY CONSIDERS NECESSARY FOR A FAIR
PRESENTATION OF 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-K, THE COMPANY 10-Q, THE DAVIDSON 10-K, THE DAVIDSON 10-Q
AND THE SIERRA 10-Q.
CUC INTERNATIONAL INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------------------- --------------------
1996 1995(D) 1994 1993(E) 1992 1996 1995
---------- ---------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INCOME STATEMENT DATA(A):
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
---------- ---------- -------- -------- -------- -------- --------
<CAPTION>
AT
AT JANUARY 31, APRIL 30,
---------------------------------------------------------- ----------
1996 1995(D) 1994 1993(E) 1992 1996
---------- ---------- -------- -------- -------- ----------
(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>
(FOOTNOTES ON FOLLOWING PAGE)
24
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- ------------
<TABLE>
<C> <S>
(A) During the fiscal year ended January 31, 1996, CUC International acquired Welcome Wagon
International, Inc., CUC Europe Limited, Credit Card Sentinel (U.K.) Limited, 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 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, CUC International's 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>
25
<PAGE>
IDEON GROUP, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED OCTOBER 31, MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------------------------- -------------------
1995(I) 1994 1994 1993 1992 1991 1996 1995
------------ ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INCOME STATEMENT DATA(H):
Subscription card services
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,
------------------- ----------------------------------------- -----------
1995 1994 1994 1993 1992 1991 1996
-------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA(H):
Total cash and cash equivalents and
investments(G)......................... $ 72,140 $168,981 $184,533 $170,039 $187,301 $178,670 $ 47,745
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, the Company 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,
the Company recognized $4.3 million of income from the settlement of two lawsuits. During
1992, the Company recognized $0.6 million of income from the settlement of a lawsuit.
(B) During 1995, the Company 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, the Company recorded a pre-tax charge of
$65.5 million for a change in the amortization periods for deferred subscriber acquisition
costs. The Company also recorded a charge to earnings of $1.9 million for permanent
impairment of the value of its securities portfolio.
(D) During 1994, the Company recorded a $2.0 million benefit ($.07 per share) resulting from a
change in its method of accounting for income taxes.
(E) During 1992, the Company 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, the Company 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, the Company's co-founder, in connection with the termination of
his contract to provide services to the Company.
(G) During 1995 and 1993, the Company repurchased approximately 1.0 million and 3.5 million
shares of Company Common Stock at a cost of approximately $9.8 million and $41.7 million,
respectively.
(H) In September 1994, the Company acquired the outstanding common stock of Wright Express. In
January 1995, the Company 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 January 1, 1995, the Company changed its fiscal year end from October 31 to
December 31.
(J) During the first quarter of 1996, the Company 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 ($0.8 million).
</TABLE>
26
<PAGE>
DAVIDSON & ASSOCIATES, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31,(A) MARCH 31,
---------------------------------------------------- -----------------
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(E).......... $ 0.38 $ 0.19(C) $ 0.21 $ 0.12(B) (B) $ 0.06 $ 0.03
-------- ------- ------- ------- ------- ------- -------
Weighted average number of
common equivalent shares
outstanding(E).................... 35,768 34,986 33,599 31,442(B) (B) 35,712 35,116
-------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, (A) MARCH 31,
---------------------------------------------------- -----------
1995 1994 1993 1992 1991 1996
-------- ------- ------- ------- ------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
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 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>
27
<PAGE>
SIERRA ON-LINE, INC.(B)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(A)
----------------------------------------------------
1996 1995 1994 1993 1992
----------- -------- -------- ------- -------
(UNAUDITED)
<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, Sierra 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 Sierra, Pixellite, Inspiration, and Papyrus
for all periods presented. The financial statements of Sierra have not been restated for the
Green Thumb and Arion acquisitions as the operations of these companies were not
significant.
(B) Includes a nonrecurring charge of $2.3 million ($.08 per share after-tax effect) primarily
related to Sierra's acquisition of Papyrus and the subsequent buyout of certain of its
distribution agreements, as well as investment banker fees associated with the Sierra
Merger.
</TABLE>
28
<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 SIERRA
GIVING EFFECT TO THE MERGER, THE DAVIDSON MERGER AND THE SIERRA 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
SIERRA MERGER BEEN EFFECTED ON THE DATES INDICATED OR THE RESULTS WHICH MAY BE
OBTAINED IN THE FUTURE. CUC INTERNATIONAL, DAVIDSON AND SIERRA 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. THE PRO FORMA INFORMATION IS BASED ON
THE HISTORICAL FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY, DAVIDSON
AND SIERRA CONTAINED IN THE CUC 10-K AND THE CUC 10-Q, THE COMPANY 10-K AND THE
COMPANY 10-Q, THE DAVIDSON 10-K AND THE DAVIDSON 10-Q, AND THE SIERRA 10-Q AND
THE SIERRA PRESS RELEASE, RESPECTIVELY. EFFECTIVE JANUARY 1, 1995, THE COMPANY
CHANGED ITS FISCAL YEAR END FROM OCTOBER 31 TO DECEMBER 31. THE COMPANY'S
RESULTS OF OPERATIONS FOR THE TWO MONTHS ENDED DECEMBER 31, 1994 (THE
"TRANSITION PERIOD") HAVE BEEN EXCLUDED FROM THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA. THE COMPANY'S REVENUES AND NET LOSS FOR THE TRANSITION
PERIOD WERE $34.7 MILLION AND $(49.9) MILLION, RESPECTIVELY. THE NET LOSS FOR
THE 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. SIERRA'S 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 MARCH
31, 1995 AND DECEMBER 31, 1995 AND ARE, THEREFORE, INCLUDED IN THE FISCAL 1996
AND 1995 PRO FORMA RESULTS OF OPERATIONS.
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,
---------------------------------- ------------
1996 1995 1994 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................... $1,643,242 $1,363,561 $1,143,191 $ 460,049
Income from continuing operations................ 113,933 142,587 125,628 54,119
Income per common share from continuing
operations....................................... 0.55 0.70 0.64 0.26
Cash dividends per common share.................. $ 0.03 $ 0.03 $ 0.03 $ 0.01
---------- ---------- ---------- ------------
Weighted average number of common and dilutive
common equivalent shares outstanding............. 208,754 203,263 197,236 210,624
---------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................... $ 1,857,952
Long-term obligations.......................................................... 5,315
Zero coupon convertible notes.................................................. 14,709
Shareholders' equity........................................................... 832,691
Working capital................................................................ 573,365
</TABLE>
29
<PAGE>
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,
---------------------------------- ------------
1996 1995 1994 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.................................. $1,790,468 $1,456,732 $1,205,563 $ 489,252
Income from continuing operations............... 127,510 149,065 132,577 56,190
Income per common share from continuing
operations...................................... 0.53 0.64 0.59 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............ 239,156 233,001 225,795 240,979
---------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................... $ 1,934,010
Long-term obligations.......................................................... 5,315
Zero coupon convertible notes.................................................. 14,709
Shareholders' equity........................................................... 894,798
Working capital................................................................ 609,064
</TABLE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY AND SIERRA
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
---------------------------------- ------------
1996 1995 1994 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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>
30
<PAGE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY, DAVIDSON AND SIERRA
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
---------------------------------- ------------
1996 1995 1994 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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>
31
<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 26, 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 April 19, 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
----------------
<S> <C> <C> <C> <C>
HIGH LOW
-------------- --------------
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 26, 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 cash and CUC
International's Zero Coupon Notes in connection with a recapitalization of CUC
International effected in fiscal 1990. The Amended and Restated Credit
Agreement, dated as of June 30, 1994, 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
NYSE under the symbol "IQ." The table below sets forth, for the Company's fiscal
quarters commencing in fiscal 1994 through June 26, 1996, the reported high and
low sales prices of Company Common Stock as reported on the NYSE Composite
Transactions, based on published financial sources. Prior to the reorganization
of the Company in April 1995, the Company Common Stock traded under the symbol
"SSI." At the Record Date, there were approximately 839 holders of record of
Company Common Stock. The Company has paid cash dividends of $.05 per share of
Company Common Stock during each of the periods presented. The market price for
Company Common Stock on April 19, 1996, the last trading
32
<PAGE>
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 COMPANY
COMMON STOCK
------------------
HIGH LOW
--------------- ---------------
<S> <C> <C>
Fiscal 1994 (ended October 31, 1994)
First Quarter ended January 31, 1994................... $ 20 3/4 $ 11 1/2
Second Quarter ended April 30, 1994.................... 20 16
Third Quarter ended July 31, 1994...................... 19 14 1/8
Fourth Quarter ended October 31, 1994.................. 17 13 3/4
Transition Period
Two Months ended December 31, 1994..................... 18 7/8 14 1/4
Fiscal 1995 (ended December 31, 1995)
First Quarter.......................................... 21 3/8 17 1/2
Second Quarter......................................... 19 3/4 8 3/8
Third Quarter.......................................... 11 5/8 9
Fourth Quarter......................................... 10 7/8 7 3/8
Fiscal 1996 (ending December 31, 1996)
First Quarter.......................................... 12 7/8 8 3/4
Second Quarter (through June 26, 1996)................. 14 3/4 10 7/8
</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 Company Common Stock on April 19,
1996, the last trading day preceding the public announcement of the Merger, and
on June 26, 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 the applicable
specified date, multiplied by the Conversion Number (calculated on the basis of
the closing sale price per share of CUC International Common Stock on such
date). The Conversion Number will be determined by dividing $13.50 by the
Average Stock Price; provided that the Conversion Number will not be more than
0.6136 if the Average Stock Price is $22.00 or less, or less than 0.3750 if the
Average Stock Price is $36.00 or more. See "Risk Factor" and "The Merger
Agreement--Conversion of Shares; Merger Consideration." The information set
forth below should be read in conjunction with the respective audited and
unaudited consolidated financial statements of CUC International and the
Company, 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>
CUC INTERNATIONAL COMPANY COMPANY
COMMON STOCK COMMON STOCK EQUIVALENT
PRICE PRICE PER SHARE PRICE
----------------- --------------- ---------------
<S> <C> <C> <C>
April 19, 1996................. $31 1/8 $12 1/4 $13 1/2
June 26, 1996.................. $35 3/4 $13 1/2 $13 1/2
</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 NYSE.
THE MARKET PRICE OF SHARES OF CUC INTERNATIONAL COMMON STOCK INHERENTLY IS
SUBJECT TO FLUCTUATION. THEREFORE, 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. IN
CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE SHAREHOLDERS
OF THE COMPANY SHOULD CONSIDER, AMONG OTHER THINGS, THE POSSIBLE FLUCTUATION IN
THE MARKET PRICE OF CUC INTERNATIONAL COMMON STOCK. SEE "RISK FACTOR" ON PAGE
36.
33
<PAGE>
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
Sierra, as applicable (see "Unaudited Pro Forma Condensed Combined Financial
Statements"), as adjusted to reflect consummation of the Merger, the Davidson
Merger and the Sierra Merger under the pooling-of-interests method. The pro
forma combined information and the Company equivalent pro forma information set
forth below is unaudited. The information set forth below has been prepared
assuming that the Conversion Number will be 0.4943 (i.e., the average of the
minimum Conversion Number of 0.3750 (applicable of the Average Stock Price is
$36.00 or more) and the maximum Conversion Number of 0.6136 (applicable if the
Average Stock Price is $22.00 or less)). The actual number of shares of CUC
International Common Stock to be received by holders of Company Common Stock in
the Merger will be determined by dividing $13.50 by the Average Stock Price;
provided that the Conversion Number will not be more than 0.6136 if the Average
Stock Price is $22.00 or less, or less than 0.3750 if the Average Stock Price is
$36.00 or more. See "The Merger Agreement--Conversion of Shares; Merger
Consideration." The information set forth below should be read in conjunction
with the respective audited and unaudited consolidated financial statements of
CUC International, the Company, Davidson and Sierra, 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
The Company............................................ 3.83
Pro Forma Combined--CUC International and the Company...... 4.07
Pro Forma Combined--CUC International, the Company and
Davidson................................................... 3.82
Pro Forma Combined--CUC International, the Company and
Sierra..................................................... 4.15
Pro Forma Combined--CUC International, the Company,
Davidson and Sierra........................................ 3.91
Company Equivalent Pro Forma--CUC International and the
Company(b)................................................. 2.01
Company Equivalent Pro Forma--CUC International, the
Company and Davidson(b).................................... 1.89
Company Equivalent Pro Forma--CUC International, the
Company and Sierra(b)...................................... 2.05
Company Equivalent Pro Forma--CUC International, the
Company, Davidson and Sierra(b)............................ 1.93
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
CUC INTERNATIONAL'S
----------------------------------------
FISCAL YEAR ENDED THREE MONTHS
JANUARY 31, ENDED
----------------------- APRIL 30,
1996 1995 1994 1996
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Cash Dividends Per Common Share(C):
Historical:
Company............................................. $0.20 $0.20 $0.20 $0.05
Pro Forma Combined--CUC International and the Company... 0.03 0.03 0.03 0.01
Pro Forma Combined--CUC International, the Company and
Davidson................................................ 0.02 0.02 0.02 0.01
Pro Forma Combined--CUC International, the Company and
Sierra.................................................. 0.02 0.02 0.02 0.01
Pro Forma Combined--CUC International, the Company,
Davidson and Sierra..................................... 0.02 0.02 0.02 0.01
Company Equivalent Pro Forma--CUC International and the
Company(B).............................................. 0.01 0.01 0.01 --
Company Equivalent Pro Forma--CUC International, the
Company and Davidson(B)................................. 0.01 0.01 0.01 --
Company Equivalent Pro Forma--CUC International, the
Company and Sierra(B)................................... 0.01 0.01 0.01 --
Company Equivalent Pro Forma--CUC International, the
Company, Davidson and Sierra(B)......................... 0.01 0.01 0.01 --
Income Per Common Share from Continuing Operations(D):
Historical:
CUC International(A)................................ 0.84 0.66 0.51 0.25
Company............................................. (1.73) 0.63 1.10 0.21
Pro Forma Combined--CUC International and the Company... 0.55 0.70 0.64 0.26
Pro Forma Combined--CUC International, the Company and
Davidson................................................ 0.53 0.64 0.59 0.23
Pro Forma Combined--CUC International, the Company and
Sierra.................................................. 0.56 0.69 0.54 0.23
Pro Forma Combined--CUC International, the Company,
Davidson and Sierra..................................... 0.55 0.63 0.51 0.21
Company Equivalent Pro Forma--CUC International and the
Company(B).............................................. 0.27 0.35 0.32 0.13
Company Equivalent Pro Forma--CUC International, the
Company and Davidson(B)................................. 0.26 0.32 0.29 0.11
Company Equivalent Pro Forma--CUC International, the
Company and Sierra(B)................................... 0.28 0.34 0.27 0.11
Company Equivalent Pro Forma--CUC International, the
Company, Davidson and Sierra(B)......................... 0.27 0.31 0.25 0.10
</TABLE>
- ------------
(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 Conversion Number, assuming a
Conversion Number of 0.4943 (i.e., the average of the minimum Conversion
Number of 0.3750 (applicable if the Average Stock Price is $36.00 or more)
and the maximum Conversion Number of 0.6136 (applicable if the Average Stock
Price is $22.00 or less)).
(C) CUC International, Davidson and Sierra have paid no cash dividends on their
common stock during the periods presented. However, an insignificant amount
of cash dividends was paid in respect of the NAOG common stock for the year
ended January 31, 1994.
(D) The pro forma information is based on the historical financial statements of
CUC International, the Company, Davidson and Sierra contained in the CUC
10-K and the CUC 10-Q, the Company 10-K and the Company 10-Q, the Davidson
10-K and the Davidson 10-Q, and the Sierra 10-Q and the Sierra Press
Release, respectively. Effective January 1, 1995, the Company changed its
fiscal year end from October 31 to December 31. The Transition Period has
been excluded from the unaudited pro forma condensed combined financial
data. The Company's revenues and net loss for the Transition Period were
$34.7 million and $(49.9) million, respectively. The net loss for the
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 membership acquisition costs. Sierra's 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 March 31, 1995 and December 31, 1995 and are therefore included in the
fiscal 1996 and 1995 pro forma results of operations.
35
<PAGE>
RISK FACTOR
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT,
PROSPECTIVE INVESTORS IN CUC INTERNATIONAL COMMON STOCK SHOULD CAREFULLY
CONSIDER, AMONG THE OTHER INFORMATION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING FACTOR:
FLUCTUATION IN VALUE OF MERGER CONSIDERATION
The market price of shares of CUC International Common Stock is inherently
subject to fluctuation. Therefore, 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. Although the value
of the per share consideration to be received in the Merger by holders of
Company Common Stock is intended to be $13.50, such per share consideration may
have a value at the Effective Time of more or less than $13.50. Although the
"collar" set forth in the Merger Agreement establishes a maximum number of
shares of CUC International Common Stock to be issued in the Merger in respect
of each share of Company Common Stock (i.e., 0.6136 shares of CUC International
Common Stock if the Average Stock Price is $22.00 or less) and a minimum number
of shares of CUC International Common Stock to be issued in the Merger in
respect of each share of Company Common Stock (i.e., 0.3750 shares of CUC
International Common Stock if the Average Stock Price is $36.00 or more), the
value of the shares of CUC International Common Stock to be received by the
holders of Company Common Stock, based upon the Average Stock Price, would be
less than $13.50 if the Average Stock Price were less than $22.00, and the value
of the shares of CUC International Common Stock to be received in the Merger by
the holders of Company Common Stock, based upon the Average Stock Price, would
be more than $13.50 if the Average Stock Price were more than $36.00.
Fluctuations in the market price of CUC International Common Stock may be
the result of the prospects of CUC International, market assessments of the
likelihood that the Merger will be consummated and the timing thereof (which
assessments may be unsubstantiated), general market conditions and other
factors, many of which are beyond the control of CUC International or the
Company.
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 discount 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.
36
<PAGE>
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 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 at such offices is (203)
324-9261.
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, at 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
May 1, 1996, it is expected that CUC International will issue in the Davidson
Merger to holders of Davidson Common Stock an aggregate of 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
37
<PAGE>
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 has 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 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 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 of certain obligations by
the affiliates of Davidson (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 Davidson Merger Agreement; (iii)
the performance of certain obligations under the Davidson Shareholders Agreement
by the parties thereto; (iv) 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; (v) 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; (vi) there not having
occurred any events, changes or effects with respect to Davidson or
38
<PAGE>
its Subsidiaries having or which reasonably could be expected to have a material
adverse effect on Davidson; and (vii) 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. Subject to the exceptions and
qualifications specified therein, the Davidson Merger Agreement also 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 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
(over a prescribed measurement period ending approximately 10 calendar days
prior to the date of the Davidson Meeting) of the CUC International Common Stock
having been 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
Davidson's Board of Directors 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 commences
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 the approval and adoption of the Davidson Merger Agreement at
the Davidson Meeting scheduled to be held on July 24, 1996. Accordingly,
assuming that such shareholders will vote for the approval and 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.
39
<PAGE>
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 twelfth-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. For information regarding
certain financial effects of the Davidson Merger on CUC International, see
"Unaudited Pro Forma Condensed Combined Financial Statements."
THE SIERRA MERGER. Simultaneously with entering into the Davidson Merger
Agreement, CUC International entered into the Sierra Merger Agreement providing
for the Sierra Merger. Pursuant to the Sierra Merger Agreement, among other
things, at the Sierra Effective Time, each share of Sierra Common Stock
outstanding immediately prior to the Sierra Effective Time (other than shares
held by CUC International, LAC or any other Subsidiary of CUC International or
by any Subsidiary of Sierra) will, by virtue of the Sierra Merger and without
any action on the part of any holder of Sierra Common Stock, be converted into
1.225 shares of CUC International Common Stock. No fractional shares of CUC
International Common Stock will be issued to holders of Sierra Common Stock in
the Sierra Merger. Based on the equity capitalization of Sierra at June 17,
1996, it is expected that CUC International will issue in the Sierra Merger to
holders of Sierra Common Stock an aggregate of approximately 25,564,977 shares
of CUC International Common Stock. In addition, at the Sierra Effective Time,
each outstanding option to purchase shares of Sierra Common Stock, whether
vested or unvested, will be assumed by CUC International and will constitute an
option to purchase, on the same terms and conditions as were applicable under
the assumed options, the same number of shares of CUC International Common Stock
as the holder of the assumed option would have been entitled to receive in the
Sierra Merger had such holder exercised his or its assumed option, in full,
immediately prior to the Sierra Effective Time.
Each of Sierra and CUC International has agreed, until the Sierra 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 Sierra and CUC International have
further agreed not to take certain actions 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. Sierra also has agreed, subject to
various qualifications and exceptions specified in the Sierra Merger Agreement
(including with respect to the fiduciary duty of Sierra's Board of Directors to
the holders of Sierra Common Stock) to discontinue any discussions or
negotiations with parties (other than CUC International and LAC) interested in
pursuing an acquisition of Sierra's assets or equity securities or a strategic
business combination with Sierra or its subsidiaries, and not to approve,
recommend or enter into an agreement providing for a third-party acquisition of
Sierra except under certain circumstances, 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 $3.0 million of
out-of-pocket expenses (including certain professional advisory fees) incurred
by CUC International and LAC.
40
<PAGE>
The respective obligations of CUC International, Sierra and LAC to
consummate the Sierra Merger are subject to and include the following
conditions, as applicable: (i) the Sierra Merger Agreement having been duly
adopted by the requisite vote of the holders of Sierra 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 which prohibits, restrains,
enjoins or restricts consummation of the Sierra Merger; (iii) the registration
statement relating to the Sierra 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 Sierra Merger shares of CUC International Common Stock in exchange for the
shares of Sierra Common Stock; (iv) all waiting periods applicable to the Sierra
Merger under the HSR Act having expired or been terminated (such termination was
granted on April 29, 1996); and (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 Sierra Merger, provided that the Sierra Merger is
consummated in accordance with the terms of the Sierra Merger Agreement, and
such letter not having been withdrawn or modified in any material respect.
The obligations of CUC International and LAC to effect the Sierra Merger are
further subject to the following additional conditions: (i) the accuracy of the
representations and the performance of the covenants of Sierra contained in the
Sierra Merger Agreement; (ii) the performance of certain obligations by the
affiliates of Sierra (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 Sierra Merger Agreement; (iii)
the performance of certain obligations under the Sierra Shareholders Agreement
by the parties thereto; (iv) Sierra 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 Sierra Merger to any obligation,
right or interest of Sierra 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 Sierra; (v) there not having occurred any events, changes or
effects with respect to Sierra or its subsidiaries having or which reasonably
could be expected to have a material adverse effect on Sierra; and (vi) certain
non-competition, employment and services agreements entered into in connection
with the Sierra Merger being in full force and effect.
The obligation of Sierra to effect the Sierra 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 LAC contained in the
Sierra Merger Agreement; (ii) the receipt by Sierra of an opinion of tax counsel
with respect to certain tax matters; (iv) there not having occurred any events,
changes or effects with respect to CUC International and its Subsidiaries having
or which reasonably could be expected to have a material adverse effect on CUC
International; (v) the shares of CUC International Common Stock issuable in the
Sierra Merger to the holders of Sierra Common Stock and such other shares
required to be reserved for issuance in connection with the Sierra Merger having
been authorized for listing on the NYSE, subject to official notice of issuance;
and (vi) Sierra having obtained the consent or approval of each person whose
consent or approval is required in connection with the transactions contemplated
by the Sierra 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 Sierra Merger Agreement may be terminated and the Sierra Merger
abandoned at any time prior to the Sierra Effective Time by the written mutual
consent of CUC International, LAC and Sierra. Subject to the exceptions and
qualifications specified therein, the Sierra Merger Agreement also may be
terminated by (i) Sierra in the case of (A) the breach of the representations or
the non-performance of the covenants of CUC International or LAC contained
therein, (B) the determination of Sierra's Board of Directors to terminate the
Sierra Merger Agreement in order to comply with its fiduciary duties to holders
of Sierra Common Stock (after having received a bona fide proposal to effect
41
<PAGE>
a competing third-party acquisition of Sierra that is a "superior proposal" (as
defined in the Sierra Merger Agreement)), in accordance with certain provisions
of the Sierra Merger Agreement, (C) the average stock price (over a prescribed
measurement period ending approximately ten days prior to the date of the Sierra
Meeting) of CUC International Common Stock having been below $29.00, (D) Sierra
having entered into a definitive agreement relating to a superior proposal in
accordance with certain provisions of the Sierra Merger Agreement, or (E) Sierra
having failed to obtain the requisite vote of its shareholders to approve the
Sierra Merger, or (ii) CUC International or LAC in the case of (A) the breach of
the representations or the non-performance of the covenants of Sierra contained
therein, (B) the withdrawal, modification or change by Sierra's Board of
Directors of its recommendation of the Sierra Merger Agreement to the holders of
Sierra Common Stock and the recommendation by Sierra's Board of Directors to
such holders of a competing third-party acquisition of Sierra, or Sierra's Board
of Directors failure to call, give notice of or convene a meeting of the holders
of Sierra Common Stock to vote in respect of the Sierra Merger Agreement, or (C)
Sierra's failure to obtain the requisite approval of the Sierra Merger Agreement
by the holders of Sierra Common Stock after having convened a meeting of such
holders for such purpose.
At the time of the execution of the Sierra Merger Agreement, the holders of
approximately 9% of the outstanding Sierra Common Stock (which consist of
Sierra's Chairman and Chief Executive Officer, and a director of Sierra,
respectively) agreed, pursuant to the Sierra Shareholders Agreement, to vote
their shares for the adoption of the Sierra Merger Agreement at the Sierra
Meeting scheduled to be held on July 24, 1996. In addition, CUC International
has agreed that Kenneth A. Williams (Chairman of the Board and Chief Executive
Officer of Sierra) will become a member of the Board of Directors of CUC
International, effective upon consummation of the Sierra Merger.
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 Sierra and names Sierra, each of Sierra's individual
directors and CUC International as party defendants. The lawsuit alleges certain
violations of such directors' fiduciary duties to Sierra's shareholders in
connection with the Sierra Merger and other alleged improper conduct. The
plaintiffs, among other things, are seeking to enjoin consummation of the Sierra
Merger and, in the event of such consummation, rescission of the Sierra Merger
Agreement and monetary damages in an unspecified amount.
CERTAIN INFORMATION CONCERNING SIERRA'S BUSINESS.
According to the Sierra 10-K, 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. Sierra 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, Sierra sells primarily through
independent distributors in specified territories and, in the United Kingdom,
directly to software retailers. Sierra is continually evaluating new and
potentially promising distribution channels, including on-line distribution
through commercial on-line services and the Internet.
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
42
<PAGE>
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 most recent fiscal year, Sierra has 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. Sierra released 29 new internally-developed titles in fiscal 1996
and acquired an additional 18 titles in the entertainment, education, simulation
and personal productivity categories. In addition, Sierra entered into joint
venture agreements with Pioneer Electronics relating to the development of
titles for the Japanese market. 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. For information regarding certain
financial effects of the proposed Sierra Merger on CUC International, see
"Unaudited Pro Forma Condensed Combined Financial Statements."
THE MERGER, THE DAVIDSON MERGER AND THE SIERRA MERGER ARE INDEPENDENT
TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED OR
DEPENDENT UPON CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS. 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 SIERRA MERGER. SIMILARLY,
NEITHER HOLDERS OF DAVIDSON COMMON STOCK NOR SIERRA COMMON STOCK, AS SUCH, ARE
ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER.
43
<PAGE>
INFORMATION CONCERNING THE COMPANY
Ideon Group, Inc. is a holding company with three principal business units
as follows: SafeCard, Wright Express and National Leisure Group. The Company's
Ideon Marketing and Services Company has been consolidated with SafeCard. The
operations of an additional business unit, Family Protection Network, Inc.
("Family Protection Network"), were initiated and terminated during 1995. On
April 27, 1995, the shareholders of SafeCard, a Delaware corporation organized
in 1969, approved a plan of reorganization whereby SafeCard became a
wholly-owned subsidiary of the Company, a Delaware corporation formed in
December 1994. All shares of SafeCard common stock were converted into shares of
Company Common Stock. Upon the completion of the reorganization, the Company's
headquarters were relocated from Cheyenne, Wyoming to Jacksonville, Florida.
SafeCard, the Company's principal subsidiary, is a credit card enhancement
marketing company that serves over 160 credit card issuers and has approximately
13 million subscribers and, during 1995, contributed approximately 80% of the
Company's consolidated revenue. SafeCard's executive offices were also relocated
to Jacksonville, Florida from Cheyenne, Wyoming in April 1995. This move did not
impact SafeCard's operational facility in Cheyenne, Wyoming.
In September 1994, the Company acquired Wright Express, a provider of
information processing, management and financial services to petroleum companies
and transportation fleets in the United States. The Wright Express Universal
Fleet Card is the nation's most widely accepted electronic fleet fueling credit
card and is accepted at over 90,000 fueling locations. Wright Express is based
in South Portland, Maine.
In January 1995, the Company acquired National Leisure Group, a provider of
vacation travel packages and cruises directly to the public in partnership with
established retailers and warehouse clubs throughout New England and with credit
card issuers and membership clubs nationwide. National Leisure Group is based in
Boston, Massachusetts.
In February 1996, SafeCard completed its acquisition of UBS, a provider of
value-added enhancement products and services through a diverse group of
financial institutions. Products and services offered by UBS, based in Norman,
Oklahoma, include an airline frequent flyer miles program, rebate travel,
insurance enhancements, customer loyalty and credit card merchant reward
programs. The operations of UBS have been consolidated with the operations of
SafeCard.
On February 14, 1995, the Company filed a Transition Period Form 10-Q for
the two months ended December 31, 1994 in order to effect a change in its fiscal
year end from October 31 to December 31. References herein to the year 1995
refer to the Company's calendar year ended December 31, 1995. References herein
to the Transition Period refer to the two months ended December 31, 1994.
References herein to the years 1993 and 1994 refer to the Company's previous
fiscal years ended October 31, 1993 and 1994, respectively.
The following discussion of the Company's business activities is segmented
according to its current operating business units, which is the same segregation
used by management in its internal evaluation of financial results.
SAFECARD
SafeCard has historically been in the business of selling subscriptions by
mail and telephone for continuity services that it provides to subscribers.
Continuity services are services provided pursuant to subscriptions which
typically continue annually or periodically unless canceled by the subscriber.
Subscriptions are primarily sold to credit cardholders through arrangements with
credit card issuers, including banks and financial services companies, major oil
companies, retail department stores and others. Subscriber acquisition material
printed for SafeCard that describes its services and how to subscribe is
inserted in the credit card issuer's monthly billing statements or mailed by
SafeCard directly to credit cardholders. Credit cardholders are also asked to
subscribe by means of direct
44
<PAGE>
telemarketing solicitation. SafeCard has recently begun marketing through
alternative channels, such as solicitation efforts during credit card
activation. Subscription fees are generally billed to subscribers' credit card
accounts and remitted to SafeCard by the credit card issuer.
WRIGHT EXPRESS
On September 14, 1994, the Company acquired 100% of the outstanding common
stock of Wright Express, a leading provider of enhanced information services to
oil companies and commercial transportation fleets. Revenue from Wright Express
accounted for approximately 10% of the Company's consolidated revenue for 1995
and less than 10% of the Company's consolidated revenue during the Transition
Period and 1994. Wright Express provides transaction and information processing
services to commercial fleet owners through a national credit card network
program, the Wright Express Universal Fleet Card (the "WexCard"). These services
are generally provided through fueling stations which are owned and operated by
retail petroleum merchants. The WexCard is accepted at more than 90,000 fueling
locations in the United States, including those operated by Mobil, Texaco,
Exxon, Shell and Getty. Wright Express also manages private label fleet charge
cards and co-branded WexCard fleet fueling cards for large fleet operators,
including regional telephone utilities and national courier and package delivery
services.
In providing services through the WexCard and certain private label cards,
Wright Express generates receivables from fleet customers. These receivables
relate to payments due from fleet customers for purchases at fueling stations
that accept such cards. These receivables are funded through a revolving credit
agreement and payables to retail petroleum merchants.
NATIONAL LEISURE GROUP
National Leisure Group, acquired by the Company effective January 1, 1995,
provides vacation travel packages and cruises directly to the public in
partnership with established retailers and warehouse clubs throughout New
England and with credit card issuers and membership clubs nationwide. The
majority of bookings have historically been generated in New England retail
stores and, as a result, are dependent upon the level of customers in these
stores. Sales through credit card issuers and membership clubs are becoming
significant new sources of growth. Revenue from National Leisure Group was less
than 10% of the Company's consolidated revenue for 1995.
CERTAIN LITIGATION INVOLVING THE COMPANY
The Company is defending or prosecuting numerous complex lawsuits primarily
involving Peter Halmos, former Chairman of the Board and Executive Management
Consultant to SafeCard, and various parties related to him, as adversaries.
Peter Halmos is also a plaintiff in three other lawsuits, one against a former
officer of the Company, one against a director of the Company and one against
SafeCard's outside counsel, in which neither SafeCard nor the Company has been
named as a defendant. See also "Other Information for the Company
Meeting--Certain Relationships and Related Transactions."
The Company believes that it has proper and meritorious claims and defenses
in these lawsuits which it intends to vigorously pursue. Resolution of any or
all of these lawsuits could have a material impact (either favorable or
unfavorable depending on the outcome) upon the Company's operations, liquidity
and financial condition. See "The Merger--Indemnification of Directors and
Officers."
For a more detailed description of the business, litigation and properties
of the Company, see the descriptions thereof set forth in the Company 10-K which
is incorporated herein by reference.
45
<PAGE>
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 Marriott
Hotel, 4670 Salisbury Road, Jacksonville, Florida 32256, on Wednesday, August 7,
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 July 1, 1996.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of Company Common Stock will be asked to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement;
(ii) the election of three directors, two directors to hold office until the
earliest of the 1999 Annual Meeting of Shareholders, the consummation of the
Merger or their respective successors are duly elected or appointed and
qualified, and one director to hold office until the earliest of the 1998 Annual
Meeting of Shareholders, the consummation of the Merger or such director's
successor is duly elected or appointed and qualified, (iii) the ratification of
the appointment of Price Waterhouse LLP to serve as the Company's independent
accountants for the year ending December 31, 1996 or until the Merger is
consummated; and (iv) such other business as may properly be presented at the
Meeting or any adjournments or postponements thereof.
If the Company's shareholders approve and adopt the Merger Agreement at the
Meeting and the Merger is subsequently consummated, from and after the Effective
Time and until their successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of Merger Sub will become the
directors of the Company as the surviving corporation of the Merger.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE
MERGER AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
COMPANY AND ITS SHAREHOLDERS, (II) HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND (III) RECOMMENDS THAT THE SHAREHOLDERS OF
THE COMPANY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE
MEETING.
IN ADDITION, THE COMPANY'S BOARD OF DIRECTORS HAS NOMINATED ADAM W. HERBERT,
JR., EUGENE MILLER AND THOMAS F. PETWAY, III FOR ELECTION AS DIRECTORS AND
RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE FOR THE ELECTION OF SUCH
PERSONS AS DIRECTORS. THE COMPANY'S BOARD OF DIRECTORS HAS ALSO APPOINTED PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY VOTE FOR THE RATIFICATION OF SUCH FIRM AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS. SEE "THE MERGER--BACKGROUND OF THE MERGER";
"THE MERGER--REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD OF
DIRECTORS;" AND "OTHER INFORMATION FOR THE COMPANY MEETING."
RECORD DATE; QUORUM; VOTING AT THE MEETING
The Company's Board of Directors has fixed June 21, 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 27,983,164 shares of Company Common
Stock outstanding and entitled to vote, and approximately 839 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 approve and adopt the
Merger Agreement, the election of directors, ratification of the Board of
Directors' appointment of the Company's independent accountants and the
46
<PAGE>
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 issued and outstanding Company Common Stock
entitled to vote at the Meeting is necessary to constitute a quorum at the
Meeting.
Approval and adoption of the Merger Agreement will require the affirmative
vote of the holders of a majority of the issued and outstanding shares of
Company Common Stock; ratification of the appointment of the Company's
independent accountants will require the affirmative vote of the holders of a
majority of the issued and outstanding shares of Company Common Stock present in
person or represented by proxy and entitled to vote thereon at the Meeting; and
the election of directors will require the affirmative vote of the holders of a
plurality of the issued and outstanding shares of Company Common Stock present
in person or represented by proxy and entitled to vote thereon at the Meeting.
Under applicable rules of the NYSE, brokers that hold shares in "street name"
have the authority to vote on certain items when they have not received
instructions from the beneficial owners of such shares. Accordingly, broker
non-votes will have the practical effect of voting against ratification of the
Company's Board of Directors' appointment of the Company's independent
accountants, and will have no effect on the outcome of the election of the Board
of Directors' three nominees for director. Brokers may not vote shares of
Company Common Stock as to the approval and adoption of the Merger Agreement
held for customers without specific instructions from such customers. With
regard to the election of directors, votes may be cast in favor of or withheld
with respect to each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect on the outcome of the election. As of the
Record Date, the directors and executive officers of the Company beneficially
owned in the aggregate approximately 3.1% of the outstanding shares of Company
Common Stock.
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 approval and adoption
of the Merger Agreement, the election of Adam W. Herbert, Jr., Eugene Miller and
Thomas F. Petway, III, as directors, ratification of the appointment of Price
Waterhouse LLP as the Company's independent accountants, and in the discretion
of the proxy holder, as to any other matter that may be properly presented at
the Meeting. 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 are properly presented at the Meeting for
consideration, including consideration of a motion to adjourn the Meeting to
another time and/or place (including for the purpose of
47
<PAGE>
soliciting additional proxies), the persons named in the enclosed form of proxy
and acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
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 by telephone, facsimile
transmission or otherwise. Such directors, officers and employees of the Company
will not be specifically compensated for such solicitation, but may be
reimbursed for out-of-pocket expenses incurred in connection therewith. The
Company has retained D.F. King & Co., Inc., at an estimated cost of
approximately $15,000.00, plus reimbursement of out-of-pocket expenses, to
assist in its solicitation of proxies. Arrangements 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.
48
<PAGE>
PROPOSAL I
THE MERGER
BACKGROUND OF THE MERGER
In 1993 and 1994, the Company began placing greater emphasis on the
development of new products and services and additional lines of business. The
Company's strategy was to diversify and broaden its scope to become an
innovative marketing and services organization operating through multiple
business units. The Company's diversification strategy included strategic
acquisitions and internal development of new business units. By mid-1995, the
Company determined that its two principal internally developed new businesses
had failed to generate the anticipated customer response rates and, therefore,
announced plans to curtail and/or discontinue these businesses. These failed
businesses generated pre-tax losses of $83.8 million in 1995, including special
charges of $30.6 million taken in connection with product abandonments. The
Company also announced a restructuring of its SafeCard business unit and
corporate infrastructure which resulted in an additional special pre-tax charge
of $13.2 million (net of recoveries) in 1995.
Concurrently therewith, the Company's Board of Directors began to consider
various options and alternatives to improve the Company's financial and
operating position and to enhance shareholder value. In late October 1995, the
Company was approached on an unsolicited basis by another corporation that
expressed an interest in entering into a strategic combination with the Company.
In December 1995, the Company's management and Board of Directors decided to
seek outside financial and legal assistance and shortly thereafter retained
Skadden, Arps and Lazard to assist the Company with respect to the foregoing
proposed strategic combination.
During the course of December 1995 and early January 1996, the Company and
such corporation conducted due diligence with respect to one another and sought
to determine whether a strategic combination would be feasable and the terms on
which a transaction might be structured. Following completion of substantial due
diligence but prior to any substantive negotiations or the delivery of any
definitive proposal with respect to the structure of a prospective combination
or the economic terms thereof, the Company's Board of Directors determined at a
meeting held on January 19, 1996, that such a combination would not be in the
best interests of the shareholders of the Company. The Company's Board of
Directors, therefore, authorized management to terminate discussions with such
corporation.
On January 18, 1996, Walter A. Forbes, the Chairman and Chief Executive
Officer of CUC International, called Paul G. Kahn, the Company's Chairman and
Chief Executive Officer at that time, and expressed an interest in exploring a
possible business combination between CUC International and the Company.
At the January 19, 1996 meeting of the Company's Board of Directors, the
Board, among other things, also received a preliminary report and recommendation
on various other strategic alternatives that might be available to the Company
in order to enhance shareholder value. The alternatives considered included,
among others, continuing the operation of the Company as an independent public
company, pursuing certain joint ventures, effecting a financial restructuring of
the Company, selling the Company in its entirety pursuant to a merger or other
business combination transaction, and selling selected assets and businesses of
the Company. At such meeting, members of the Company's senior management,
Skadden, Arps and Lazard made presentations to the Company's Board of Directors
regarding, among other things, certain financial issues, legal issues and
strategic alternatives available to the Company. Lazard also presented a
preliminary list of candidates to be considered as potential acquirors should
the Company's Board of Directors decide to pursue the alternatives of selling
all or part of the Company. At such meeting, the Company's Board of Directors
directed its senior management to publicly announce that the Company had decided
to explore strategic alternatives available to the Company with the purpose of
enhancing shareholder value and had retained Lazard and Skadden,
49
<PAGE>
Arps to assist the Company in such endeavor. The Company's Board of Directors
authorized Lazard to make selected inquiries of other companies to determine
whether they were interested in pursuing a potential business combination with
the Company and, if so, to solicit preliminary indications of interest in order
to determine whether a sale of the Company in its entirety was a viable
alternative.
In order to oversee the foregoing process, the Company's Board of Directors
established the Strategic Direction Committee (the "Strategic Direction
Committee") consisting of Eugene Miller, Thomas F. Petway, III, Marshall L.
Burman and Paul G. Kahn (who was removed from the Strategic Direction Committee
on February 5, 1996). The Strategic Direction Committee was given the mandate to
study and explore the strategic alternatives available to the Company to enhance
shareholder value. Throughout the period from its formation until the signing of
the definitive Merger Agreement on April 19, 1996, the Strategic Direction
Committee convened regularly (at times, on a daily basis) primarily by telephone
to be updated on the progress of the process and to provide guidance as to the
specific directions to be taken. During this period, the Strategic Direction
Committee also provided regular updates to the Company's full Board of Directors
or the Executive Committee (as defined).
On January 22, 1996, the Company issued the following press release:
FOR IMMEDIATE RELEASE
IDEON GROUP TO EVALUATE STRATEGIC ALTERNATIVES
JACKSONVILLE, January 22--Ideon Group, Inc. (NYSE:IQ) announced today
that its Board of Directors has decided to explore the strategic
alternatives available to the Company with the purpose of enhancing
shareholder value. In connection therewith, the Company has retained Lazard
Freres & Co. as its financial advisor and Skadden, Arps, Slate, Meagher &
Flom as its legal advisor to assist the Company's Board of Directors and its
management in this process. The Board of Directors has also established a
Strategic Direction Committee chaired by a non-management director, Eugene
Miller, and consisting of Paul G. Kahn, Thomas F. Petway III and Marshall L.
Burman to have oversight in regard to this process.
Ideon said in a statement that there can be no assurance that any
transaction or restructuring will result from this process.
Paul G. Kahn, Chairman and Chief Executive Officer, stated: "Last year
was a very difficult year for the Company with the failure of two product
launches overwhelming the operating profitability of our core business and
two successful acquisitions. We now believe that we have turned the corner
and expect to return to profitability for the quarter ended December 31,
1995. However, in light of the current stock price, which the Board of
Directors and management believes does not reflect the true value of Ideon,
we feel it is in the best interests of our shareholders to examine various
strategic alternatives and opportunities to enhance shareholder value."
Ideon Group, Inc. resulted from the reorganization of SafeCard Services,
Inc. approved by shareholders on April 27, 1995. Its three core units
include SafeCard Services, Inc., which provides credit card registration and
other credit card enhancements; Wright Express Corporation, a provider of
fleet vehicle fueling cards to corporations; and National Leisure Group,
Inc., which offers travel and cruise packages through retail and endorsed
channels.
Later that day, Lazard began to receive telephone calls from interested
parties. Lazard also made selected calls to potentially interested parties that
had been presented to the Company's Board of Directors at the meeting of the
Board on January 19, 1996. Such companies were selected by the Strategic
Direction Committee, with the advice of Lazard, on the basis of their size and
financial
50
<PAGE>
resources, the comparability of the industries in which they were engaged to
those engaged in by the Company, their ability to consummate an acquisition of
the Company, their potentially attractive business fit with the Company's
operations, and their likely interest in pursuing an acquisition of the Company.
On January 22, 1996, CUC International was advised that Lazard had been
retained as a financial advisor to assist the Company in exploring strategic
alternatives. CUC International was advised that Lazard would be soliciting from
prospective acquirors of the Company preliminary non-binding indications of
interest to direct any such indication of interest to Lazard. On January 23,
1996, CUC International met with Lazard to express CUC International's interest
in acquiring the Company. On January 24, 1996, Lazard informed CUC International
that the form of consideration and the price per share of Company Common Stock
suggested by CUC International on January 23, 1996 were inadequate and too low,
respectively, and that Lazard intended to solicit preliminary non-binding
indications of interest from a number of companies, including CUC International.
On January 24, 1996, CUC International received a letter from Lazard soliciting
from CUC International a preliminary non-binding indication of its interest in
acquiring the Company.
During the period from January 24, 1996 to February 2, 1996, Lazard was in
contact with 32 United States and foreign companies or groups (including CUC
International) regarding the feasibility of, and their interest in pursuing, a
business combination with the Company. During that same time period, Lazard
mailed to 30 such companies or groups (the "Preliminary Companies") a letter
which described the process which the Company intended to conduct and also
included a package of background materials regarding the Company consisting of
publicly available information.
Each of the Preliminary Companies was required to submit a written
non-binding preliminary indication of interest to Lazard by February 2, 1996,
including, among other things, the prices at which they might pursue a
transaction, the form of payment, whether or not such indication of interest
would be subject to financing, and the likely timing of the transaction. Ten of
the Preliminary Companies, including CUC International, submitted written
non-binding preliminary indications of interest; six of which indicated a
non-binding preliminary interest to acquire the Company in its entirety, and
four of which indicated a non-binding preliminary interest to acquire individual
subsidiaries of the Company. One of the non-binding preliminary indications of
interest to acquire the Company in its entirety provided for a cash transaction
which, if consummated, would have resulted in a higher per share consideration
than the value of the shares of CUC International Common Stock to be received in
the Merger (assuming for this purpose a value of $13.50 per share), but would
have constituted a taxable transaction to holders of Company Common Stock. The
party who submitted such non-binding preliminary indication of interest elected
not to submit a final bid.
At its meeting held on February 5, 1996, the Company's Board of Directors
evaluated the non-binding preliminary indications of interest and considered the
options and alternatives available. Copies of each of the non-binding
preliminary indications of interest were distributed to members of the Company's
Board of Directors. At such meeting, Lazard reviewed with the Company's Board of
Directors the non-binding preliminary indications of interest submitted by the
Preliminary Companies. In particular, Lazard presented, and the Board of
Directors reviewed and discussed in detail, the terms thereof, including price,
form of consideration, closing conditions, tax issues, timing of consummation
and other factors. Lazard also discussed the status of discussions with other
persons who had not yet submitted a non-binding preliminary indication of
interest. Based upon, among other things, the terms of each of the Preliminary
Companies' non-binding proposals, including the proposed value to be received by
the Company's shareholders, the financing sources of each potential acquiror,
the conditions to completion of each proposed transaction, their potential
business fit with the Company, and the length of time likely to be needed to
consummate a transaction, the Company's Board of Directors instructed Lazard to
communicate with four of the Preliminary Companies (including CUC International)
to clarify certain aspects of their respective non-binding preliminary
indications of interest (the
51
<PAGE>
"Initial Second Round Participants"). Shortly thereafter, Lazard communicated
with the Initial Second Round Participants to clarify aspects of their
respective proposals. Lazard subsequently informed the Initial Second Round
Participants of the Company's Board of Directors' selection.
At the meeting held on February 5, 1996, the Company's Board of Directors
terminated Paul G. Kahn from his position as Chairman and Chief Executive
Officer of the Company and removed Mr. Kahn from the Strategic Direction
Committee. Mr. Kahn remained a director of the Company until his resignation
from the Company's Board of Directors on April 18, 1996.
On February 14, 1996, the Company's Board of Directors established an
executive committee (the "Executive Committee") consisting of William T. Bacon,
Jr., Marshall L. Burman, John Ellis Bush, Robert L. Dilenschneider, Adam W.
Herbert, Jr., Eugene Miller and Thomas F. Petway, III (i.e., all of the
directors other than Paul G. Kahn), with Mr. Miller serving as the Chairman
thereof. The Executive Committee was given the mandate to exercise all of the
powers and authority of the Company's Board of Directors in the management of
the business and affairs of the Company, including the power to declare
dividends, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to the DGCL Section 253, and to authorize the seal
of the Company to be affixed to all papers which may require it.
From mid-February 1996 to March 29, 1996, each of the Initial Second Round
Participants conducted due diligence with respect to the Company. Each Initial
Second Round Participant was provided with access to confidential information,
oral management presentations, legal presentations and the facilities of the
Company and its Subsidiaries. The Strategic Direction Committee held regular
meetings by telephone during this period pursuant to which updates were provided
with respect to this process. During this same period, Lazard received six
additional non-binding preliminary indications of interest to acquire the
Company in its entirety, and one additional non-binding preliminary indication
of interest to acquire an individual Subsidiary of the Company. Based upon the
same criteria it used to determine the inclusion of the Initial Second Round
Participants, the Strategic Direction Committee directed Lazard to permit two of
the additional interested parties to conduct formal due diligence of the Company
and to submit formal and definitive proposals in the second round of proposals
(the "Additional Second Round Participants"). One of the Additional Second Round
Participants submitted a non-binding preliminary indication of interest
providing for cash consideration to the shareholders of the Company in excess of
the value of the shares of CUC International Common Stock to be received in the
Merger (assuming for this purpose a value of $13.50 per share). This Additional
Second Round Participant, however, submitted a formal and definitive proposal to
acquire the Company in its entirety at a price significantly below its
non-binding preliminary indication of interest, below the value of the shares of
CUC International Common Stock to be received in the Merger (assuming for this
purpose a value of $13.50 per share) and subject to numerous closing conditions.
During this same period, two of the Initial Second Round Participants notified
Lazard they would not submit formal and definitive proposals. The Strategic
Direction Committee also instructed Lazard to study and report on alternatives
to a sale of the Company as an entirety, including financial restructurings,
partial divestitures and other strategic alternatives. Following submission of
their preliminary non-binding indications of interest, each of the Additional
Second Round Participants also conducted due diligence with respect to the
Company.
The Initial Second Round Participants and the Additional Second Round
Participants were asked by the Company to sign confidentiality agreements. On
February 13, 1996, the Company and CUC International entered into the
Confidentiality Agreement whereby CUC International agreed, among other things,
to keep confidential certain non-public, confidential or proprietary information
of the Company furnished to CUC International by or on behalf of the Company for
purposes of evaluating a proposed business combination with the Company.
Pursuant to the Confidentiality Agreement, CUC International agreed that if the
Merger is not consummated, until February 13, 1998, without the prior written
consent of the Company, neither it nor any of its Representatives would,
directly or indirectly,
52
<PAGE>
effect any Prohibited Transactions. Pursuant to the Confidentiality Agreement,
CUC International and the Company also agreed that the agreements of CUC
International with respect to the Prohibited Transactions terminate upon the
commencement by the Company or any other person of an offer to acquire the
Company, whether by merger, consolidation or the acquisition of all or
substantially all of the outstanding stock or assets of the Company. The other
Initial Second Round Participants and the Additional Second Round Participants
also signed confidentiality agreements with the Company substantially similar to
the Confidentiality Agreement.
At its meeting on March 11, 1996, the Executive Committee reviewed with
Lazard the non-binding preliminary indications of interest to acquire the
Company submitted by the two remaining Initial Second Round Participants and the
Additional Second Round Participants, the form of consideration and other terms
of each of their non-binding preliminary indications of interest, the status of
their due diligence investigations of the Company and the schedule for
completing the Company's strategic evaluation process. Lazard also discussed
with the Executive Committee a range of strategic alternatives available to the
Company, other than a complete divestiture of the Company, and the effects of a
financial restructuring on the Company.
On March 20, 1996, Lazard submitted to each of the two remaining Initial
Second Round Participants (including CUC International) and one of the
Additional Second Round Participants a formal bidding package, including a
letter setting forth the guidelines for submission of a formal and definitive
proposal and a draft agreement and plan of merger, and requesting that formal
and definitive proposals be submitted to Lazard no later than 5:00 p.m., Eastern
Standard Time, on March 29, 1996. Prior to the distribution of the formal
bidding packages, the other Additional Second Round Participant notified Lazard
that it would not submit a formal and definitive proposal. Following such
notification through early April 1996, such Additional Second Round Participant
continued, on a periodic basis, to express an interest in the Company. Such
Additional Second Round Participant ultimately declined to submit a formal and
definitive proposal.
At a special meeting on March 27, 1996, the CUC International Board of
Directors, by unanimous vote of the directors present, authorized CUC
International management to submit to Lazard a bid, pursuant to which (if such
bid were accepted) CUC International would negotiate with the Company the terms
of a CUC International business combination with the Company.
On March 29, 1996, Lazard received two formal and definitive proposals from
the one remaining Initial Second Round Participant (CUC International) and the
one remaining Additional Second Round Participant (the "Final Round
Participants"). As discussed above, one of the Final Round Participants
submitted a proposal letter, subject to a number of closing conditions to pursue
a potential cash acquisition of the Company at a lower price than the value of
the shares of CUC International Common Stock to be received in the Merger
(assuming for this purpose a value of $13.50 per share) through a cash merger
transaction. The proposal was not accompanied by any proposed written comments
to the draft agreement and plan of merger distributed as part of the bidding
package. The other Final Round Participant, CUC International, submitted a
proposal, including proposed comments to the draft agreement and plan of merger,
to pursue a potential acquisition of the Company through a tax-free,
stock-for-stock merger transaction which would be accounted for as a
pooling-of-interests in which shareholders of the Company would receive a number
of shares of CUC International Common Stock equal to the quotient obtained by
dividing $13.50 by the average closing price per share of CUC International
Common Stock on the NYSE as reported on the NYSE Composite Tape during the 15
consecutive trading day period ending on the second calendar day immediately
preceding the Company's shareholder meeting to approve the Merger. CUC
International's proposal included, in light of the Company's concern regarding
the fluctuation of the price of CUC International Common Stock following CUC
International's February 20, 1996 joint announcement of the Sierra Merger and
the Davidson Merger (at which time the price of CUC International Common Stock
declined from $37.50 to $31.25), a "collar" provision to the effect that CUC
International would not issue fewer than 0.3750
53
<PAGE>
nor more than 0.6136 shares of CUC International Common Stock for each share of
Company Common Stock based on a maximum and minimum average closing price per
share of CUC International Common Stock to be determined pursuant to a formula
negotiated by the parties. CUC International's final proposal was not
conditioned upon financing or any other material conditions, other than that the
transaction qualify as a pooling-of-interests for accounting and financial
reporting purposes, the receipt of requisite regulatory approvals and other
customary conditions to consummation of merger transactions.
On April 1, 1996, the Strategic Direction Committee met to discuss and
consider the proposals of CUC International and the other Final Round
Participant. Copies of each of the Final Round Participants' proposals were
distributed to each member of the Strategic Direction Committee. At such
meeting, the terms of the proposals submitted by the two Final Round
Participants were presented to and reviewed by the Strategic Direction
Committee. Lazard and Skadden, Arps made presentations to the Strategic
Direction Committee with respect to the proposals. After full discussion and
analysis, the Strategic Direction Committee authorized Lazard to seek
clarification from CUC International with respect to certain aspects of its
acquisition proposal and, assuming such clarification was satisfactory, along
with its senior management and legal advisors, to commence negotiations with
respect to the formal proposal submitted by CUC International. On April 4, 1996,
Lazard advised the Strategic Direction Committee about its discussions with CUC
International and the clarification Lazard had received from CUC International
with regard to certain aspects of its bid. Following a discussion of the
clarified bid, the Strategic Direction Committee authorized its senior
management, Lazard and Skadden, Arps to proceed with negotiations with CUC
International.
Commencing on and during the week of April 8, 1996, representatives of
senior management of the Company, Lazard and Skadden, Arps met at Skadden, Arps'
offices in New York City to commence detailed negotiations of a definitive
agreement and plan of merger with CUC International and its legal advisors. Such
negotiations continued in person and by telephone on a continuing basis through
the weeks of April 8, 1996 and April 15, 1996. Throughout the weeks of April 8,
1996 and April 15, 1996, the Strategic Direction Committee held numerous
telephonic meetings with the Company's senior management, Lazard and Skadden,
Arps to review and discuss the status of the ongoing negotiations with CUC
International.
On April 10, 1996, the Company, in reaction to higher than usual trading
volume and movement in the market price of Company Common Stock, issued a press
release stating that it was engaged in negotiations with respect to a possible
merger with an undisclosed third party acquiror. The press release stated that
although no definitive agreement had yet been reached, the negotiations involved
a possible merger in which the Company's shareholders would receive common stock
of the acquiring company valued at $13.50 per share of Company Common Stock. The
press release further stated that while negotiations were continuing, there
could be no assurance that a definitive agreement would be reached or, if
reached, that any transaction would occur.
On April 10, 1996, the CUC International Board of Directors, by unanimous
vote, 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
interest of CUC International and the holders of CUC International Common Stock.
The CUC International Board of Directors, by unanimous vote, also authorized and
approved the proposed agreement and plan of merger and the transactions
contemplated thereby and the execution and delivery of a merger agreement in
substantially the form presented to them, subject to the satisfactory resolution
of certain remaining issues pertaining to the Merger.
On April 12, 1996, the Executive Committee met to discuss and review, with
the advice and assistance of Lazard and Skadden, Arps, the status of the
negotiations with CUC International and the remaining issues which would need to
be resolved to enter into a definitive agreement and plan of merger with CUC
International. The Company's management and legal counsel discussed the terms of
54
<PAGE>
the draft agreement, the remaining open issues and the position of the
respective parties with respect to each issue and outlined the process for
completing the transaction. Representatives of Lazard described, among other
things, the consideration to be received by the Company shareholders, the
proposed Conversion Number and "collar" and certain financial analyses and
information with respect to the Company and CUC International's proposal.
Representatives of Lazard also reviewed, among other things, CUC International's
operating history, business and acquisition history. Representatives of Skadden,
Arps described, among other things, the structure of the proposed transaction
and certain significant terms of the proposed agreement and plan of merger,
including, among others, (i) the timing and conditions with respect to the
provisions for termination, liquidated damages and expense reimbursement, (ii)
restrictions on the Company's ability to solicit and respond to inquiries from,
negotiate with, or provide confidential information concerning the Company to,
third parties in connection with the consideration by such parties of a possible
strategic transaction involving the Company or its Subsidiaries, (iii) the
obligations of CUC International to indemnify the current and former directors
and officers of the Company following the consummation of the Merger, (iv) the
requirements necessary for the transaction to qualify as a pooling-of-interests
for accounting and financial reporting purposes, and (v) the intended tax-free
nature of the transaction to the Company's shareholders.
On April 18, 1996, the Executive Committee held a telephonic meeting to
discuss, among other things, the status of the transaction and to further
discuss the remaining unresolved issues, and the terms of the proposed agreement
and plan of merger, including the termination provisions, the provisions
requiring the transaction to qualify for pooling-of-interests accounting, and
the proposed value of the shares of CUC International Common Stock to be
received in the Merger. The Company's management, Skadden, Arps and Lazard each
participated in the telephone meeting. Upon entering into a settlement
agreement, dated as of April 18, 1996, between Mr. Paul Kahn and the Company,
Mr. Kahn resigned as a director of the Company.
On April 19, 1996, the Company's Board of Directors held a special
telephonic meeting to review, with the advice and assistance of Lazard and
Skadden, Arps, the proposed agreement and plan of merger and the transactions
contemplated thereby, including the Merger. At such meeting, the Company's
management and legal advisors made presentations to the Company's Board of
Directors concerning the Merger and the resolution of the open issues discussed
at the meetings on April 12, 1996 and April 18, 1996. Lazard delivered to the
Board its oral opinion, confirmed in writing on the same date, to the effect
that, as of such date and based upon its review and analysis and subject to the
assumptions and qualifications set forth therein, the Conversion Number was fair
from a financial point of view to such holders. The opinion of Lazard is
attached hereto as Annex B and shareholders of the Company are encouraged to
read that opinion carefully and in its entirety. At such meeting, members of the
Strategic Direction Committee expressed their views regarding the proposed
transaction and recommended that the Company's Board of Directors approve the
Merger Agreement. Following the Company's Board of Directors's review and
discussion of the definitive terms of the transaction, the recommendation of the
Strategic Direction Committee, the opinion of Lazard and numerous other relevant
factors (described below in "The Merger--Reasons for the Merger; Recommendation
of the Company's Board of Directors"), the Company's Board of Directors, by
unanimous vote of all five directors present (and five directors being the
number of directors required by the Company By-laws to constitute a quorum),
authorized and approved the proposed Merger Agreement and the transactions
contemplated thereby, and authorized the execution and delivery of the Merger
Agreement in substantially the form presented to them (with such changes as
management deemed appropriate in respect of certain remaining issues which were
not deemed material to the overall transaction) and determined that the Merger
Agreement be submitted to a vote of the Company's shareholders and that the
Company's Board of Directors recommend that such shareholders approve and adopt
the Merger Agreement.
Negotiations between members of senior management of the Company and its
legal advisors and representatives of CUC International and their legal advisors
to finalize the remaining issues in the
55
<PAGE>
Merger Agreement continued through April 19, 1996. On April 19, 1996, following
the resolution of such open issues, the Company, CUC International, and Merger
Sub executed and delivered the Merger Agreement.
On April 22, 1996, the Company issued the following press release announcing
the execution of the Merger Agreement (CUC International simultaneously issued a
similar press release on such date):
FOR IMMEDIATE RELEASE
IDEON GROUP, INC. TO BE ACQUIRED
BY CUC INTERNATIONAL INC.
STOCK TRANSACTION VALUED AT $375 MILLION
STRENGTHENS CUC'S CREDIT CARD ENHANCEMENT
SERVICES AND BROADENS MEMBERSHIP BASE
JACKSONVILLE, FL.--Ideon Group, Inc. (NYSE:IQ), whose SafeCard Services
unit is a leading provider of credit card enhancement services to over 13
million members across the United States, today announced that it has agreed
to be acquired by CUC International Inc. (NYSE: CU) in a move that will
strengthen CUC's core membership services business.
Ideon and Stamford, Connecticut-based CUC International have signed a
definite merger agreement whereby CUC will acquire Ideon Group in a
stock-for-stock transaction valued at approximately $375 million. The
transaction is expected to close in early-to mid-summer. The merger is
subject to customary closing requirements, including the expiration of any
applicable wait period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the approval of the Ideon stockholders.
Eugene Miller, Chairman and Chief Executive Officer of Ideon Group
commented, "Since the beginning of 1996, we have intensified our efforts to
maximize shareholder value. The merger with CUC is a major step toward
achieving that goal. No company offers a better strategic fit or growth
opportunities than CUC. In addition to the clear synergies between CUC's
business and ours, CUC has a proven track record of integrating acquisitions
and operating the credit card enhancement business effectively."
Walter A. Forbes, Chairman and Chief Executive Officer of CUC
International, said, "This acquisition is an outstanding strategic fit for
CUC. Ideon's preeminent position in credit card protection services,
combined with CUC's strong market presence in this business, will enhance
our product offerings as well as complement our client and membership
bases."
Mr. Forbes continued, "This acquisition also is a perfect fit for our
membership business model. Ideon's database of 13 million members not only
augments CUC's database of over 46 million members, but it also presents
exciting prospects for marketing our core shopping, auto, and other
membership services to their customers."
Transaction Outlined
Under the terms of the agreement, each share of Ideon common stock
outstanding on the effective date of the proposed merger will be converted
into the right to receive CUC common stock ("CUC Common Stock") with an
aggregate value of $13.50 per share if the average closing price per share
of CUC Common Stock over a specified fifteen day period prior to the date of
the Ideon stockholder meeting called to vote upon the proposed merger (the
"Average Stock Price") is
56
<PAGE>
within the collar described below. The exact ratio of shares of CUC Common
Stock to be issued per outstanding share of Ideon stock will be determined
by dividing $13.50 by the Average Stock Price. However, the number of shares
of CUC Common Stock to be issued in exchange for each share of Ideon common
stock will in no event be greater than .6136 (if the Average Stock Price is
at or below $22 per share) nor less than .3750 (if the Average Stock Price
is at or above $36). The total number of Ideon common shares outstanding was
approximately 28 million as of March 31, 1996.
CUC intends to account for the acquisition as a "pooling-of-interests"
and it is intended that the merger be tax-free to the Company stockholders.
CUC expects to incur costs related to this merger, which will include
integration and transaction costs as well as costs relating to certain
outstanding litigation matters previously discussed in Ideon's public
filings. The amount of these costs will be reserved upon the closing of the
proposed merger and will be reflected in CUC's financial statements upon
completion of the merger.
Director Resignation
Ideon further stated that Paul G. Kahn, the company's former chairman
and chief executive officer, had resigned as a director of the Company
effective April 18, 1996.
* * * * *
Ideon Group, Inc., is a holding company that leverages information
technology, targeted marketing and customer service through its three
operating units: SafeCard Services, Wright Express, and National Leisure
Group. Ideon markets its services through partnerships with approximately
160 credit card issuers, including banks, retailers and oil companies.
CUC International Inc. is a leading membership-services company,
currently providing approximately 46.5 million consumers with access to a
variety of services including home shopping travel, insurance, auto, dining,
home improvement, lifestyle clubs, checking account enhancements and
discount coupon programs.
57
<PAGE>
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 the 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 combination of CUC
International's membership services business with the Company's strong market
position in credit card protection services will enhance CUC International's
product offerings and complement its client and membership bases, and (ii) the
addition of the Company's sizeable client base presents prospects for marketing
CUC International's core shopping, auto, and other membership services to the
Company's customers.
THE COMPANY. At a special meeting held on April 19, 1996, the Board of
Directors of the Company determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair to, and in the
best interests of, the shareholders of the Company, and approved the Merger
Agreement and the transactions contemplated thereby, including the Merger. At
such meeting, based upon, among other things, the presentations, reports and
opinion of Lazard and the recommendation of the Strategic Direction Committee,
and after consultation with management of the Company and its legal advisors,
the Company's Board of Directors (i) determined that the Merger Agreement and
Merger are fair to, and in the best interests of, the Company and its
shareholders, (ii) by unanimous vote of all five directors present, approved the
Merger Agreement and the transactions contemplated thereby and (iii) recommended
that the holders of shares of Company Common Stock approve and adopt the Merger
Agreement.
In reaching its conclusions to approve the Merger Agreement and the Merger
and recommend that holders of shares of Company Common Stock approve and adopt
the Merger Agreement, the Company's Board of Directors considered a number of
factors, including the following:
. that the Merger Agreement and the Merger were approved by the Company's
Board of Directors only after an "auction" process designed to elicit bona
fide third party proposals to acquire the Company and enhance shareholder
value, which consisted of, among other things, the issuance by the Company
of a press release regarding its decision to explore strategic
alternatives available to the Company to enhance shareholder value, the
lapse of a significant period of time between the issuance of the press
release and approval of the Merger Agreement, and the fact that contact
with approximately 37 potential bidders over an extended period of time in
an "auction" process yielded only two final and definitive acquisition
proposals. See "The Merger-- Background of the Merger;"
. the fact that, based on the advice of Lazard, the "auction" process was
conducted in a fair, equitable and evenhanded manner and that third
parties interested in a transaction with the Company had been afforded
sufficient time and knowledge to submit such a proposal had they wished to
do so. See "The Merger--Background of the Merger" and "The Merger--Opinion
of the Company's Financial Advisor;"
. the fact that prior to the public announcement of the Merger on April 22,
1996, the Company issued a press release on April 10, 1996, stating that
the Company was engaged in negotiations with a third party regarding a
stock-for-stock merger with a value of $13.50 per share of Company Common
Stock. See "The Merger--Background of the Merger;"
. the analyses of Lazard and the oral opinion presented to the Company's
Board of Directors on April 19, 1996, confirmed in writing on the same
date, to the effect that, as of such date and based upon its review and
analysis and subject to the assumptions and qualifications set forth
therein, the Conversion Number was fair from a financial point of view to
such holders. (A copy of the written opinion, dated April 19, 1996, of
Lazard setting forth the assumptions and qualifications made, factors
considered and the scope of the review undertaken by Lazard, is attached
as Annex B hereto and is incorporated herein by reference. Shareholders of
the Company are encouraged to read the opinion of Lazard carefully and in
its entirety.) See "The Merger--Background of the Merger;" and "The
Merger--Opinion of the Company's Financial Advisor;"
58
<PAGE>
. the fact that the value of the shares of CUC International Common Stock to
be received by the holders of Company Common Stock (assuming a value of
$13.50 based upon the closing price of the CUC International Common Stock
at that time) in the Merger represented a premium of approximately 50%
over the closing price of $9.00 for the shares of Company Common Stock on
January 19, 1996, the last trading day prior to the public announcement by
the Company that it had decided to explore strategic alternatives to
enhance shareholder value. See "The Merger-- Opinion of the Company's
Financial Advisor;"
. the terms and conditions of the Merger Agreement, including the
consideration to be paid, the fact that the Merger is intended to be
tax-free to the Company's shareholders and that the transaction is not
subject to significant conditions. See "The Merger--Certain Federal Income
Tax Considerations;" "The Merger Agreement--The Merger"; and "The Merger
Agreement-- Conditions;"
. a review of the possible alternatives to a sale of the Company in its
entirety, including the prospects of selling one or more of the Company's
Subsidiaries, a financial restructuring of the Company, continuing to
operate the Company pursuant to management's business plan, the prospects
of the Company if it remained independent and the difficulties to be faced
by the Company in returning to and maintaining continued profitability and
restoring customer and investor confidence, the value to the Company's
shareholders of such alternatives and the timing and likelihood of
achieving additional value from these alternatives, and the possibility
that these alternatives might not lead to a higher present value to
shareholders than the intended value of $13.50 to be received by the
holders of Company Common Stock in the Merger. See "The Merger--Background
of the Merger;"
. the fact that if the Merger were not consummated, the price of Company
Common Stock could decline significantly below the current trading price
(which reflects, in part, the premium to be paid in the Merger to holders
of Company Common Stock);
. the fact that the larger trading volume of CUC International Common Stock
compared to that of the Company provides the Company's shareholders with
greater liquidity;
. the reputation and growth potential of CUC International, the strategic
business fit of CUC International with the business of the Company and
fact that the Merger enables the Company's shareholders to own shares in a
company with proven management, diverse businesses and markets. See "The
Merger--Background of the Merger;"
. the fact that the Merger Agreement, which prohibits the Company and its
Subsidiaries from soliciting, initiating or encouraging any Acquisition
Proposal, does permit the Company to furnish nonpublic information to,
allow access by and participate in discussions or negotiations with any
third-party that has submitted an Acquisition Proposal to the Company if
the Company's Board of Directors determines, based upon the advice of
outside legal counsel to the Company, that the failure to engage in such
negotiations or discussions or provide such information would be
reasonably likely to be inconsistent with the fiduciary duties of the
Company's Board of Directors under applicable law. See "Summary--Certain
Definitions;" and "The Merger Agreement--Certain Covenants;"
. the fact that the Merger Agreement allows the Company's Board of Directors
to approve or recommend a Superior Proposal or cause the Company to enter
into an agreement with respect to a Superior Proposal or withdraw, modify
or change its recommendation (to approve and adopt the Merger Agreement)
to shareholders in a manner adverse to CUC International if the Company's
Board of Directors determines, based upon the advice of outside legal
counsel, that the failure to approve or recommend such Superior Proposal
or to cause the Company to enter into an agreement with respect to such
Superior Proposal or to withdraw, modify or change such recommendation
would be reasonably likely to be inconsistent with the fiduciary duties of
the Company's Board of Directors under applicable law. See "The Merger
Agreement--Certain Covenants;"
59
<PAGE>
. the fact that if the Merger Agreement is terminated (A) by CUC
International as a result of the Company entering into a definitive
agreement providing for an Acquisition Proposal or (B) by the Company, as
a result of entering into a definitive agreement providing for a Superior
Proposal, the Company must reimburse CUC International for only Buyer's
Expenses reasonably and actually incurred by CUC International in
connection with the Merger Agreement in an amount not to exceed $1.0
million and the fact that Lazard believed that such expenses to
reimbursement would not be a significant deterrent to a higher offer by a
third party interested in acquiring the Company. See "The Merger
Agreement--Termination" and "The Merger Agreement--Fees and Expenses."
. the fact that if the Merger Agreement is terminated as a result of (A) the
Company's withdrawal, modification or change of recommendation of the
Merger Agreement or approval or recommendation of a Superior Proposal, or
(B) the Company entering into a definitive agreement pursuant providing
for a Superior Proposal, the Company must pay to CUC International a fee
of $7.0 million only if (and subject to certain conditions) the Company
consummates a Third Party Acquisition within 12 months of the date of such
termination and the fact that Lazard believed that such reimbursement
would not be a significant deterrent to a higher offer by a third-party
interested in acquiring the Company. See "The Merger
Agreement--Termination" and "The Merger Agreement--Fees and Expenses;"
. that certain members of the Company's management and Board of Directors
have interests in the Merger that are in addition to and not necessarily
aligned with the interests in the Merger of the holders of Company Common
Stock generally;
. the loss of complete independence that would result from the Company
surviving in the Merger as a wholly-owned Subsidiary of CUC International;
and
. the possibility of disruption to the Company's management personnel
pending consummation of the Merger.
The foregoing discussion of the information and factors considered by the
Company's Board of Directors is not intended to be exhaustive. In view of the
wide variety of factors considered, both positive and negative, the Company's
Board of Directors did not assign relative weights to the above factors or
determine that any factor was of particular importance. Rather, the Company's
Board of Directors viewed its position and recommendation as being based on the
totality of the information presented to, and considered by, it.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE
MERGER AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
COMPANY AND ITS SHAREHOLDERS, (II) HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND (III) RECOMMENDS THAT SHAREHOLDERS OF THE
COMPANY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE MEETING.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Lazard has acted as financial advisor to the Company in connection with the
Merger and has assisted the Company in its examination of the fairness of the
Conversion Number from a financial point of view, to the shareholders of the
Company; pursuant to which each share of Company Common Stock outstanding
immediately prior to the Effective Time will be converted into shares of CUC
International Common Stock, subject to certain limitations set forth below.
Lazard noted that the Merger Agreement provides that the Conversion Number is
equal to the quotient obtained by dividing $13.50 by the Average Stock Price;
provided that if the Average Stock Price is $22.00 or less the Conversion Number
will be 0.6136, and if the Average Stock Price is $36.00 or more the Conversion
Number will be 0.3750. Lazard stated that, based on the April 19, 1996 closing
sale price of CUC International Common Stock as reported on the NYSE Composite
Tape, the per share value of the consideration payable in the Merger to the
holders of the Company Common Stock was $13.50, representing a 50.0% premium
based on the closing stock price of a share of the Company Common
60
<PAGE>
Stock on January 19, 1996, the last trading day immediately preceding the
Company's January 22, 1996 public announcement that it was exploring strategic
alternatives.
On April 19, 1996, Lazard delivered its written opinion to the effect that,
as of the date of such opinion, the Conversion Number was fair from a financial
point of view to the Company's shareholders. The full text of the opinion, dated
April 19, 1996, which sets forth the assumptions made, matters considered and
scope of the review by Lazard in rendering its opinion, is attached as Annex B
to this Proxy Statement/Prospectus and is incorporated herein by reference.
Shareholders are urged to read this opinion carefully and in its entirety.
In connection with its opinion, Lazard reviewed, among other things, the
financial terms of the Merger Agreement, certain publicly available information
regarding the Company and CUC International, and in the case of the Company,
internal financial analyses and forecasts prepared and provided to Lazard by the
Company's management. In the case of CUC International, Lazard had discussions
with senior management of CUC International concerning CUC International's
internal financial forecasts. Non-public information discussed by senior
management of CUC International with representatives of Lazard consisted of
earnings per share forecasts ranging from approximately $1.03 to $1.07 per share
of CUC International Common Stock for the fiscal year ending January 31, 1997
and $1.30 to $1.35 per share of CUC International Common Stock for the fiscal
year ending January 31, 1998. Non-public information provided to Lazard by the
Company included (a) the budget of the Company for the year ending December 31,
1996, which included estimates of revenues and net income for its year ending
December 31, 1996 of approximately $274.0 million and $27.0 million,
respectively; and (b) earnings per share projections for its years ending
December 31, 1996 and 1997 of approximately $1.01 and $1.44 per share of Company
Common Stock, respectively. Based on its review, Lazard did not adjust the
Company's or CUC International's projections in its analysis. Lazard held
separate discussions with members of the senior management of each of the
Company and CUC International regarding their past and current business
operations and financial condition, and the future prospects for their
respective companies. In addition, Lazard reviewed the reported price and
trading activity for the Company Common Stock and CUC International Common
Stock, compared certain financial and stock market information for the Company
and CUC International with similar information for other comparable companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in comparable businesses and performed such
other studies and analyses as Lazard considered appropriate for purposes of its
opinion.
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
SOLELY BECAUSE SUCH INFORMATION WAS FURNISHED TO LAZARD 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,
61
<PAGE>
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 LAZARD, 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 SIERRA 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, LAZARD, 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, 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.
In rendering its opinion, Lazard relied, without independent verification,
upon the accuracy and completeness of all of the financial and other information
reviewed by it for purposes of its opinion. In this regard, Lazard assumed that
the financial forecasts reviewed by Lazard had been reasonably prepared on the
bases reflecting the best currently available judgments and estimates of the
Company and CUC International. Lazard assumed no responsibility for and
expressed no view as to such forecasts or the assumptions on which they were
based.
The financial and operating projections reviewed by Lazard were prepared by
the management of the Company. The Company does not publicly disclose or
otherwise make available internal management financial and operating projections
of the type provided to Lazard. Such projections were not prepared with a view
towards public disclosure or in accordance with the guidelines for financial
forecasts established by the Commission or the American Institute of Certified
Public Accountants, and were not independently verified by Lazard. The
projections were based on numerous variables and assumptions including, without
limitation, factors related to industry performance and the Company's prior
results, general business and economic conditions and other matters, many of
which are inherently uncertain and beyond the Company's control.
Lazard's opinion was necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to Lazard
as of, the date of such opinion.
62
<PAGE>
Lazard further assumed, with the Company's consent, that the Merger would be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendment thereto, and without waiver by the Company of any
of the conditions to its obligation to close thereunder.
In Lazard's view, its analyses must be considered as a whole, and selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Any estimates relied upon by Lazard and the projections
referred to below are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than such estimates or
projections. Estimates of values of companies or assets do not purport to be
appraisals or necessarily reflect the prices at which companies or assets may
actually be sold. Although such estimates and projections relating to the
Company that were provided to Lazard were prepared in good faith by the Company
management, because such estimates and projections are inherently subject to
uncertainty, such projections may differ from results that may actually be
achieved by the Company.
In connection with rendering its written opinion, dated April 19, 1996,
Lazard performed a variety of financial analyses, the material aspects of which
are summarized below. The summary set forth below does not purport to be a
complete description of all the analyses performed by Lazard in this regard.
TRANSACTION OVERVIEW. Lazard presented an overview of the proposed
transaction, noting the strategic fit of combining a leading membership-based
consumer services company such as CUC International with an information based
marketing and servicing company such as the Company. Lazard noted that the
transaction, structured as a tax-free exchange at a significant premium over
recent market prices for the Company Common Stock and accounted for as a
pooling-of-interests, would afford shareholders of the Company the ability to
continue their investment in the combined entity resulting from the Merger or,
if they choose, to sell the CUC International Common Stock received by the
Company shareholders in the Merger.
Lazard noted that the Company is the leading provider of credit card
registration/protection programs in the United States. Lazard also noted CUC
International recently announced its pending acquisition of both Davidson &
Associates, Inc. and Sierra On-Line, Inc. Lazard further noted that these
acquisitions are intended to further expand CUC International's product
offerings to include multimedia educational and entertainment software.
Lazard stated that CUC International's acquisition of the Company allows CUC
International to acquire a competitor, gain scale in the credit card
registration business and benefit from potential cost savings. Lazard also
stated that the Merger enables the Company's shareholders to own shares in a
company with more diverse businesses and markets and more growth potential.
Lazard further noted that the larger trading volume of CUC International Common
Stock compared to that of the Company Common Stock provides the Company
shareholders with greater liquidity.
OVERVIEW OF THE COMPANY. Lazard presented an overview of the Company noting
that the Company is organized into three major business units that produced a
combined $234 million in revenue for the fiscal year ended December 31, 1995,
and that the Company is the leading provider of credit card
registration/protection programs in the United States.
Lazard reviewed the Company's historical and estimated operating results for
the four fiscal years ended December 31, 1995. In addition, Lazard observed that
the Company's historical revenues compound annual growth rate ("CAGR") for its
fiscal years ended October 31, 1991 through October 31, 1994, the Transition
Period and the fiscal year ended December 31, 1995 was 10.9% while its total
costs and expenses CAGR for the same period was 28.3%. Lazard further observed
that the Company's net income per share had declined from a fiscal year ended
1991 net income per share of $1.02 to a fiscal year ended 1995 net loss of
$(1.73) per share. Lazard also reviewed projected operating results for fiscal
years ended 1996 and 1997, based on the forecasts provided by the Company's
63
<PAGE>
management. Lazard also reviewed the Company's historical balance sheet for the
fiscal years ended December 31, 1995, October 31, 1994, October 31, 1993,
October 31, 1992 and October 31, 1991.
Lazard reviewed stock price and trading volume information for the Company
Common Stock, noting that there are no directly comparable companies in the same
lines of business as the Company. Lazard noted that the Company's stock price
declined approximately 42% during the two-day period of May 25, 1995 and May 26,
1995, at about the time the Company announced that its earnings per share
("EPS") estimates would not be met because two principal internally developed
new business units had failed to generate the anticipated customer response
rates, and that as a result the Company planned to curtail these businesses.
Lazard further noted that the Company Common Stock price had not, as of April
19, 1996, resumed trading at levels similar to those prior to the May 25, 1995
announcement, and that the Company Common Stock price had performed below the
S&P 500 Index since May 25, 1995.
Lazard identified several companies which have similar business
characteristics to the Company. In Lazard's judgment, although no single company
is directly comparable to the Company, the selected companies (CUC
International, CPI Corp., Rollins Inc. and Transmedia Network; collectively, the
"Selected Companies") were sufficiently comparable to be used as comparable
companies. Lazard compared selected multiples derived from the April 8, 1996
closing price of Company Common Stock to multiples derived from the respective
April 8, 1996 closing prices of the capital stock of the Selected Companies. The
multiples compared included: (i) enterprise value to estimated fiscal 1996 and
fiscal 1997 earnings before interest, taxes, depreciation and amortization
("EBITDA") (which was 6.1x and 4.6x, respectively, for the Company, compared to
a mean of 5.6x and 4.7x, respectively, for the Selected Companies), and (ii)
enterprise value to estimated 1996 and 1997 revenues (which was 1.0x and 0.9x,
respectively, for the Company, compared to 0.8x and 0.6x, respectively, for the
Selected Companies). These analyses indicated that the closing price of the
Company Common Stock at April 8, 1996, $11.13, represented market trading
multiples that were within the ranges observed for the capital stock of the
Selected Companies.
OVERVIEW OF CUC INTERNATIONAL. Lazard presented an overview of CUC
International, including a description of the wide variety of consumer services
provided by CUC International. Lazard noted CUC International's ability to
market its databases and services internationally, both directly and through
intermediaries, such as banks, retailers, airlines and hotels. Lazard described
the financial attributes of CUC International's offering of membership services
and its consistent strategy for growth which includes expanding its core
business, leveraging across divisions and making strategic acquisitions.
Lazard reviewed CUC International's historical and estimated operating
results for the four fiscal years ending January 31, 1996, 1995, 1994 and 1993.
In addition, Lazard observed that CUC International's historical revenues CAGR
for its fiscal years ended 1991 through 1996 was 21.7% while its total costs and
expenses CAGR for the same period was 17.7%. Lazard further observed that CUC
International's net income per share had increased from a fiscal year ended
January 31, 1992 net income per share of $0.16 to a fiscal year ended January
31, 1996 net income of $0.84 per share. Lazard also discussed with CUC
International senior management projected operating results for fiscal years
ending January 31, 1997 and January 31, 1998, based on the forecasts provided by
CUC International's management. Lazard also reviewed CUC International's
historical balance sheet data for the fiscal years ended January 31, 1996,
January 31, 1995, January 31, 1994, January 31, 1993 and January 31, 1992.
Lazard further reviewed stock price and trading volume data for CUC
International Common Stock, noting that although there are no directly
comparable companies in the same lines of business as CUC International, Lazard
had identified the same Selected Companies it had selected in its comparable
company analysis of the Company. Lazard noted that although, like the Company,
there is no single company that is directly comparable to CUC International, the
Selected Companies have similar business characteristics to CUC International to
conduct a meaningful comparable company analysis. Lazard compared selected
multiples derived from the recent trading price of CUC International Common
Stock to multiples derived from the respective recent trading prices of the
Selected Companies. The implied multiples included: (i) estimated fiscal 1997
and fiscal 1998 EBITDA (which was 10.7x and 8.5x for CUC International,
respectively, and 5.6x and 4.7x for the Selected Companies for
64
<PAGE>
fiscal 1996 and fiscal 1997, respectively) and (ii) estimated fiscal 1997 and
fiscal 1998 revenues (which was 2.3x and 1.9x for CUC International,
respectively, compared to 0.8x and 0.6x for the Selected Companies for fiscal
1996 and fiscal 1997, respectively). Lazard also noted that CUC International's
general trading patterns were consistent with the S&P 500 Index and other market
indices.
CONTRIBUTION ANALYSIS. Lazard prepared projected pro forma financial
statements for CUC International and the Company on a combined basis (the
"Combined Company") which were based in part on the projected financial
information provided by the Company, noting in particular its estimated EPS of
the Combined Company for the fiscal years ending December 31, 1996 and December
31, 1997 for the Company ($1.12 and $1.46, respectively), as compared to pro
forma EPS estimates provided by the Company's management and CUC International's
management for the same periods. Lazard also examined the Combined Company's pro
forma operating results which Lazard prepared for the projected fiscal years
ending January 31, 1997 and January 31, 1998, and the Combined Company's pro
forma balance sheet as of January 31, 1996.
Lazard also analyzed the enterprise value represented by the consideration
to be received by the holders of the Company Common Stock in the Merger as
multiples of various financial performance criteria, including estimated fiscal
1996 and fiscal 1997 EBITDA (7.2x and 5.4x, respectively), and estimated fiscal
1996 and fiscal 1997 revenues (1.2x and 1.1x, respectively), and compared such
multiples to multiples of EBITDA and revenues in the stock-for-stock direct
marketing and enhanced credit card services transactions (which ranged from
12.9x to 25.5x for EBITDA, respectively, and 1.2x to 3.1x for revenues,
respectively), in which CUC International acquired Advance Ross, NAOG, Credit
Card Sentinel, and Welcome Wagon. These transactions were deemed comparable
because the companies acquired by CUC International have similar business
characteristics to the Company and CUC International.
Lazard noted that the per share value of the consideration that would have
been payable to the holders of the Company Common Stock pursuant to the Merger
(had the merger occurred on April 19, 1996, the date Lazard delivered its
fairness opinion to the Company Board of Directors) would have been $13.50. This
would have represented a premium of approximately 50.0% over the closing sale
price of the Company Common Stock on January 19, 1996, the last trading day
prior to the Company's January 22, 1996 public announcement that it was
exploring strategic alternatives to enhance shareholder value. Lazard noted that
the average premium paid in 1995 stock-for-stock transactions with a transaction
value in the range of $251.0 million to $500.0 million was 35.7% of the stock
price of the target company four weeks prior to a public announcement.
No company used in the comparable company analyses summarized above is
identical to the Company or CUC International, and no transaction used in the
comparable transaction analysis summarized above is identical to the Merger.
Accordingly, any such analysis of the value of the consideration to be received
by the holders of Company Common Stock pursuant to the Merger involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparable companies and transactions and
other factors in relation to the trading and acquisition values of the
comparable companies.
In determining the appropriate analyses to conduct and when performing those
analyses, Lazard made numerous assumptions with respect to industry performance,
general business, financial, market and economic conditions and other matters,
many of which are beyond the control of the Company and CUC International. The
analyses which Lazard performed are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Lazard's analysis of the fairness, from a financial point of view, of the
consideration which the holders of Company Common Stock would receive in the
Merger. The analyses do not purport to be appraisals or to reflect the prices at
which the Company might actually be sold or the prices at which any securities
may trade at the present time or at any time in the future.
Lazard's opinion does not constitute a recommendation with respect to
whether any shareholder of the Company should, upon consummation of the Merger,
continue such shareholder's investment in the CUC International Common Stock
received as consideration in the Merger or sell such shares of CUC International
Common Stock immediately or at any time in the future.
65
<PAGE>
Lazard is a nationally recognized investment banking firm and, as a part of
its investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with merger and acquisitions,
underwritings, distributions of securities and similar activities. Lazard was
selected on the basis of the experience and expertise that it demonstrated to
the Company with respect to advising other financial services and related
companies in evaluating their strategic directions, and its general reputation
in the investment and banking communities, including its reputation in assisting
in major mergers and acquisitions. Lazard has acted exclusively for the Company
in rendering its fairness opinion and will receive a fee from the Company for
its services, a portion of which is contingent upon consummation of the Merger
(as described below). Prior to its engagement with respect to the Merger,
neither Lazard nor its affiliates had any material relationship with the Company
or its affiliates.
Pursuant to the terms of an engagement letter, dated January 4, 1996, the
Company has paid Lazard $100,000 for acting as its financial advisor in
connection with the Merger, including delivering to the Company's Board of
Directors its opinion attached to this Proxy Statement/Prospectus as Annex B.
The Company has agreed to pay an additional 6/10 of one percent of the aggregate
consideration paid upon consummation of the Merger (minus $300,000.00 if and
only if the Company engages another financial advisor in connection with such
transaction). No additional fees will be paid to Lazard for its opinion. Whether
or not the Merger is consummated, the Company has also agreed to reimburse
Lazard for its out-of-pocket expenses, including fees and expenses of legal
counsel, and to indemnify Lazard and certain related parties against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under the federal securities laws.
CERTAIN CONSEQUENCES OF THE MERGER
Upon consummation of the Merger, shares of Company Common Stock will cease
to be traded on the NYSE, 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 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 Sierra 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 such shareholders of the Company
immediately prior to the Effective Time will own, in the aggregate,
approximately 5% 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 Sierra Merger is not), the total number of shares of
CUC International Common Stock outstanding immediately following the Effective
Time will be 235,409,026 and such shareholders of the Company immediately prior
to the Effective Time will own, in the aggregate, approximately 6% of the CUC
International Common Stock outstanding immediately after the Effective Time. If
the Sierra 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 6% of the CUC International Common
Stock outstanding immediately after the Effective Time. If neither the Davidson
Merger nor the Sierra Merger is consummated at or prior to the
66
<PAGE>
Effective Time, the total number of shares of CUC International Common Stock
outstanding immediately following the Effective Time will be 205,369,420 and
such shareholders of the Company immediately prior to the Effective Time will
own, in the aggregate, approximately 7% 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 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 Merger Sub 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.
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 Sierra Merger). Pursuant to the Confidentiality Agreement, CUC
International has agreed that, if the Merger is not consummated, for the
two-year period ending February 13, 1998, unless otherwise agreed to in writing
by the Company, neither it nor any of its Representatives will in any manner,
directly or indirectly, effect or participate in any of the Prohibited
Transactions. See "Summary--Conduct of the Business of CUC International and the
Company if the Merger is Not Consummated."
The foregoing agreement of CUC International not to effect or participate in
any of the Prohibited Transactions terminates upon the commencement by the
Company or any other person of an offer to acquire the Company, whether by means
of merger, consolidation or the acquisition of all or substantially all of the
outstanding stock or assets of the Company.
Pursuant to the Confidentiality Agreement, CUC International has agreed that
until February 13, 1998 it will not, directly or indirectly, solicit for
employment or hire any employee of the Company or its Subsidiaries with whom CUC
International has had contact or who became known to CUC International in
connection with CUC International's consideration of the Merger, other than
through means of a general solicitation. See "The Merger
Agreement--Confidentiality Agreement."
MATERIAL CONTRACTS BETWEEN CUC INTERNATIONAL AND THE COMPANY
Other than the discussions and negotiations relating to, and the execution
of, the Merger Agreement discussed above and in "The Merger--Background of the
Merger," the Confidentiality Agreement discussed in "The Merger
Agreement--Confidentiality Agreement," and other related transaction
documentation, and the interests of certain directors and executive officers
discussed below in "The Merger--Interests of Certain Persons in the Merger,"
neither CUC International nor the Company knows of any material past, present or
proposed contracts, arrangements, understandings, negotiations or transactions
in the last three 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, nominees and directors of the
Company have certain interests in the Merger that are in addition to and not
necessarily aligned with the interests of holders of Company Common Stock
67
<PAGE>
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. Pursuant to the Merger Agreement, not later than the
Effective Time, each outstanding Option granted under the Company Stock Plans
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 Company Common Stock subject to such Option immediately prior to the
Effective Time by (y) the Conversion Number, at an exercise price per share of
CUC International Common Stock equal to the exercise price per share of Company
Common Stock immediately prior to the Effective Time, divided by the Conversion
Number.
Options held by the Company's directors will, in lieu of the foregoing,
automatically be converted in the Merger into the right to receive such number
of shares of CUC International Common Stock determined by multiplying (x) the
number of shares of Company Common Stock such director could have purchased had
such director exercised his option in full immediately prior to the Effective
Time by (y) a fraction, the numerator of which will be the excess, if any, of
the Conversion Number multiplied by the Average Stock Price over the applicable
exercise price of such Option, and the denominator of which will be the Average
Stock Price.
As of the Record Date, executive officers, nominees for director (Messrs.
Herbert, Miller and Petway, collectively, the "Nominees") and directors of the
Company had outstanding Options as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS NUMBER OF OPTIONS
EXERCISABLE NOT EXERCISABLE
NUMBER OF WITHIN 60 DAYS OF WITHIN 60 DAYS OF WEIGHTED AVERAGE
NAME OPTIONS JUNE 26, 1996 JUNE 26, 1996 EXERCISE PRICE
- -------------------------------- --------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Directors and Nominees
William T. Bacon, Jr............ 0 0 0 --
Marshall L. Burman.............. 100,000 100,000 0 $ 13.00
Robert L. Dilenschneider........ 100,000 100,000 0 $ 9.00
Adam W. Herbert, Jr............. 15,000 2,250 12,750 $ 15.875
Eugene Miller................... 100,000 100,000 0 $ 10.50
Thomas F. Petway, III........... 100,000 100,000 0 $ 18.375
--------- -------- --------
All Directors and Nominees.... 415,000 402,250 12,750
--------- -------- --------
--------- -------- --------
Executive Officers
Kevin L. Bouchillon............. 10,000 1,500 8,500 $ 15.50
Joel B. Cutler.................. 25,000 3,750 21,250 $ 19.25
G. Thomas Frankland............. 300,000 90,000 210,000 $ 17.875
Robert M. Frechette............. 60,000 18,000 42,000 $ 18.75
Bryan L. Hanson................. 5,000 750 4,250 $ 19.25
Richard M. Interdonato.......... 50,000 15,000 35,000 $ 17.60
David D. Lunghino............... 25,000 0 25,000 $ 10.75
Francis J. Marino............... 300,000 90,000 210,000 $ 18.948
Harry Strauss................... 50,000 15,000 35,000 $ 14.625
David C. Thompson............... 30,000 9,000 21,000 $ 18.50
Paul Walsh...................... 50,000 7,500 42,500 $ 18.50
--------- -------- --------
All Executive Officers........ 905,000 250,500 654,500
--------- -------- --------
--------- -------- --------
All Directors, Nominees and
Executive Officers as a
group (17 persons).......... 1,320,000 652,750 667,250
</TABLE>
68
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, CUC International, Merger Sub and the
Company have agreed that (i) all rights to indemnification and all limitations
on liability existing in favor of any Indemnitee as provided in the Company's
Amended and Restated Certificate of Incorporation (the "Company Charter"), the
Company's By-laws (the "Company By-laws") or under any Indemnity Agreement will
survive the Merger and continue in full force and effect and (ii) for a period
of 10 years from and after the Effective Time, CUC International will, and will
cause the surviving corporation, to the fullest extent permitted by applicable
law, to indemnify and hold harmless the Indemnitees in respect of any
Indemnifiable Claim. CUC International has further agreed to advance to such
Indemnitees all Expenses incurred in connection with any Indemnifiable Claim
promptly after the receipt of reasonably detailed statements therefor; provided
that, except as otherwise provided pursuant to any Indemnity Agreement, the
person to whom Expenses are to be advanced provides an undertaking to repay such
expenses if it ultimately is determined that such person is not entitled to
indemnification from CUC International or the surviving corporation.
Notwithstanding the foregoing, with respect to any Indemnifiable Claim
commenced or threatened by or on behalf of (i) any Halmos Entity, (ii) any
Halmos Assign, (iii) any Person that directly or indirectly, whether through the
ownership of voting securities or otherwise, controls or is controlled by or is
under common control with any Halmos Entity, (iv) any Person in which any Halmos
Entity or Halmos Assign has a 10% ownership interest, (v) any employee or agent
as of the date of the Merger Agreement of any Halmos Entity, or (vi) any Person
acting at the direct or indirect request of any Halmos Entity or Halmos Assign
against any Indemnitee that is asserted at any time after 10 years after the
Effective Time, CUC International has agreed to, and has agreed to cause the
surviving corporation to, indemnify and hold harmless and advance Expenses to
such Indemnitees to the extent provided above, but without any limitation on
time.
CUC International has also agreed that for three years from the Effective
Time it will, and will cause the surviving corporation to maintain in effect the
Company's current directors' and officers' liability insurance covering those
Persons who are currently covered by such policy, or in lieu thereof, to
substitute therefor policies for directors' and officers' liability insurance
covering such Persons for at least the same coverage with respect to matters
occurring prior to the Effective Time; provided, however, that in no event will
CUC International be required to expend in any one year an amount in excess of
the amount that is 200% of the annual premiums currently paid by the Company for
such insurance; provided, further, that if the annual premiums of such insurance
coverage exceed such amount, CUC International will be obligated to cause the
surviving corporation to obtain a policy with the maximum coverage available for
a cost not exceeding such amount. In the event that any Indemnitee is entitled
to coverage under an officers' and directors' liability insurance policy and
such policy has lapsed, been terminated, been repudiated or is otherwise in
breach or default as a result of CUC International's failure to maintain and
fulfill its obligations pursuant to such policy, CUC International has agreed,
and has agreed to cause the surviving corporation, to pay to the Indemnitee such
amounts and provide any other coverage or benefits as the Indemnitee shall have
received pursuant to such policy.
The obligations of the Company, the surviving corporation and CUC
International described above is binding upon the successors and assigns of CUC
International and the surviving corporation, including any successors or assigns
by means of merger, consolidation or sale of assets substantially as an
entirety.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Pursuant to the Merger Agreement, each of the
Company and CUC International has agreed that it will not knowingly take any
action which could prevent the Merger from being accounted for as a
"poolings-of-interests" for accounting purposes (in accordance with Accounting
Principles Board
69
<PAGE>
Opinion No. 16) and each of the Company and CUC International has agreed to
notify the other of any actions, 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, and the Company has agreed
to use its reasonable best efforts to inform all Company Affiliates and other
Company 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.
The Merger Agreement provides for the Company having received a letter,
subject to customary qualifications, from its independent accountants, Price
Waterhouse 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; CUC International having received a letter from Ernst & Young
LLP, its independent auditors, 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 (except that the foregoing will not be a condition to
the Company's obligations if either Price Waterhouse LLP or Ernst & Young LLP is
unable to deliver such letter because the Company has breached certain of its
representations, warranties or covenants in the Merger Agreement regarding
accounting for the Merger as a pooling-of-interests or the Company or any of its
affiliates shall have taken or failed to take any other action, in any such case
that would prevent, in the opinion of either Ernst & Young LLP or Price
Waterhouse LLP, CUC International from accounting for the Merger as a
pooling-of-interests).
Moreover, each Company Affiliate delivered to CUC International, prior to
the execution of the Merger Agreement, a written agreement that such person will
not sell or in any other way reduce his, her or its 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."
The Merger Agreement provides that the Company will identify persons who
become "affiliates" of the Company prior to the Effective Time for purposes of
Rule 145 of the Securities Act and use will its reasonable best efforts to cause
such persons prior to the mailing of this Proxy Statement/Prospectus, or if
thereafter as soon as reasonably practicable, to deliver to CUC International an
Affiliate Letter; provided, however, that the Company will not affirmatively,
without the prior written consent of CUC International, take any action, by
hiring or appointing a new officer or director or otherwise, so as to cause any
person to become an "affiliate" unless such person executes an Affiliate Letter
prior thereto. See also "--Federal Securities Law Consequences."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
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 Skadden, Arps to
the effect that based on the facts, representations and assumptions set forth in
such opinion, the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code and, accordingly, for United States federal income
tax purposes, that: (i) no gain or loss will be recognized by the Company, CUC
International or Merger Sub as a result of the Merger; (ii) no gain or loss will
be recognized by a shareholder of the Company whose shares of Company Common
Stock are exchanged solely for CUC International Common Stock pursuant to the
Merger (except with respect to cash received by a holder of Company Common Stock
in lieu of a fractional share interest in CUC International Common Stock); (iii)
the tax basis of CUC International Common Stock received in the Merger by a
holder of shares of Company Common Stock will be the same as the tax basis of
the shares of Company Common Stock surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest in CUC International Common
Stock
70
<PAGE>
for which cash is received); and (iv) the holding period of the shares of CUC
International Common Stock received in the Merger will include the period during
which the shares of Company Common Stock surrendered in exchange for shares of
CUC International Common Stock were held, provided that such shares of Company
Common Stock were held as capital assets at the Effective Time. In delivering
its opinion, Skadden, Arps will rely upon certain assumptions, representations
and warranties of CUC International (on its own behalf and on behalf of Merger
Sub), the Company and others. Skadden, Arps' 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.
The parties will not request and the Merger is not conditioned upon a ruling
from the IRS in connection with any of the federal income tax consequences of
the Merger.
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 tax 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 will be a
long-term capital gain or loss if such share of Company Common Stock has been
held for more than one year.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO
BE A COMPLETE ANALYSIS OR STATEMENT OF ALL POTENTIAL TAX EFFECTS OF THE MERGER
OR THE TAX CONSEQUENCES TO A PARTICULAR HOLDER OF COMPANY COMMON STOCK SUBJECT
TO SPECIAL TREATMENT, SUCH AS FOREIGN PERSONS, DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND HOLDERS OF COMPANY COMMON
STOCK WHO ACQUIRED THEIR SHARES PURSUANT TO THE EXERCISE OF OPTIONS OR SIMILAR
DERIVATIVE SECURITIES OR OTHERWISE AS COMPENSATION, NOR AN ANALYSIS OF ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. ACCORDINGLY, HOLDERS OF COMPANY COMMON STOCK ARE URGED TO CONSULT
THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME
AND OTHER 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 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 on May 24, 1996. The
applicable waiting period under the HSR Act expired on June 23, 1996. At any
time before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, the Antitrust Division could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin consummation of the Merger or seeking divestiture of
substantial assets of CUC International or 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.
71
<PAGE>
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 (whether pursuant to their ownership
of CUC International securities, by contract or otherwise) 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, each Company
Affiliate executed a written agreement to the effect, among other things, that
he, she or it will not sell, pledge, transfer or otherwise dispose of any shares
of CUC International Common Stock issued to such Company Affiliate 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. See also "--Accounting
Treatment."
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, 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
NYSE and the shares of CUC International Common Stock to be issued in the Merger
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.
72
<PAGE>
THE MERGER AGREEMENT
THE FOLLOWING SUMMARY OF THE MERGER AGREEMENT AND THE MERGER CONTAINED IN
THIS PROXY STATEMENT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF THE TERMS
AND CONDITIONS THEREOF AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT THEREOF, WHICH IS INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS
ATTACHED HERETO AS ANNEX A. REFERENCES TO SECTIONS HEREIN REFER TO THE
CORRESPONDING SECTIONS IN THE MERGER AGREEMENT. CAPITALIZED TERMS NOT OTHERWISE
DEFINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE FOLLOWING SUMMARY HAVE THE
RESPECTIVE MEANINGS SET FORTH IN THE MERGER AGREEMENT. SEE ALSO
"SUMMARY--CERTAIN DEFINITIONS."
THE MERGER
The Merger Agreement provides that subject to the terms and conditions
thereof, and in accordance with the DGCL, at the Effective Time, Merger Sub will
be merged with and into the Company, whereupon the separate corporate existence
of Merger Sub will cease, and the Company will be the surviving corporation in
the Merger and will continue to be governed by the laws of the State of
Delaware. In addition, the Company, CUC International and Merger Sub will cause
a Certificate of Merger with respect to the Merger to be executed and filed with
the Secretary of State of the State of Delaware (the "Secretary of State") as
provided in the DGCL. The Merger will become effective on the date the
Certificate of Merger has been duly filed with the Secretary of State or at such
time thereafter as is agreed to by the parties and specified in the Certificate
of Merger.
From and after the Effective Time, the surviving corporation will possess
all the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities, liabilities and duties of the Company and Merger
Sub. (SECTION 1.1)
CONVERSION OF SHARES; MERGER CONSIDERATION
The Merger Agreement provides that at the Effective Time, subject to the
provisions of the Merger Agreement, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock held by the Company as treasury stock or by any Subsidiary
of the Company or owned by CUC International, Merger Sub or any other Subsidiary
of CUC International) will, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive that
number of duly authorized, validly issued, fully paid and nonassessable shares
of CUC International Common Stock equal to the Conversion Number; provided,
however, that if the Average Stock Price is $22.00 or less the Conversion Number
will be 0.6136 and, if the Average Stock Price is $36.00 or more the Conversion
Number will be 0.3750. In addition, each share of common stock, $.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
will be converted into and become one share of common stock, $.01 par value, of
the surviving corporation. (SECTION 1.2) See "Summary--Certain Definitions;"
"Risk Factor."
ADJUSTMENT OF CONVERSION NUMBER
In the event of any stock split, combination, reclassification or stock
dividend with respect to CUC International Common Stock, any change or
conversion of CUC International Common Stock into other securities or any other
dividend or distribution with respect to CUC International Common Stock (other
than quarterly cash dividends issued in the ordinary course consistent with past
practice) and any distribution by CUC International of shares of capital stock
of any of its affiliates, or if a record date with respect to any of the
foregoing should occur, prior to the Effective Time, appropriate and
proportionate adjustments will be made to the Conversion Number. (SECTION 1.7)
EXCHANGE OF STOCK CERTIFICATES
Prior to the Effective Time, CUC International will appoint the Exchange
Agent. At the Effective Time, CUC International will deposit with the Exchange
Agent certificates (the "CUC International Certificates") representing CUC
International Common Stock which, immediately prior to the Effective Time,
represented the number of shares of CUC International Common Stock required to
be issued
73
<PAGE>
pursuant to the Merger Agreement in exchange for Company Common Stock (together
with cash as required to (i) pay any dividends or distributions with respect
thereto in accordance with the Merger Agreement and (ii) make payments in lieu
of fractional Shares pursuant to the Merger Agreement (such deposited cash and
property being thereinafter referred to collectively as the "Exchange Fund")).
The Exchange Fund will not be used for any other purposes except as provided for
in the Merger Agreement.
In addition, promptly after the Effective Time, the Exchange Agent will mail
to each holder of record of a certificate or certificates which, immediately
prior to the Effective Time, represented Company Common Stock (the "Company
Certificates") (i) a form letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the Company
Certificates will pass, only upon actual delivery thereof to the Exchange Agent)
and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for the portion of the Exchange Fund which each such
holder is entitled to receive. Upon surrender for cancellation to the Exchange
Agent of Company Certificate(s) held by any record holder of a Company
Certificate, together with such letter of transmittal duly executed, such holder
will be entitled to receive in exchange therefor (x) a CUC International
Certificate representing the number of whole shares of CUC International Common
Stock into which the Company Common Stock represented by the surrendered Company
Certificate(s) will have been converted at the Effective Time pursuant to the
Merger Agreement, (y) cash in lieu of any fractional share of CUC International
Common Stock in accordance with the Merger Agreement and (z) certain dividends
and other distributions in accordance with the Merger Agreement; and the Company
Certificate(s) so surrendered will forthwith be cancelled.
Subject to the provisions of the Merger Agreement, each Company Certificate
which immediately prior to the Effective Time represented Company Common Stock
to be converted in the Merger, from and after the Effective Time until
surrendered in exchange for CUC International Certificate(s) as described above,
will be deemed for all purposes to represent the number of shares of CUC
International Common Stock into which such Company Common Stock will have been
so converted. (SECTION 1.3)
DIVIDENDS; TRANSFER TAXES
No dividends or other distributions that are declared on or after the
Effective Time on CUC International Common Stock or are payable to the holders
of record thereof who became such on or after the Effective Time will be paid to
any Person entitled by reason of the Merger to receive CUC International
Certificates representing CUC International Common Stock, and no cash payment in
lieu of any fractional share of CUC International Common Stock will be paid to
any such Person pursuant to the Merger Agreement, until such Person surrenders
his or its Company Certificate(s) as described above. The Merger Agreement
provides that subject to applicable law, there will be paid to each Person
receiving a CUC International Certificate representing such shares of CUC
International Common Stock: (i) at the time of such surrender or as promptly as
practicable thereafter, the amount of any dividends or other distributions
theretofore paid with respect to the shares of CUC International Common Stock
represented by such CUC International Certificate and having a record date on or
after the Effective Time and a payment date prior to such surrender, and (ii) at
the appropriate payment date or as promptly as practicable thereafter, the
amount of any dividends or other distributions payable with respect to such
shares of CUC International Common Stock and having a record date on or after
the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender. In no event will the Person entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. CUC International has agreed to make available
to the Exchange Agent the cash necessary for this purpose. If any cash or CUC
International Certificate representing shares of CUC International Common Stock
is to be paid to or issued in a name other than that in which the Company
Certificate surrendered in exchange therefor is registered, it will be a
condition of such exchange that the Company Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of such CUC International Certificate and the
distribution of such cash payment in a name other than that of the registered
holder
74
<PAGE>
of the Company Certificate so surrendered, or will establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable. (SECTION
1.4)
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of CUC International
Common Stock will be issued upon the surrender for exchange of Company
Certificates pursuant to the Merger Agreement; no dividend or other distribution
by CUC International and no stock split, combination or reclassification will
relate to any such fractional share; and no such fractional share will entitle
the record or beneficial owner thereof to vote or to any other rights of a
shareholder of CUC International. In lieu of any such fractional share, each
holder of Company Common Stock who would otherwise have been entitled thereto
upon the surrender of Company Certificate(s) for exchange pursuant to the Merger
Agreement will be paid an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying: (i) the per share closing price
on the NYSE of CUC International Common Stock (as reported on the NYSE Composite
Tape) on the date on which the Effective Time occurs (or, if CUC International
Common Stock does not trade on the NYSE on such date, the first day of trading
in CUC International Common Stock on the NYSE, thereafter) by (ii) the
fractional share to which such holder would otherwise be entitled. CUC
International has agreed to make available to the Exchange Agent the cash
necessary for this purpose. (SECTION 1.5)
CANCELLATION OF SHARES
At the Effective Time each share of Company Common Stock held by the Company
as treasury stock or owned by CUC International, Merger Sub or any other
Subsidiary of CUC International immediately prior to the Effective Time will
automatically be canceled and retired and cease to exist, and no payment will be
made with respect thereto. All shares of Company Common Stock to be converted
into CUC International Common Stock pursuant to the Merger Agreement will, by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be canceled and retired and cease to exist; and each
holder of a certificate representing, prior to the Effective Time, any such
shares of Company Common Stock will thereafter cease to have any rights with
respect to such shares of Company Common Stock, except the right to receive (i)
certificates representing shares of CUC International Common Stock into which
such shares of Company Common Stock have been converted, (ii) any dividends and
other distributions in accordance with the Merger Agreement, and (iii) any cash,
without interest, to be paid in lieu of any fractional share of CUC
International Common Stock in accordance with the Merger Agreement. (SECTION
1.2)
STOCK OPTIONS
Not later than the Effective Time, each outstanding Option granted under any
Company Stock Plan, whether or not then vested or exercisable, will become and
represent a Substitute Option to purchase the number of shares of CUC
International Common Stock, rounded up to the nearest whole share, determined by
multiplying (i) the number of shares of Company Common Stock subject to such
Option immediately prior to the Effective Time by (ii) the Conversion Number, at
an exercise price per share of CUC International Common Stock (increased to the
nearest whole cent) equal to the exercise price per share of Company Common
Stock immediately prior to the Effective Time, divided by the Conversion Number;
provided, however, that in the case of any Option to which Section 421 of the
Code applies by reason of its qualification as an incentive stock option under
Section 422 of the Code, the conversion formula will be adjusted if necessary to
comply with Section 424(a) of the Code. The Merger Agreement further provides
that after the Effective Time, except as otherwise provided in the Merger
Agreement, each Substitute Option will be exercisable upon the same terms and
conditions as were applicable to the related Option immediately prior to the
Effective Time. The Merger Agreement also requires CUC International to register
under the Securities Act on Form S-8 or another appropriate form (and use its
best efforts to maintain the effectiveness thereof and maintain the current
status of the prospectuses contained therein) all Substitute Options and all
shares of CUC International Common Stock issuable pursuant to all Substitute
Options. CUC International has agreed that at or prior to the
75
<PAGE>
Effective Time, it will take all corporate action necessary to reserve for
issuance a sufficient number of shares of CUC International Common Stock for
delivery in connection with the Substitute Options.
Notwithstanding the foregoing, each Option held by any director of the
Company at the Effective Time will be converted at the Effective Time into the
right to receive that number of duly authorized, validly issued, fully paid and
nonassessable shares of CUC International Common Stock determined by multiplying
(i) the number of shares of Company Common Stock such director could have
purchased had such director exercised such Option in full immediately prior to
the Effective Time by (ii) a fraction, the numerator of which will be the
excess, if any, of (x) the Conversion Number multiplied by the Average Stock
Price over (y) the applicable exercise price of such Option, and the denominator
of which will be the Average Stock Price. (SECTION 1.10)
RESTRICTED STOCK
Any unvested shares of restricted stock of the Company, however granted,
will, to the extent required in the plan, agreement or instrument pursuant to
which such restricted stock was granted, vest and become free of all
restrictions immediately prior to the Effective Time and will be convertible
into CUC International Common Stock pursuant to the terms and provisions of the
Merger Agreement. (SECTION 1.11)
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, the Company has made customary representations and
warranties to CUC International and Merger Sub with respect to, among other
things, its corporate existence and power, corporate authorization, governmental
authorization, non-contravention, capitalization, subsidiaries, public filings,
financial statements, having no undisclosed liabilities, information in the
Registration Statement and in this Proxy Statement/Prospectus, litigation,
taxes, employee matters, labor matters, compliance with laws, disclosure,
environmental matters, real property, intangible property, fairness opinion,
material contracts, finders' fees, accounting matters, the vote required to
approve and adopt the Merger Agreement and the absence of any material adverse
change. (ARTICLE IV)
CUC International and Merger Sub also have made customary representations
and warranties to the Company with respect to, among other things, their
corporate existence and power, corporate authorization, governmental
authorization, non-contravention, information in the Registration Statement and
in this Proxy Statement/Prospectus, there being no vote required to approve and
adopt the Merger Agreement, finders' fees, capitalization, share ownership, the
ownership of Merger Sub, accounting matters, public filings, financial
statements, litigation, disclosure, the authorization of CUC International
Common Stock, taxes and the absence of any material adverse change. (ARTICLE V)
CERTAIN COVENANTS
The Merger Agreement contains certain covenants and agreements, certain of
which are summarized below.
CONDUCT OF THE COMPANY. The Merger Agreement provides that, from the date of
the Merger Agreement until the Effective Time, the Company and its Subsidiaries
will conduct their business in the ordinary course and will use their reasonable
efforts to preserve their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, and other than as
previously disclosed by the Company in writing to CUC International and Merger
Sub, as specifically contemplated by the Merger Agreement or with the written
consent of CUC International or Merger Sub (which consent will not be
unreasonably withheld or delayed), from April 19, 1996 (i.e., the date of the
Merger Agreement) until the Effective Time, the Company will not (and will not
cause or permit any Subsidiary of the Company to): (i) split, combine or
reclassify any shares of capital stock, declare, set aside or pay any dividend
(other than regular quarterly dividends and any dividend of a wholly-owned
Subsidiary of the Company to the Company or another wholly-owned Subsidiary of
the Company) or other distribution (whether in cash, stock or property or any
combination thereof) with respect to any shares of capital stock of the Company,
or effect any repurchase, redemption or other acquisition by the Company or any
Subsidiary
76
<PAGE>
of the Company of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any Subsidiary of the
Company; (ii) amend any term of any outstanding security of the Company or any
Subsidiary of the Company; (iii) except for working capital purposes pursuant to
a certain revolving credit agreement currently in effect and, except in the
ordinary course of business consistent with past practice pursuant to a certain
equipment financing agreement currently in effect, incur, assume or guarantee
any indebtedness for borrowed money of (x), except in the ordinary course of
business in an amount not to exceed $500,000 in the aggregate at any one time
outstanding, the Company or any Subsidiary of the Company or (y) any other
Person; (iv) create, assume or suffer to exist any Lien on any material asset,
other than in the ordinary course of business; (v) make any loan, advance or
capital contribution to or invest in any Person, other than in the ordinary
course of business; (vi) cause any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of the
Company or any Subsidiary of the Company which has had or could reasonably be
expected to have a Material Adverse Effect; (vii) (x) other than in the ordinary
course of business consistent with past practice, (1) enter into any
transaction, commitment, contract or agreement by the Company or any Subsidiary
of the Company relating to their assets or business (excluding the acquisition
or disposition of any assets) or (2) relinquish any contract or other right
that, with respect to (2), has had or could reasonably be expected to have a
Material Adverse Effect and, other than with respect to each of (1) and (2),
those expressly permitted by the Merger Agreement or (y) enter into any
transaction, commitment, contract or agreement to acquire or dispose of any
assets of the Company or any Subsidiary of the Company in excess of $150,000 in
any individual transaction or $750,000 in the aggregate; (viii) change or
request from the Commission any change of any method of accounting or accounting
practice by the Company or any Subsidiary of the Company, except for any such
change required by reason of a concurrent change in GAAP; (ix) (A) grant any
severance or termination pay to any current or former director or executive
officer, or, other than in the ordinary course of business, to any officer or
any other employee of the Company or any Subsidiary of the Company, (B) enter
into any employment, consulting, indemnification, severance, termination,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any current or former director or executive officer, or
other than in the ordinary course of business, with any officer or any other
employee of the Company or any Subsidiary of the Company, (C) other than in the
ordinary course of business, increase the benefits payable under any existing
severance or termination pay policies or employment agreements or (D) increase
the compensation, bonus or other benefits payable to any current or former
director or executive officer, or other than in the ordinary course of business,
to any officer or any other employee of the Company or any Subsidiary of the
Company; (x) amend its certificate of incorporation or by-laws (or other similar
governing instrument); (xi) authorize for issuance, sell, deliver or agree 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) of the Company,
except for the issuance of stock upon the exercise of Options outstanding on the
date of the Merger Agreement; (xii) except as may be required pursuant to GAAP,
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; (xiii) 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); (n) make or revoke any tax election or
settle or compromise any tax liability, in each case, 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; (xiv) except as provided in clause (xvi) below, pay, discharge or
satisfy any 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 or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or notes thereof) of the Company and its Subsidiaries or incurred in
the ordinary course of business consistent with past practice; (xv) except as
otherwise permitted by clause (ix) above, or as previously disclosed by the
Company in writing to CUC International and Merger Sub, settle or compromise any
pending or threatened suit, action, or proceeding; (xvi) enter into any
agreement or understanding, whether oral or written, with any Halmos
77
<PAGE>
Entity or Halmos Assign, except for agreements or understandings in the ordinary
course necessary for the continued defense or prosecution of any such pending
litigation matters as previously disclosed by the Company in writing to CUC
International and Merger Sub or as disclosed in the Company SEC Documents; or
(xvii) take, authorize any of, or commit or agree to take any of, the foregoing
actions except as otherwise expressly permitted by the Merger Agreement.
(SECTION 6.1)
DIRECTOR AND OFFICER LIABILITY. The Merger Agreement provides that CUC
International, Merger Sub and the Company agree that all rights to
indemnification and all limitations on liability existing in favor of any
Indemnitee as provided in the Company Charter, the Company By-laws or any
Indemnity Agreement will survive the Merger and continue in full force and
effect. To the extent permitted by the DGCL, the Company Charter and the Company
By-laws or any Indemnity Agreement, the advancement of Expenses will be
mandatory rather than permissive and the surviving corporation will advance
Costs in connection with such indemnification. CUC International will, and will
cause the surviving corporation to, expressly assume and honor in accordance
with their terms all Indemnity Agreements.
The Merger Agreement also provides that in addition to the other rights to
indemnification and insurance provided for in the Merger Agreement and not in
limitation thereof, for 10 years from and after the Effective Time, CUC
International will, and will cause the surviving corporation to, to the fullest
extent permitted by applicable law, indemnify and hold harmless the Indemnitees
against all Costs in respect to any Indemnifiable Claim and advance to such
Indemnitees all Expenses incurred in connection with any Indemnifiable Claim
promptly after receipt of reasonably detailed statements therefor; provided
that, except as otherwise provided pursuant to any Indemnity Agreement, the
person to whom Expenses are to be advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification from CUC International or the surviving corporation. In the
event any Indemnifiable Claim is asserted or made within such 10-year period,
all rights to indemnification and advancement of Expenses in respect of any such
Indemnifiable Claim will continue until such Indemnifiable Claim is disposed of
or all judgments, orders, decrees or other rulings in connection with such
Indemnifiable Claim are fully satisfied; provided, however, that CUC
International will not be liable for any settlement effected without its written
consent (which consent will not be unreasonably withheld or delayed). The Merger
Agreement further provides that, except as otherwise may be provided pursuant to
any Indemnity Agreement, the Indemnitees 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 Indemnitee, under applicable standards of professional
conduct, a conflict on any significant issue between positions of any two or
more Indemnitees; provided that any law firm or firms so retained must be
reasonably acceptable to CUC International.
Notwithstanding the foregoing, with respect to any Indemnifiable Claim
commenced or threatened by or on behalf of (i) the Halmos Entities, (ii) any
Halmos Assign, (iii) a Person that directly or indirectly, whether through the
ownership of voting securities or otherwise, controls, is controlled by or is
under common control with any Halmos Entity, (iv) any Person in which any Halmos
Entity or Halmos Assign has a 10% ownership interest, (v) any employee or agent
of any Halmos Entity, or (vi) any Person acting at the direct or indirect
request of any Halmos Entity or Halmos Assign, against any Indemnitee asserted
at any time after 10 years after the Effective Time, CUC International will, and
will cause the surviving corporation to, indemnify and hold harmless and advance
Expenses to such Indemnitees to the extent described in the immediately
preceding paragraph, but without any time limit on the period for which the
obligation of CUC International described in this paragraph will be in effect.
For three years from the Effective Time, CUC International has agreed to,
and has agreed to cause the surviving corporation to, maintain in effect the
Company's current directors' and officers' liability insurance covering those
Persons who are currently covered by the Company's directors' and officers'
liability insurance policy, or, in lieu of such maintenance, CUC International
may substitute therefor policies for directors' and officers' liability
insurance covering such Persons for at least the same coverage with respect to
matters occurring prior to the Effective Time; provided, however, that in no
event will CUC International be required to expend in any one year an amount in
excess of 200% of the annual premiums currently paid by the Company for such
insurance; provided, further, that if the annual premiums of such insurance
coverage exceed such amount, CUC International will be obligated
78
<PAGE>
to cause the surviving corporation to obtain a policy with the maximum coverage
available for a cost not exceeding such amount. Moreover, in the event that any
Indemnitee is entitled to coverage under a directors' and officers' liability
insurance policy as described above and such policy has lapsed, terminated, been
repudiated or is otherwise in breach or default as a result of CUC
International's failure to maintain and fulfill its obligations pursuant to such
policy, CUC International has agreed to, and has agreed to cause the surviving
corporation to, pay to the Indemnitee such amounts and provide any other
coverage or benefits as the Indemnitee would have received pursuant to such
policy. CUC International has also agreed that should the surviving corporation
fail to comply with its obligations under the Merger Agreement to indemnify and
provide insurance for certain directors and officers of the Company, CUC
International will be responsible therefor.
Notwithstanding the foregoing, the obligations of the Company, the surviving
corporation and CUC International will be binding upon the successors and
assigns of CUC International and the surviving corporation, including in the
event either of the Company or the surviving corporation or any of its
respective successors or assigns consolidates with or merges into any other
Person or transfers all or substantially all of its properties or assets to any
Person.
The obligations of the Company, the surviving corporation, and CUC
International cannot be terminated or modified in such a manner as to adversely
affect any Indemnitee to whom this section applies without the consent of such
affected Indemnitee.
The Merger Agreement further provides that CUC International will, and will
cause the surviving corporation to, advance all Expenses to any Indemnitee
incurred by enforcing the indemnity or other obligations as described above.
(SECTION 7.3)
EMPLOYEE MATTERS. For a period of one year immediately following the
Effective Time, CUC International has agreed to cause the surviving corporation
and its Subsidiaries to provide to all Continuing Employees coverage under group
medical, dental, 401(k) savings, disability insurance, life insurance,
accidental death and disability and vacation plans or arrangements which are, in
the aggregate, substantially similar to the Plans providing such benefits to the
employees immediately prior to the Effective Time.
CUC International also has agreed, and has agreed to cause its Subsidiaries,
to honor all agreements, contracts, arrangements, commitments and understandings
with certain employees of the Company as previously disclosed by the Company in
writing to CUC International and Merger Sub.
The Merger Agreement also provides that for a period of one year immediately
following the Closing Date, CUC International will cause the Surviving
Corporation and its Subsidiaries to provide to all active employees of the
Company at the Closing Date who may be affected by any reduction in workforce
subsequent to the Closing Date the benefits set forth in a certain severance
policy adopted by the Company's Board of Directors in connection with the
Company's July 1995 restructuring, applied in the September 1995 and December
1995 restructurings of the Company and adopted by resolution for any reductions
in workforce in 1996 at the February 6, 1996 meeting of the Company's Board of
Directors. (SECTION 8.6)
POOLING. The Merger Agreement provides that the Company and CUC
International will not knowingly take any action which could prevent the Merger
from being accounted for as a pooling-of-interests for accounting purposes
(under Accounting Principles Board Opinion No. 16) and the Company will bring to
the attention of CUC International, and CUC International will bring to the
attention of the Company, any actions, 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. In addition, the
Company has agreed to use its reasonable best efforts to inform all 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. (SECTION 8.13)
The Merger Agreement also provides for the Company having received a letter,
subject to customary qualifications, from its independent accountants, Price
Waterhouse 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
79
<PAGE>
Agreement and CUC International having received a letter from Ernst & Young LLP,
its independent auditors, 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 (except that the foregoing will not be a condition to the
Company's obligations if either Price Waterhouse LLP or Ernst & Young LLP is
unable to deliver such letter because the Company has breached certain of its
representations, warranties or covenants in the Merger Agreement regarding
accounting for the Merger as a pooling-of-interests or the Company or any of its
affiliates shall have taken or failed to take any other action, in any such case
that would prevent, in the opinion of either Ernst & Young LLP or Price
Waterhouse LLP, CUC International from accounting for the Merger as a
pooling-of-interests. (SECTION 8.12) See "Unaudited Pro Forma Condensed
Financial Statements."
NO SOLICITATION. The Merger Agreement provides that from April 19, 1996
(i.e., the date of the Merger Agreement) until its termination in accordance
with its terms, the Company and its Subsidiaries will not, and the Company will
use its reasonable best efforts to ensure that certain of its representatives
will not, (i) solicit, initiate or encourage (including by way of furnishing
information) any Acquisition Proposal or (ii) participate or engage in
negotiations or discussions, or disclose any non-public information relating to
the Company or any Subsidiary of the Company or afford access to the properties,
books or records of the Company or any Subsidiary of the Company, regarding any
Acquisition Proposal; provided that, if the Company's Board of Directors
determines, based upon the advice of outside legal counsel to the Company, that
the failure to engage in such negotiations or discussions or provide such
information would be reasonably likely to be inconsistent with the fiduciary
duties of the Company's Board of Directors under applicable law, the Company may
in response to an Acquisition Proposal and subject to compliance with the Merger
Agreement, furnish information with respect to the Company and its Subsidiaries
pursuant to a confidentiality agreement and participate in negotiations
regarding such Acquisition Proposal. The Merger Agreement further provides that
the Company or the Company's Board of Directors is permitted to take and may
disclose to the Company's shareholders a position with respect to a tender or
exchange offer made by a third-party pursuant to Rules 14d-9 and 14e-2(a) under
the Exchange Act and may otherwise make such disclosure as may be required by
applicable law.
Except as set forth in the Merger Agreement, neither the Company nor the
Company's Board of Directors nor any committee thereof may (x) withdraw, modify
or change, or propose to withdraw, modify or change, in a manner adverse to CUC
International, the recommendation by such Board of Directors or such committee
of the approval and adoption of the Merger Agreement and the Merger, (y) approve
or recommend, or propose to approve or recommend, any Acquisition Proposal or
(z) cause the Company to enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, in the event that the Board
of Directors of the Company determines, based upon the advice of outside legal
counsel to the Company, that the failure to take any of the actions contemplated
by the preceding sentence would be reasonably likely to be inconsistent with the
Board of Directors' fiduciary duties, the Board of Directors of the Company may
withdraw, modify or change its recommendation of approval and adoption of the
Merger Agreement and the Merger, approve or recommend a Superior Proposal or
cause the Company to enter into an agreement with respect to a Superior
Proposal; but in the case of approving, recommending or causing the Company to
enter into an agreement with respect to a Superior Proposal the Company may do
so only after the second day following CUC International's receipt of written
notice (a "Notice of Superior Proposal") advising CUC International that the
Company's Board of Directors has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company enters into an
agreement with respect to a Superior Proposal and the Merger Agreement is
terminated (i) by CUC International or Merger Sub if the Company has entered
into a definitive agreement with respect to an Acquisition Proposal or (ii) by
the Company upon entering into a definitive agreement in accordance with the
terms of the Merger Agreement, provided (x) it has complied with certain
notification and other procedural requirements specified in the Merger Agreement
and (y) that it makes simultaneous payment of Buyer's Expenses,
80
<PAGE>
the Company has agreed promptly to pay, or cause to be paid to CUC
International, Buyer's Expenses (to the extent not previously paid upon
termination).
The Merger Agreement further provides that the Company will notify CUC
International in writing within one business day of any request for information
or of any Acquisition Proposal, or any inquiry with respect to or which would
reasonably be expected to result in an Acquisition Proposal, and the material
terms and conditions of such request, Acquisition Proposal or inquiry. In
addition, the Company has agreed to use it reasonable best efforts to keep CUC
International informed of the status and details (including amendments or
proposed amendments) of any such request, Acquisition Proposal or inquiry.
(SECTION 6.4)
FURTHER ASSURANCES. Each party has agreed to use its reasonable best efforts
to consummate the Merger and, in such connection, the Company and CUC
International have agreed to cooperate in the preparation of this Proxy
Statement/Prospectus and the Registration Statement, in determining whether any
actions, consents, approvals or waivers, or the making of any filings, are
necessary in connection with the consummation of the Merger, and in seeking to
take or obtain any such actions, consents, approvals or waivers. (SECTIONS 8.1
AND 8.2)
The Company also 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) any occurrence or nonoccurrence of any event
likely to cause any representation or warranty contained in the Merger Agreement
to be untrue, (ii) any material failure to satisfy any covenant, condition or
agreement contained in the Merger Agreement, (iii) any notice of default
received under any material contract or agreement, (iv) any notice from a third
party that the consent of such party is or may be required in connection with
the Merger, or (v) the occurrence of any Material Adverse Effect, other than
changes resulting from general economic conditions; provided, that any such
notice will not operate to cure any such breach or noncompliance under the
Merger Agrement or otherwise affect the remedies available to the party
receiving such notice. (SECTION 8.9)
CONDITIONS
The respective obligations of the Company, CUC International and Merger Sub
to consummate the Merger are subject to the satisfaction (or, to the extent
permitted by applicable law, waiver) on or prior to the Effective Time of the
following conditions: (i) the Merger having been duly approved by the
shareholders of the Company in accordance with applicable law and the Company's
Certificate of Incorporation and By-laws; (ii) the shares of CUC International
Common Stock issuable in the Merger having been approved for listing on the
NYSE, subject to official notice of issuance; (iii) the Registration Statement
having become effective in accordance with the provisions of the Securities Act
and no order suspending such effectiveness having been issued and remaining in
effect; (iv) any applicable waiting period under the HSR Act relating to the
Merger having expired (such waiting period having expired on June 23, 1996); (v)
no provision of any applicable law or regulation and no judgment, injunction,
order or decree being in effect which prohibits the consummation of the Merger
or any transactions contemplated thereby; (vi) the Company having received a
letter, subject to customary qualifications, from its independent accountants,
Price Waterhouse 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; CUC International having received a letter from Ernst & Young
LLP, its independent auditors, 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 (except that the foregoing will not be a condition to
the Company's obligations if either Price Waterhouse LLP or Ernst & Young LLP is
unable to deliver such letter because the Company has breached certain of its
representations, warranties or covenants in the Merger Agreement regarding
accounting for the Merger as a pooling-of-interests or the Company or any of its
affiliates shall have taken or failed to take any other action, in any such case
that would prevent, in the opinion of either Ernst & Young LLP or Price
Waterhouse LLP, CUC International from accounting for the Merger as a
pooling-of-interests. (SECTION 9.1)
81
<PAGE>
The obligations of the Company to consummate the Merger are subject to the
satisfaction (or, to the extent permitted by applicable law, waiver) on or prior
to the Effective Time of the following conditions: (i) each of CUC International
and Merger Sub having performed in all material respects its agreements and
covenants contained in or contemplated by the Merger Agreement which are
required to be performed by it at or prior to the Effective Time; (ii) the
representations and warranties of CUC International and Merger Sub set forth in
the Merger Agreement being true and correct in all material respects on and as
of the date of the Merger Agreement and on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date (except for representations and warranties that expressly speak
only as of a specific date or time which need only be true and correct as of
such date and time); (iii) the Company having received a certificate signed by
the chief executive officer of CUC International, dated the Closing Date, to the
effect that, to the best of such officer's knowledge, the conditions described
in clauses (i) and (ii) above have been satisfied; (iv) the Company having
received an opinion of Skadden, Arps, in form and substance reasonably
satisfactory to the Company, dated as of the Effective Time, substantially to
the effect that on the basis of facts, representations and assumptions set forth
in such opinion which are consistent with the state of facts then existing, the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code, and, accordingly, for United States federal income tax purposes,
that (A) no gain or loss will be recognized by the Company, CUC International or
Merger Sub as a result of the Merger, (B) no gain or loss will be recognized by
a shareholder of the Company whose shares of Company Common Stock are exchanged
solely for shares of CUC International Common Stock pursuant to the Merger
(except with respect to cash received by a holder of shares of Company Common
Stock in lieu of a fractional share interest in CUC International Common Stock),
(C) the tax basis of CUC International Common Stock received by a holder of
shares of Company Common Stock in the Merger will be the same as the tax basis
of the shares of Company Common Stock surrendered in exchange therefor (reduced
by any amount allocable to a fractional share interest in CUC International
Common Stock for which cash is received), and (D) the holding period of the
shares of CUC International Common Stock received by a holder of shares of
Company Common Stock in the Merger will include the period during which such
shares of Company Common Stock surrendered in exchange therefor were held,
provided that such shares of Company Common Stock were held as capital assets at
the Effective Time. (SECTION 9.2)
The obligations of CUC International and Merger Sub to consummate the Merger
are subject to the satisfaction (or, to the extent permitted by applicable law,
waiver) on or prior to the Effective Time of the following conditions: (i) the
Company having performed in all material respects its agreements and covenants
contained in or contemplated by the Merger Agreement which are required to be
performed by it at or prior to the Effective Time; (ii) the representations and
warranties of the Company set forth in the Merger Agreement being true and
correct in all material respects on and as of the date of the Merger Agreement
and on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date and time); (iii) CUC
International and Merger Sub having received a certificate signed by the chief
executive officer of the Company, dated the Closing Date, to the effect that, to
the best of such officer's knowledge, the conditions described in clauses (i)
and (ii) above have been satisfied; and (iv) each Company Affiliate having
performed his or its respective obligations under the applicable Affiliate
Letter. (SECTION 9.3)
The foregoing conditions to the Merger, except those conditions which cannot
be waived under applicable law, are subject to waiver by CUC International,
Merger Sub and the Company, as applicable, at any time prior to the Effective
Time.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the shareholders of the Company): (i) by the mutual written consent
of the Company and CUC International; (ii) by either the Company or CUC
International, if the Merger has not been consummated by the Outside Termination
82
<PAGE>
Date; provided that the right to so terminate the Merger Agreement will not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure to consummate the
Merger by such date; (iii) by either the Company or CUC International, if there
is in effect any law or regulation that makes consummation of the Merger illegal
or if any judgment, injunction, order or decree enjoining CUC International or
the Company from consummating the Merger is entered and such judgment,
injunction, order or decree becomes final and nonappealable; (iv) by the Company
if (A) a breach of any representation or warranty on the part of CUC
International or Merger Sub set forth in the Merger Agreement has occurred, or
if any representation or warranty of CUC International or Merger Sub has become
untrue, in either case such that the Merger would be incapable of being
consummated by the Outside Termination Date or (B) a breach by CUC International
or Merger Sub of any of their respective covenants or agreements under the
Merger Agreement has occurred having a material adverse effect on CUC
International or materially adversely affecting (or materially delaying) the
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 by the
Company thereof; (v) by CUC International and Merger Sub if (A) a breach of any
representation or warranty on the part of the Company set forth in the Merger
Agreement has occurred, or if any representation or warranty of the Company has
become untrue, in either case such that the Merger is incapable of being
consummated by the Outside Termination Date or (B) a breach by the Company of
its covenants or agreements under the Merger Agreement has occurred 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 20 business days after notice by CUC International or
Merger Sub thereof; (vi) by CUC International or Merger Sub, if (A) the Board of
Directors of the Company or any committee thereof has withdrawn, modified or
changed in a manner adverse to CUC International or Merger Sub its
recommendation of the Merger or the Merger Agreement or approved or recommended
a Superior Proposal or (B) the Company has entered into a definitive agreement
with respect to an Acquisition Proposal; (vii) by the Company, upon entering
into a definitive agreement in accordance with the terms of the Merger
Agreement, provided (x) it has complied with certain notification and other
procedural requirements specified in the Merger Agreement and (y) that it makes
simultaneous payment of Buyer's Expenses; or (viii) by CUC International, Merger
Sub or the Company, if the Company's shareholders do not approve and adopt the
Merger Agreement at the Meeting. (SECTION 10.1)
FEES AND EXPENSES
The Merger Agreement provides that, except as provided below, all fees and
expenses incurred in connection with the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
The Merger Agreement further provides that the Company will pay, or cause to
be paid, in same day funds to CUC International, Buyer's Expenses in the event
that the Company enters into a definitive agreement with respect to a Superior
Proposal and the Merger Agreement is terminated (i) by CUC International or
Merger Sub if the Company has entered into a definitive agreement with respect
to an Acquisition Proposal or (ii) by the Company upon entering into a
definitive agreement in accordance with the terms of the Merger Agreement,
provided (x) it has complied with certain notification and other procedural
requirements specified in the Merger Agreement and (y) that it makes
simultaneous payment of Buyer's Expenses. In addition, in the event that the
Merger Agreement is terminated pursuant to the provisions described in clause
(i) or clause (ii) in the immediately preceding sentence, and (i) 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 and is completed, (ii) after
the date of the Merger Agreement and prior to the date of termination, (x) the
Company or its agents engaged in negotiations with a Third-Party with respect to
a Third-Party Acquisition, (y) the Company or its agents furnished information
to a Third-Party with respect to a Third-Party Acquisition or (z) a Third-Party
submitted to the Company a proposal (including price and other material terms
and conditions) for a Third-Party Acquisition and (iii) with respect to the
events described in clauses (x) and (y) above, the relevant Third-Party makes or
83
<PAGE>
announces (before or after such termination) a proposal with respect to a
Third-Party Acquisition; then the Company has agreed to pay, or cause to be
paid, in same day funds, to CUC International, (A) a termination fee in the
amount of $7.0 million, which termination fee to be paid on the date of
consummation of a Third-Party Acquisition (if and only if a Third-Party
Acquisition is consummated within twelve months after the date of termination),
and (B) to the extent not previously paid by the Company to CUC International as
described above, Buyer's Expenses. The Merger Agreement provides that it is
expressly agreed that the amount to be paid pursuant to the provision described
in this paragraph represents liquidated damages and not a penalty.
The Merger Agreement also provides that the cost of printing the
Registration Statement and Company Proxy Statement will be borne equally by the
Company and CUC International.
The Merger Agreement further provides that the Company will pay, or cause to
be paid, (not later than ten business days after submission of statements
therefor) in same day funds to CUC International, Buyer's Expenses in the event
the Merger Agreement is terminated by CUC International or Merger Sub by reason
of the Company having breached any of its representations or warranties, or
having failed to perform any of its covenants, under the Merger Agreement. CUC
International has agreed to pay, or cause to be paid, (not later than ten
business days after submission of statements therefor) in same day funds to the
Company, the Company's Expenses in the event the Merger Agreement is terminated
by the Company by reason of CUC International or Merger Sub having breached any
of their representations or warranties, or having failed to perform any of their
covenants, under the Merger Agreement. If CUC International or Merger Sub
submits a request for reimbursement thereunder, CUC International or Merger Sub
has agreed to provide the Company in due course with invoices or other
reasonable evidence of such expenses upon request. If the Company submits a
request for reimbursement thereunder, the Company has agreed to provide CUC
International in due course with invoices or other reasonable evidence of such
expenses upon request. (SECTION 12.4)
AMENDMENTS; NO WAIVERS
The Merger Agreement may be amended or waived prior to the Effective Time if
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, CUC International and Merger Sub or, in the case of a waiver, by
the party against whom the waiver is to be effective; provided that after the
adoption of the Merger Agreement by the shareholders of the Company, no such
amendment or waiver will, without the further approval of such shareholders,
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of the Company or (ii) any of the terms
or conditions of the Merger Agreement if such alteration or change could
adversely affect the holders of any shares of capital stock of the Company.
(SECTION 12.3)
CONFIDENTIALITY AGREEMENT
Pursuant to the Confidentiality Agreement, CUC International has agreed,
among other things, to keep confidential certain non-public, confidential or
proprietary information of the Company furnished to CUC International by or on
behalf of the Company. In addition, CUC International has agreed that if the
Merger is not consummated, until February 13, 1998, without the prior written
consent of the Company, neither it nor any of its Representatives will, directly
or indirectly, effect any Prohibited Transactions. Pursuant to the
Confidentiality Agreement, CUC International and the Company have agreed that
the foregoing agreements of CUC International with respect to the Prohibited
Transactions terminate upon the commencement by the Company or any other person
of an offer to acquire the Company, whether by merger, consolidation or the
acquisition of all or substantially all of the outstanding stock or assets of
the Company.
The Merger Agreement provides that any provision in the Confidentiality
Agreement which in any manner limits, restricts or prohibits the voting or
acquisition of shares of Company Common Stock by CUC International or any of its
affiliates or the representation of CUC International's designees on the
Company's Board of Directors or which in any manner would be inconsistent with
the Merger Agreement or the transactions contemplated thereby will be amended as
of the date of the Merger Agreement to permit the acquisition of shares of
Company Common Stock pursuant to the Merger, the voting of shares of Company
Common Stock at the Meeting or to otherwise effect the transactions contemplated
thereby. The Merger Agreement further provides that the Confidentiality
Agreement will otherwise remain in full force and effect, subject to termination
as described above. (SECTION 6.3)
84
<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 the Company
as treasury stock or by any Subsidiary of the Company or owned by CUC
International, Merger Sub or by any other Subsidiary of CUC International) will
be converted at the Effective Time into the right to receive that number of
shares of CUC International Common Stock equal to the quotient obtained by
dividing $13.50 by the Average Stock Price; provided that if the Average Stock
Price is $22.00 or less, the Conversion Number will be 0.6136, and if the
Average Stock Price is $36.00 or more, the Conversion Number will be 0.3750, as
if the Merger had occurred on April 30, 1996. The unaudited pro forma condensed
combined balance sheet as of 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 (see "Other CUC International
Business Combinations--The Davidson Merger"), and the proposed Sierra Merger
pursuant to which each outstanding share of Sierra Common Stock (other than
shares held by CUC International, Merger Sub or any other Subsidiary of CUC
International or by any Subsidiary of Sierra) will be converted at the Sierra
Effective Time into 1.225 shares of CUC International Common Stock (see "Other
CUC International Business Combinations--The Sierra Merger"). The pro forma
information gives effect to the Merger, the Davidson Merger and the Sierra
Merger under the pooling-of-interests method and 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 Sierra 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 audited financial statements, related notes
thereto and other financial information included in the CUC 10-K, the CUC 10-Q,
the Company 10-K, the Company 10-Q, the Davidson 10-K, the Davidson 10-Q, and
the Sierra 10-Q. Effective January 1, 1995, the Company changed its fiscal year
end from October 31 to December 31. The Transition Period has been excluded from
the unaudited pro forma condensed combined financial data. The Company's
revenues and net loss for the Transition Period were $34.7 million and $(49.9)
million, respectively. The net loss for the 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 membership acquisition
costs. Sierra's 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 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 Sierra Merger are independent
transactions and consummation of none of such transactions is conditioned or
dependent upon consummation of the other transactions.
85
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUC PRO FORMA
INTERNATIONAL IDEON CUC DAVIDSON
APRIL 30, MARCH 31, PRO FORMA INTERNATIONAL MARCH 31, PRO FORMA
1996 1996 ADJUSTMENTS AND IDEON 1996 ADJUSTMENTS
------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......... $ 286,344 $ 19,449 $ 305,793 $ 3,082
Marketable securities............. 12,916 12,916 15,702 (9,300)(H)
Receivables....................... 305,380 84,290 389,670 29,171
Deferred subscriber acquisition
costs............................ 87,268 (87,268)(G)
Other current assets.............. 148,004 22,453 170,457 10,066
------------- --------- ----------- ------------- --------- -----
Total current assets............. 739,728 226,376 (87,268) 878,836 58,021 (9,300)
Deferred membership acquisition
costs.............................. 278,001 42,382 87,268(G) 407,651
Contract renewal rights and
intangible assets.................. 281,545 63,465 345,010 1,662
Other non-current assets........... 167,397 59,058 226,455 16,375 9,300(H)
------------- --------- ------------- ---------
Total assets....................... $ 1,466,671 $391,281 $ 1,857,952 $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 $111,477 80,000(F) $ 305,471 $13,022
Deferred membership income........ 118,586 (118,586)(G)
------------- --------- ----------- ------------- ---------
Total Current Liabilities........ 113,994 230,063 (38,586) 305,471 13,022
Deferred membership income......... 523,233 54,098 118,586(G) 695,917
Other non-current liabilities...... 23,873 23,873 929
------------- --------- ----------- ------------- ---------
Total liabilities.................. 661,100 284,161 80,000 1,025,261 13,951
Shareholders' equity:
Common stock...................... 1,944 349 (211)(A) 2,082 9 290(B)
Additional paid in capital........ 370,389 41,230 (57,862)(A) 353,767 35,886 (290)(B)
Retained earnings................. 482,657 123,469 (80,000)(F) 526,126 26,212
Treasury stock.................... (48,161) (58,063 ) 58,063(A) (48,161)
Unrealized gain on securities
available for sale................. 135 135
Foreign currency translation
adjustment......................... (1,258) (1,258)
------------- --------- ----------- ------------- ---------
Total shareholders' equity......... 805,571 107,120 (80,000) 832,691 62,107
------------- --------- ------------- ---------
Total liabilities and shareholders'
equity............................. $ 1,466,671 $391,281 $ 1,857,952 $76,058
------------- --------- ------------- ---------
------------- --------- ------------- ---------
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA CUC
CUC CUC INTERNATIONAL,
INTERNATIONAL, SIERRA INTERNATIONAL, IDEON,
IDEON AND MARCH 31, PRO FORMA IDEON AND DAVIDSON
DAVIDSON 1996 ADJUSTMENTS SIERRA AND SIERRA
-------------- --------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......... $ 308,875 $ 40,220 $ 346,013 $ 349,095
Marketable securities............. 19,318 48,741 61,657 68,059
Receivables....................... 418,841 43,677 433,347 462,518
Deferred subscriber acquisition
costs............................
Other current assets.............. 180,523 22,157 192,614 202,680
------- --------- ------- -------
Total current assets............. 927,557 154,795 1,033,631 1,082,352
Deferred membership acquisition
costs.............................. 407,651 407,651 407,651
Contract renewal rights and
intangible assets.................. 346,672 9,785 354,795 356,457
Other non-current assets........... 252,130 14,317 240,772 266,447
------- --------- ------- -------
Total assets....................... $1,934,010 $178,897 $2,036,849 $2,112,907
------- --------- ------- -------
------- --------- ------- -------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable and accrued
expenses, federal and state
income taxes payable and other
current liabilities.............. $ 318,493 $ 35,947 $ 341,418 $ 354,440
Deferred membership income........
------- --------- ------- -------
Total Current Liabilities........ 318,493 35,947 341,418 354,440
Deferred membership income......... 695,917 695,917 695,917
Other non-current liabilities...... 24,802 24,419 48,292 49,221
------- --------- ------- -------
Total liabilities.................. 1,039,212 60,366 1,085,627 1,099,578
Shareholders' equity:
Common stock...................... 2,381 205 45(C) 2,332 2,631
Additional paid in capital........ 389,363 92,423 (394)(C) 445,796 481,392
Retained earnings................. 552,338 27,024 553,150 579,362
Treasury stock.................... (48,161) (349 ) 349(C) (48,161) (48,161)
Unrealized gain on securities
available for sale................. 135 (67 ) 68 68
Foreign currency translation
adjustment......................... (1,258) (705 ) (1,963) (1,963)
------- --------- ------- -------
Total shareholders' equity......... 894,798 118,531 951,222 1,013,329
------- --------- ------- -------
Total liabilities and shareholders'
equity............................. $1,934,010 $178,897 $2,036,849 $2,112,907
------- --------- ------- -------
------- --------- ------- -------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
86
<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 IDEON AND IDEON DAVIDSON IDEON AND DAVIDSON
----------------- -------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues......... $ 390,026 $ 70,023 $ 460,049 $ 29,203 $ 489,252
EXPENSE (INCOME)
Operating.................. 105,801 11,925 117,726 11,192 128,918
Marketing.................. 151,962 38,296 190,258 4,481 194,739
General and
administrative.............. 54,408 11,450 65,858 4,532 70,390
Software research and
development................. 6,087 6,087
Interest income, net....... (805) (677) (1,482) (179) (1,661)
------- ------ ------- ------ -------
Total expenses.............. 311,366 60,994 372,360 26,113 398,473
------- ------ ------- ------ -------
Income (loss) before income
taxes....................... 78,660 9,029 87,689 3,090 90,779
Provision (benefit) for
income taxes................ 30,410 3,160 33,570 1,019 34,589
------- ------ ------- ------ -------
Net income (loss)........... $ 48,250 $ 5,869 $ 54,119 $ 2,071 $ 56,190
------- ------ ------- ------ -------
------- ------ ------- ------ -------
Net income (loss) per common
share....................... $ 0.25 $ 0.21 $ 0.26 $ 0.06 $ 0.23
------- ------ ------- ------ -------
------- ------ ------- ------ -------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................. 196,736 28,097 210,624 35,712 240,979
------- ------ ------- ------ -------
------- ------ ------- ------ -------
<CAPTION>
PRO FORMA
THREE MONTHS ENDED PRO FORMA CUC INTERNATIONAL,
MARCH 31, 1996 CUC INTERNATIONAL, IDEON, DAVIDSON
SIERRA IDEON AND SIERRA AND SIERRA
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues......... $ 35,563 $ 495,612 $ 524,815
EXPENSE (INCOME)
Operating.................. 10,296 128,022 139,214
Marketing.................. 9,613 199,871 204,352
General and
administrative.............. 7,950 73,808 78,340
Software research and
development................. 9,084 9,084 15,171
Interest income, net....... (560) (2,042) (2,221)
------ ------- -------
Total expenses.............. 36,383 408,743 434,856
------ ------- -------
Income (loss) before income
taxes....................... (820) 86,869 89,959
Provision (benefit) for
income taxes................ (245) 33,325 34,344
------ ------- -------
Net income (loss)........... $ (575) $ 53,544 $ 55,615
------ ------- -------
------ ------- -------
Net income (loss) per common
share....................... $ (0.03) $ 0.23 $ 0.21
------ ------- -------
------ ------- -------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................. 21,445 236,894 267,249
------ ------- -------
------ ------- -------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
87
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
JANUARY 31, PRO FORMA YEAR ENDED
1996 DECEMBER 31, CUC DECEMBER 31,
CUC 1995 INTERNATIONAL 1995
INTERNATIONAL IDEON AND IDEON DAVIDSON
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees and other revenues........... $ 1,414,964 $228,278 $ 1,643,242 $147,226
EXPENSE (INCOME)
Operating............................................... 379,919 45,394 425,313 72,527
Marketing............................................... 556,920 135,469 692,389 17,158
General and administrative.............................. 212,648 33,318 245,966 16,813
Software research and development....................... 19,745
Costs related to products abandoned and restructuring... 97,029 97,029
Interest income, net.................................... (866) (5,690) (6,556) (819)
------------- ------ ------------- ------
Total expenses........................................... 1,148,621 305,520 1,454,141 125,424
------------- ------ ------------- ------
Income (loss) before income taxes........................ 266,343 (77,242) 189,101 21,802
Provision (benefit) for income taxes..................... 102,969 (27,801) 75,168 8,225
------------- ------ ------------- ------
Net income (loss)........................................ $ 163,374 ($49,441) $ 113,933 $ 13,577
------------- ------ ------------- ------
------------- ------ ------------- ------
Net income (loss) per common share....................... $ 0.84 ($ 1.73) $ 0.55 $ 0.38
------------- ------ ------------- ------
------------- ------ ------------- ------
Weighted average number of common and dilutive common
equivalent shares outstanding............................ 194,666 28,500 208,754 35,768
------------- ------ ------------- ------
------------- ------ ------------- ------
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA CUC
CUC YEAR ENDED CUC INTERNATIONAL,
INTERNATIONAL, DECEMBER 31, INTERNATIONAL, IDEON,
IDEON AND 1995 IDEON AND DAVIDSON
DAVIDSON SIERRA SIERRA AND SIERRA
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees and other revenues........... $1,790,468 $144,764 $1,788,006 $1,935,232
EXPENSE (INCOME)
Operating............................................... 497,840 42,765 468,078 540,605
Marketing............................................... 709,547 27,893 720,282 737,440
General and administrative.............................. 262,779 18,849 264,815 281,628
Software research and development....................... 19,745 33,158 33,158 52,903
Costs related to products abandoned and restructuring... 97,029 97,029 97,029
Interest income, net.................................... (7,375) (2,310) (8,866) (9,685)
------- ------ ------- -------
Total expenses........................................... 1,579,565 120,355 1,574,496 1,699,920
------- ------ ------- -------
Income (loss) before income taxes........................ 210,903 24,409 213,510 235,312
Provision (benefit) for income taxes..................... 83,393 6,944 82,112 90,337
------- ------ ------- -------
Net income (loss)........................................ $ 127,510 $ 17,465 $ 131,398 $ 144,975
------- ------ ------- -------
------- ------ ------- -------
Net income (loss) per common share....................... $ 0.53 $ 0.85 $ 0.56 $ 0.55
------- ------ ------- -------
------- ------ ------- -------
Weighted average number of common and dilutive common
equivalent shares outstanding............................ 239,156 20,540 233,915 264,318
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
88
<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
JANUARY 31, 1995 OCTOBER 31, 1994 CUC INTERNATIONAL DECEMBER 31, 1994 CUC INTERNATIONAL,
CUC INTERNATIONAL IDEON AND IDEON(D) DAVIDSON IDEON AND DAVIDSON
----------------- ---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees and
other revenues.................. $ 1,182,896 $180,665 $ 1,363,561 $93,171 $1,456,732
EXPENSE (INCOME)
Operating....................... 320,773 34,033 354,806 44,262 399,068
Marketing....................... 479,590 106,503 586,093 12,375 598,468
General and administrative...... 180,166 16,451 196,617 10,766 207,383
Software research and
development...................... 14,369 14,369
Gain on sale of ImagiNation
Network, net.....................
Costs related to products
abandoned and restructuring... 7,900 7,900 7,900
Interest (income) expense,
net.............................. 582 (8,421) (7,839) (691) (8,530)
-------- ------- -------- ------ --------
Total expenses................... 981,111 156,466 1,137,577 81,081 1,218,658
-------- ------- -------- ------ --------
Income before income taxes....... 201,785 24,199 225,984 12,090 238,074
Provision for income taxes....... 77,219 6,178 83,397 5,612 89,009
-------- ------- -------- ------ --------
Income before cumulative effect
of accounting change for income
taxes............................ 124,566 18,021 142,587 6,478 149,065
Cumulative effect of accounting
change for income taxes......... 2,000 2,000 2,000
-------- ------- -------- ------ --------
Net income....................... $ 124,566 $ 20,021 $ 144,587 $ 6,478 $ 151,065
-------- ------- -------- ------ --------
-------- ------- -------- ------ --------
Income before cumulative effect
of accounting change............ $ 0.66 $ 0.63 $ 0.70 $ 0.19 $ 0.64
Cumulative effect of accounting
change........................... 0.07 0.01 0.01
-------- ------- -------- ------ --------
Net income per common share...... $ 0.66 $ 0.70 $ 0.71 $ 0.19 $ 0.65
-------- ------- -------- ------ --------
-------- ------- -------- ------ --------
Weighted average number of common
and dilutive common equivalent
shares outstanding.............. 189,219 28,411 203,263 34,986 233,001
-------- ------- -------- ------ --------
-------- ------- -------- ------ --------
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA CUC INTERNATIONAL,
MARCH 31, 1995 CUC INTERNATIONAL, IDEON, DAVIDSON
SIERRA IDEON AND SIERRA AND SIERRA
-------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees and
other revenues.................. $ 97,879 $1,461,440 $1,554,611
EXPENSE (INCOME)
Operating....................... 38,722 393,528 437,790
Marketing....................... 19,862 605,955 618,330
General and administrative...... 15,627 212,244 223,010
Software research and
development...................... 21,967 21,967 36,336
Gain on sale of ImagiNation
Network, net..................... (17,749) (17,749) (17,749)
Costs related to products
abandoned and restructuring... 7,900 7,900
Interest (income) expense,
net.............................. 593 (7,246) (7,937)
------ -------- --------
Total expenses................... 79,022 1,216,599 1,297,680
------ -------- --------
Income before income taxes....... 18,857 244,841 256,931
Provision for income taxes....... 5,865 89,262 94,874
------ -------- --------
Income before cumulative effect
of accounting change for income
taxes............................ 12,992 155,579 162,057
Cumulative effect of accounting
change for income taxes......... 2,000 2,000
------ -------- --------
Net income....................... $ 12,992 $ 157,579 $ 164,057
------ -------- --------
------ -------- --------
Income before cumulative effect
of accounting change............ $ 0.70 $ 0.69 $ 0.63
Cumulative effect of accounting
change........................... 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.............. 18,513 225,941 255,679
------ -------- --------
------ -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
89
<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
JANUARY 31, 1994 OCTOBER 31, 1993 CUC INTERNATIONAL DECEMBER 31, 1993 CUC INTERNATIONAL,
CUC INTERNATIONAL IDEON AND IDEON DAVIDSON IDEON AND DAVIDSON
----------------- ---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees and
other revenues.................. $ 984,801 $158,390 $ 1,143,191 $62,372 $1,205,563
EXPENSES
Operating....................... 267,772 16,891 284,663 29,385 314,048
Marketing....................... 394,505 95,248 489,753 8,443 498,196
General and administrative...... 162,231 12,542 174,773 10,299 185,072
Software research and
development...................... 3,547 3,547
Interest (income) expense,
net.............................. 7,035 (8,736) (1,701) (469) (2,170)
Equity in loss from ImagiNation
Network..........................
------- ------- -------- ------ --------
Total expenses................... 831,543 115,945 947,488 51,205 998,693
------- ------- -------- ------ --------
Income (loss) before income
taxes............................ 153,258 42,445 195,703 11,167 206,870
Provision (benefit) for income
taxes............................ 59,107 10,968 70,075 4,218 74,293
------- ------- -------- ------ --------
Net income (loss)................ $ 94,151 $ 31,477 $ 125,628 $ 6,949 $ 132,577
------- ------- -------- ------ --------
------- ------- -------- ------ --------
Net income (loss) per common
share............................ $ 0.51 $ 1.10 $ 0.64 $ 0.21 $ 0.59
------- ------- -------- ------ --------
------- ------- -------- ------ --------
Weighted average number of common
and dilutive common equivalent
shares outstanding.............. 183,113 28,572 197,236 33,599 225,795
------- ------- -------- ------ --------
------- ------- -------- ------ --------
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA CUC INTERNATIONAL,
MARCH 31, 1994 CUC INTERNATIONAL, IDEON, DAVIDSON
SIERRA IDEON AND SIERRA AND SIERRA
-------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees and
other revenues.................. $ 73,101 $1,216,292 $1,278,664
EXPENSES
Operating....................... 32,442 317,105 346,490
Marketing....................... 16,438 506,191 514,634
General and administrative...... 9,969 184,742 195,041
Software research and
development...................... 18,788 18,788 22,335
Interest (income) expense,
net.............................. (1,051) (2,752) (3,221)
Equity in loss from ImagiNation
Network.......................... 5,066 5,066 5,066
------ -------- --------
Total expenses................... 81,652 1,029,140 1,080,345
------ -------- --------
Income (loss) before income
taxes............................ (8,551) 187,152 198,319
Provision (benefit) for income
taxes............................ (679) 69,396 73,614
------ -------- --------
Net income (loss)................ $ (7,872) $ 117,756 $ 124,705
------ -------- --------
------ -------- --------
Net income (loss) per common
share............................ $ (0.46) $ 0.54 $ 0.51
------ -------- --------
------ -------- --------
Weighted average number of common
and dilutive common equivalent
shares outstanding.............. 17,143 218,236 246,795
------ -------- --------
------ -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
90
<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 the Company as treasury stock or by any Subsidiary of the
Company or owned by CUC International, Merger Sub or by any other Subsidiary of
CUC International) will be converted into the right to receive that number of
shares of CUC International Common Stock equal to the quotient obtained by
dividing (x) $13.50 by (y) the Average Stock Price, provided that if the Average
Stock Price is $22.00 or less the Conversion Number will be 0.6136, and if the
Average Stock Price is $36.00 or more the Conversion Number will be 0.3750. The
unaudited pro forma condensed combined financial statements assume that all
27,981,831 shares of Company Common Stock outstanding at March 31, 1996 will be
converted at the Effective Time in the Merger into approximately 13.8 million
shares of CUC International Common Stock based on the Conversion Number which is
assumed to be 0.4943 (i.e., the average of the minimum Conversion Number of
0.3750 (applicable if the Average Stock Price is $36.00 or more) and the maximum
Conversion Number of 0.6136 (applicable if the Average Stock Price is $22.00 or
less)). 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 Company Common Stock and 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 the right to receive 0.85 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 at the Davidson
Effective Time 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 Sierra Merger, each share of Sierra Common Stock (other than
shares held by CUC International, LAC or any other Subsidiary of CUC
International or by any Subsidiary of Sierra) will be converted into the right
to receive 1.225 shares of CUC International Common Stock (the "Sierra Exchange
Ratio"). The unaudited pro forma condensed combined financial statements assume
that all 20,428,217 shares of Sierra Common Stock outstanding at March 31, 1996
will be converted at the Sierra Effective Time into approximately 25.0 million
shares of CUC International Common Stock in accordance with the Sierra Exchange
Ratio of 1.225. 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 Sierra Common Stock and Sierra's treasury stock.
(D) The pro forma information is based on the historical financial
statements of CUC International, the Company, Davidson and Sierra contained in
the CUC 10-K and the CUC 10-Q, the Company 10-K and the Company 10-Q, the
Davidson 10-K and the Davidson 10-Q, and the Sierra 10-Q, and the Sierra Press
Release, respectively. Effective January 1, 1995, the Company changed its fiscal
year end from October 31 to December 31. The Company's results of operations for
the Transition Period have been excluded from the unaudited pro forma condensed
combined statements of income. The Company's revenues and net loss for the
Transition Period were $34.7 million and $(49.9) million, respectively. 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 and are
therefore included in the fiscal 1996 and 1995 pro forma results of operations.
91
<PAGE>
(E) Income per common share from continuing operations has been computed
based upon the combined weighted averaged number of common and dilutive common
equivalent outstanding shares of CUC International Common Stock, Company Common
Stock, Davidson Common Stock and Sierra Common Stock for each period. Historical
weighted average common and dilutive common equivalent outstanding shares of
Company Common Stock, Davidson Common Stock and Sierra Common Stock for each
period have been adjusted to reflect the Conversion Number in respect of the
Merger, the Davidson Exchange Ratio and the Sierra Exchange Ratio, respectively.
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 Davidson, the 2:1 split of Davidson
Common Stock effected on August 23, 1995 and in the case of Sierra, the 2:1
split of the Sierra Common Stock effected on February 17, 1995.
(F) The unaudited pro forma condensed combined balance sheet includes
integration and transaction costs associated with the Merger as well as costs
relating to certain outstanding litigation matters, previously discussed in the
Company's public filings, giving consideration to CUC International's intended
approach to these matters subsequent to the Merger, which are estimated by CUC
International 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 relating 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 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
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 Conversion Number.
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 Merger
and costs relating to the expected obligations for certain third-party contracts
(e.g., existing leases and vendor agreements) to which the Company is a party
and which are neither terminable at will nor automatically terminated upon a
change-in-control of the Company. CUC International expects to incur significant
integration costs because the Company'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 the Company'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 the
Company'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 Merger as well as
costs relating to certain outstanding litigation matters previously discussed in
the Company's public filings, giving consideration to CUC International's
intended approach to these matters, subsequent to the completion of the Merger
and costs and expenses associated with the Davidson Merger and the Sierra Merger
which are expected to approximate $25.0 million in the aggregate.
(G) Reclassification to conform Ideon's deferred membership acquisition
costs and deferred membership income to CUC International's presentation.
(H) To reflect Davidson's pending acquisition of a warehouse facility. 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.
92
<PAGE>
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pro forma combined operating revenues for the three-month period ended April
30, 1996 are $460.0 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. Pro forma earnings per common share for the three-month period ended April
30, 1996 are $0.26 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.
The acquisitions of Sierra and Davidson will enable CUC International to
offer educational and entertainment software to various portions of CUC
International's 48 million member database. Both Sierra 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 due to their widely known
software titles. CUC International's acquisition of the Company will strengthen
CUC International's core membership services business, primarily by adding over
13 million credit card enhancement members.
CUC International management believes that the risks associated with its
acquisition of Sierra 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, Sierra and Davidson. Both
Sierra's 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 management also believes that the risks associated with
its acquisition of the Company will not be material, since the Company'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.
The Company is involved in prosecuting or defending several complex
lawsuits. The majority of these involve a former Chairman of the Board and
Executive Management Consultant to SafeCard. SafeCard is the Company's largest
operating Subsidiary and, prior to the Company's 1995 reorganization, was the
public company through which (directly or indirectly) the Company'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 the Company's public filings, after giving consideration to CUC
International's intended approach to these matters, as well as certain
integration and transactions costs associated with the Merger.
The most recent "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for CUC International, the Company, Davidson and
Sierra as of the date of this Proxy Statement/Prospectus appear in the CUC 10-Q,
the Company 10-Q, the Davidson 10-Q and the Sierra 10-Q respectively.
93
<PAGE>
COMPARISON OF SHAREHOLDERS RIGHTS
At the Effective Time, holders of Company Common Stock (other than shares of
Company Common Stock held in the treasury of the Company or by any Subsidiary of
the Company or shares of Company Common Stock owned by CUC International, Merger
Sub or any other Subsidiary of CUC International) 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 Company Charter
and the Company By-laws.
DIRECTORS
NUMBER. The CUC International By-laws provides 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 cannot be fixed at less than five nor more than eleven members and
provides that the number of directors shall be determined solely by resolution
of the Board of Directors. The Company By-laws further provide that the
amendment, alteration or repeal of the foregoing provisions requires the
affirmative vote of at least 75% of the outstanding voting stock.
CLASSIFIED BOARD. The CUC International By-laws and the Company By-laws each
provide for a classified Board of Directors. The Company By-laws further provide
that the amendment, alteration or repeal of the classified Board of Directors
provision requires the affirmative vote of at least 75% of the outstanding
voting stock.
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 provides that any director may be
removed, with or without cause, only upon the affirmative vote of 75% of the
outstanding voting stock. The Company Charter further provides that the
amendment, alteration or repeal of the foregoing provision requires the approval
of 75% of the outstanding voting stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The CUC International By-laws
provide that CUC International shall indemnify to the fullest extent permitted
by, and in the manner permissible under, the DGCL any person made, or threatened
to be made, a party to any action or proceeding, whether criminal, civil,
administrative or investigative. See "The Merger--Interests of Certain Persons
in the Merger" and "The Merger--Indemnification of Directors and Officers."
The Company Charter provides the Company shall, to the full extent permitted
by applicable law, indemnify all persons whom it may indemnify pursuant thereto.
The Company By-laws provide that the Company shall indemnify in accordance with
and to the fullest extent authorized by the DGCL, each person who is or was a
director or officer of the Company and each person who serves or may have served
at the Company's request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. The Company By-laws and
the Company Charter further provide that each person who is or was an employee
or agent of the Company, and each person who serves or may have served, at the
request of the Company, as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, may be similarly
indemnified at the discretion of the Company's Board of Directors.
94
<PAGE>
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 holders of 75% of the
outstanding voting stock entitled to vote thereon in order to amend, alter or
repeal the provision of the Company Charter relating to the removal of
directors. All other amendments or alterations to the Company Charter must be
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote thereon.
AMENDMENTS TO THE BY-LAWS
Amendments to certain provisions of the CUC International By-laws relating
to shareholder meetings and directors must be approved by at least 80% of the
shares of outstanding stock entitled to vote thereon. Amendments, alterations or
a repeal of certain provisions of the Company By-laws with respect to the power
of the Board of Directors to determine the number of directors and with respect
to the classified Board of Directors each must be approved by the holders of at
least 75% of the outstanding shares of capital stock entitled to vote for the
election of directors. All other amendments or other alterations to the Company
By-laws must be approved by either (i) the affirmative vote of holders of
two-thirds of the capital stock entitled to vote thereon, or (ii) the
affirmative vote of a majority of the Board 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 holders of a majority of the
stock issued and outstanding and entitled to vote thereon, present in person or
represented by proxy, shall constitute a quorum at all meetings of shareholders.
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 CUC
International's or the Company's assets must be approved by such corporation's
Board of Directors and then adopted by the holders of a majority of the voting
power of the outstanding shares of stock of such corporation 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.
95
<PAGE>
The Company Charter does not contain a "fair price provision."
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 by
Section 203. Neither the Company Charter nor the CUC International Charter
contains such a provision.
CUMULATIVE VOTING
Under the 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, and shall be
called by the President or Secretary at the written request of a majority of the
Board of Directors stating the purpose or purposes of the proposed 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 in lieu of a meeting. The Company By-laws provide that whenever
the vote of shareholders at a meeting thereof is required or permitted to be
taken in connection with any corporate action, the notice, meeting and vote of
shareholders may be dispensed with if all shareholders who would have been
entitled to vote upon the action if such meeting were held consent in writing to
such corporate action being taken.
96
<PAGE>
PROPOSAL II
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The Company's Board of Directors currently consists of six members, five of
whom are non-employee directors. The Company's Board of Directors is divided
into three classes, as nearly equal in number as possible. Three directors of
the Company are to be elected at the Meeting, two directors to hold office until
the earliest of the 1999 Annual Meeting of Shareholders, the consummation of the
Merger, or their respective successors are duly elected or appointed and
qualified, and one director to hold office until the earliest of the 1998 Annual
Meeting of Shareholders, the consummation of the Merger, or such director's
successor is duly elected or appointed and qualified.
John Ellis Bush resigned as a director effective April 26, 1996. Mr. Bush's
term had been scheduled to expire at the 1998 Annual Meeting of Shareholders. As
a result of Mr. Bush's resignation, the Company's Board of Directors has
nominated Adam W. Herbert, Jr. as a director to serve until the earliest of the
1998 Annual Meeting of Shareholders, the consummation of the Merger, or until
his successor is duly elected or appointed and qualified.
Unless authority to vote is withheld, the persons specified in the enclosed
proxy intend to vote for Thomas F. Petway, III, Eugene Miller, and Adam W.
Herbert, Jr. (the "Nominees") as directors, all of whom have consented to being
named in this Proxy Statement/Prospectus and to serve if elected. Although
management knows of no reason why any Nominee would be unable to serve, the
persons designated as proxies reserve full discretion to vote for another person
in the event any Nominee is unable to serve.
If the shareholders approve and adopt the Merger Agreement at the Meeting
and the Merger is subsequently consummated, at the Effective Time and until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Sub will be the directors of the
Company.
The following information is provided with respect to the Nominees for
directorships. Italicized wording indicates principal occupation.
Terms expiring at the 1999 Annual Meeting (unless sooner terminated as described
above):
EUGENE MILLER, director since 1993, age 70, Chairman of the Board of
Directors of the Company and Chief Executive Officer, February 1996 to present;
Professor and Assistant to the Dean at the College of Business of Florida
Atlantic University, 1991 to present; Vice Chairman and Chief Financial Officer,
USG Corporation (formerly known as United States Gypsum Company), 1987 to 1991;
Director, MFRI, Incorporated, a manufacturer of filter bags, and a private
corporation.
THOMAS F. PETWAY, III, director since 1994, age 55, Chairman and Chief
Executive Officer, Home Builders Insurance Services, Inc., a national marketing
and administrative services company specializing in services and insurance
programs for residential contractors, 1977 to present; Principal, Network Realty
Associates, a real estate agency operating under the name Prudential Network
Realty and a member of Prudential Real Estate Affiliates, Inc., 1988 to present.
Term expiring at the 1998 Annual Meeting (unless sooner terminated as described
above):
ADAM W. HERBERT, JR., Ph.D., director since January 1995, age 52, President,
University of North Florida, 1989 to present; Director, Barnett Bank of
Jacksonville, N.A., a subsidiary of Barnett Banks, Inc., and Baptist Medical
Center (Jacksonville, Florida), a not-for-profit acute care hospital.
The following information is provided with respect to directors who are not
Nominees:
97
<PAGE>
Term expiring at the 1998 Annual Meeting (unless sooner terminated as described
above):
ROBERT L. DILENSCHNEIDER, director since 1991, age 52, Chief Executive
Officer and majority owner of The Dilenschneider Group, Inc., a public relations
firm, 1991 to present; Hill & Knowlton, an international public relations firm,
1967 to 1991 (Chief Executive Officer, 1986 to 1991).
Terms expiring at the 1997 Annual Meeting (unless sooner terminated as described
above):
WILLIAM T. BACON, JR., director since 1978, age 73, Associate, The Chicago
Corporation, an investment banking firm, November 1994 to present; Associate,
Bacon, Whipple, a division of Stifel, Nicolaus & Co., an investment banking
firm, 1983 to 1994; managing partner of Bacon, Whipple & Co., prior to 1983;
Director, Walbro Corporation, a manufacturer of small engine carburetors and
automobile fuel systems.
MARSHALL L. BURMAN, director since 1993, age 66, Of counsel, Wildman,
Harrold, Allen & Dixon, a Chicago, Illinois law firm, 1992 to present; Chairman,
Illinois State Board of Investment, a co-mingled investment fund whose
beneficiaries are Illinois state employees (Chairman since 1985, Board member
since 1979); Partner, Avery, Hodes, Costello & Burman, a Chicago, Illinois law
firm, prior to 1992; Director, CFI Industries, Inc., a manufacturer of
thermo-plastic packaging.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ELECTION OF THOMAS F. PETWAY, III, EUGENE MILLER, AND ADAM W. HERBERT, JR., AS
DIRECTORS.
Directors will be elected by a plurality of the shares of Company Common
Stock present in person or by proxy entitled to vote on the election of
directors.
GOVERNANCE OF THE COMPANY
In 1994, the Company changed its fiscal year-end from October 31 to December
31. During the Transition Period, the Company's Board of Directors met one time
in person. During calendar year 1995, the Company's Board of Directors met
sixteen times in person or by telephone. Each of the directors attended more
than 75 percent of the meetings of the Company's Board of Directors and of the
Board committees on which the director served in 1995 and the Transition Period
(in each case during the periods he served).
AUDIT COMMITTEE. The current members of the Audit Committee are Robert L.
Dilenschneider, Adam W. Herbert, Jr. and Thomas F. Petway, III, all of whom are
non-employee directors.
The Audit Committee represents the Company's Board of Directors in
discharging its responsibilities relating to the accounting, reporting and
financial control practices of the Company and its Subsidiaries. The Audit
Committee has general responsibility for reviewing with management the financial
controls, accounting, audit and reporting activities of the Company and its
Subsidiaries. The Audit Committee annually reviews the qualifications and
objectivity of the Company's independent accountants, makes recommendations to
the Company's Board of Directors as to their selection, evaluates the scope,
fees and results of their audit, reviews their non-audit services and related
fees, and examines their management comment letters. The Audit Committee met
four times in 1995 and one time during the Transition Period.
COMPENSATION COMMITTEE. The current members of the Compensation Committee
are William T. Bacon, Jr., Marshall L. Burman and Adam W. Herbert, Jr., all of
whom are non-employee directors.
The Compensation Committee oversees executive compensation plans for
officers and key employees, approves standards for setting compensation levels
for Company executives and grants the specific awards made under the Company's
management incentive compensation plans. The Compensation
98
<PAGE>
Committee also approves the compensation of certain employees above specified
levels, grants options and restricted stock under the 1994 Long Term Stock-Based
Incentive Plan (the "1994 Plan"), and makes recommendations to the Company's
Board of Directors for approval as required. The Compensation Committee met
seven times in 1995 and one time during the Transition Period.
NOMINATING COMMITTEE. The current members of the Nominating Committee are
Marshall L. Burman, and Thomas F. Petway, III, both non-employee directors, and
Eugene Miller.
The Nominating Committee's responsibilities include recommending to the
Company's Board of Directors the individuals to fill vacancies on the Company's
Board of Directors, considering issues of composition and organization of the
Board, and developing candidate specifications for Board membership. The
Nominating Committee will consider nominees recommended by shareholders if such
nominations are made in compliance with Article II, Section 13 of the Company
By-laws. The Nominating Committee did not meet in 1995 or the Transition Period.
The Company's Board of Directors has formed other committees from time to
time including the Litigation Defense Committee (formed April 28, 1995), the
Executive Committee (formed February 14, 1996) and the Strategic Direction
Committee (formed January 19, 1996).
DIRECTORS' FEES AND OTHER COMPENSATION
FEES. Directors who are not employees of the Company receive a quarterly
retainer of $12,500. Effective as of October 1, 1995, the Company's Board of
Directors reduced its retainer to $6,250 per quarter until the Company reported
two consecutive quarters of profitability. As the Company has reported profits
in the fourth quarter of 1995 and the first quarter of 1996, the directors
quarterly retainer has been returned to $12,500. Each chairman of a committee
receives an additional retainer of $1,500 per annum. No separate retainer is
paid for membership on committees. Directors receive separate fees for
attendance at meetings of the Board and Board committees which are $2,000 for in
person meetings and $500 for telephonic meetings. Fees are paid for only one
meeting on any one date, regardless of how many meetings may be held on that
date. Directors who are employees of the Company receive no fees for service on
the Board of Directors or Board committees or for attendance at meetings.
Directors are reimbursed for their customary and usual expenses incurred in
attending Board, Board committee and shareholder meetings, including those for
travel, food and lodging. A director's deferral plan allows such director to
defer all or part of his retainer and fees to an account which accrues interest
until the later of such director's termination of service to the Company or upon
reaching age 65.
To recognize the time and effort required of members of the Strategic
Direction Committee, in February 1996, the Company's Board of Directors approved
an additional retainer of $12,500 for the members of that committee (Messrs.
Burman and Petway) and $25,000 for that committee's chairman (Mr. Miller).
For his services as Chairman and Chief Executive Officer of the Company, Mr.
Miller is receiving a monthly salary of $40,000. He is not eligible for an
annual bonus, to receive any severance pay or to be paid director's retainer and
meeting fees while serving as an officer of the Company.
STOCK OPTION PLAN FOR DIRECTORS. Under the plan for directors adopted by the
shareholders at the 1995 Annual Meeting of Shareholders (the "Directors Stock
Plan"), non-employee directors are automatically granted an option to purchase
15,000 shares of Company Common Stock upon their initial election or appointment
to the Company's Board of Directors. The Directors Stock Plan also allows
directors to elect to receive their retainer and/or meeting fees in the form of
Company Common Stock.
STOCK OWNERSHIP REQUIREMENT. To insure that directors have a substantial
personal stake in the Company, in January 1995 the Company's Board of Directors
adopted a requirement that directors joining the Board after 1994 must own 1,000
shares of Company Common Stock or elect to receive their
99
<PAGE>
retainer and meeting fees in the form of Company Common Stock until 1,000 shares
of Company Common Stock have been purchased.
DIRECTORS' RETIREMENT PLAN. In 1991, the Company adopted an unfunded
retirement plan that provides annual retirement benefits to non-employee
directors who have served on the Company's Board of Directors for five or more
years, are at least sixty-five years of age and were not employees of the
Company. Prior to its amendment in January 1995, the retirement benefit was a
life annuity equal to the annual retainer paid to non-employee directors at the
time of retirement, or as subsequently modified, whichever was higher. In
January 1995, the Company's Board of Directors voted to limit the annual
retirement benefit to one half of the annual retainer paid to non-employee
directors at the time of retirement. The Company's Board of Directors also
eliminated the life annuity paid to a surviving spouse of a director which had
been equal to one-half of the annuity paid to the deceased director. These
changes do not apply to the vested and payable benefits of Mr. Bacon. The
retirement benefits remain subject to a vesting schedule whereby directors
become fifty percent vested in their retirement benefit after five years of
service to the Company and vest an additional ten percent for each additional
year of service. A director who is not at least sixty-five years of age upon
retirement but who is otherwise eligible is entitled to receive the retirement
benefits upon reaching sixty-five years of age. In January 1995, the Board also
adopted a mandatory retirement age for directors of seventy-five years of age.
PUBLIC RELATIONS AND INVESTOR RELATIONS CONSULTING. In December 1994, the
Company paid the Dilenschneider Group, Inc., a public relations firm of which
the majority shareholder is director Robert L. Dilenschneider, $180,000 for
market communications and promotion/publicity services to the Company in
connection with certain specified projects. See "--Certain Relationships and
Related Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee presents the following report on compensation for
the Company's executive officers. Actual compensation during 1995 for the named
executives is shown in the Summary Compensation Table and other tables found in
"--Executive Compensation."
The compensation programs for the Company's executive officers are
administered by the Compensation Committee of the Company's Board of Directors.
In 1995, the Compensation Committee retained its existing executive compensation
policies and programs that had been developed with assistance from Hewitt
Associates, independent compensation consultants. Such policies and programs are
designed to do the following: (i) provide competitive pay systems that support
the Company's business strategies and help to attract, retain and motivate the
people necessary to achieve these goals; (ii) emphasize variable pay, thereby
increasing focus on planning, accountability and pay for performance; and (iii)
align management and shareholder interests through incentive programs, including
stock options and awards of common stock.
The three components of individual executive officer compensation are base
salary, an annual performance-based incentive bonus and long term stock-based
incentive compensation.
BASE SALARY. Base salary levels are assigned to positions based on job
responsibilities, sustained individual performance and periodic review of base
salary practices for comparable positions at similar corporations with no
specific weighting applied to any of these factors. In 1994, the Company
developed salary ranges for its various positions based on twenty four
profitable, high growth companies with sales revenues under $1 billion (the
"Comparison Companies"). The Committee believed that the Comparison Companies
reflected the types of corporations with which the Company competed for
executive talent and therefore provided an appropriate basis for determining
market rates of pay. Accordingly, the Comparison Companies differ from the peer
group used for purposes of the performance graph found in "--Stock Performance
Graph." Because the Company has sought to hire executives who perform at or
above the 75th percentile, the base salary guidelines generally have been set
from 80% to 120% of the 75th percentile of salaries in the Comparison Companies.
However, in some cases, salaries
100
<PAGE>
outside the base salary guidelines were determined in negotiations to recruit
executives for key positions with the Company. For 1995, the Committee decided
to emphasize the annual incentive plan as the primary means of compensating
employees for performance by limiting salary increases to 4.3%.
ANNUAL INCENTIVES. Under the Company's Short-Term Incentive Plan developed
with the assistance of Hewitt Associates, bonuses for target level performance
ranged from 15% of base salary at the manager level to 60% of base salary for
the CEO. Bonuses for maximum level performance ranged from 30% of base salary at
the manager level to 120% of base salary for the CEO. The target and maximum
levels were based on compensation practices of other companies as determined by
surveys conducted by Hewitt Associates and, consistent with the Compensation
Committee's emphasis on variable pay, were intended to provide higher than
average bonus opportunities to the Company's employees.
At the beginning of 1995, each participant in the Short-Term Incentive Plan
prepared individualized goals related to attainment of certain financial targets
weighted at 70% and certain individual nonfinancial goals weighted at 30%. The
Short-Term Incentive Plan also provided that if the Company's or its
Subsidiaries' performance was below the minimum threshold, the Compensation
Committee could nonetheless establish a discretionary award pool equal to 15% of
the target pool to employees (other than Covered Officers as defined below) who
performed exceptionally well despite poor financial performance by the Company
or one of its Subsidiaries.
At the end of 1995, since SafeCard and Wright Express met or exceeded the
respective thresholds of financial performance, participants from these business
units received bonuses based on a subjective evaluation of individual
performance against their previously determined goals. Participants in the
Short-Term Incentive Plan employed by National Leisure Group were awarded
bonuses based on a subjective evaluation of their performance in accordance with
such business unit's past practice. Based on the Company's financial
performance, the most senior corporate officers were not awarded a bonus, and
other remaining employees of the Company were awarded bonuses from a pool
consisting of 15% of the target awards of all employees as of December 31, 1995
who fell into this category of employees. Individual awards to such employees
were based on subjective evaluation by the employee's supervisor of the
employee's performance, in part, against previously determined objectives
followed by review and approval by a committee of senior management.
LONG TERM COMPENSATION. The long term compensation component embodied in the
1994 Plan is designed to link executive compensation to the market price of
Company Common Stock over a multi-year performance period, to align management
and stockholder interests, and to enable the Company to attract, motivate and
retain experienced and highly qualified personnel. Consistent with these goals,
a portion of the options granted to vice presidents and above vest based on
hurdle objectives, i.e., specified increases in the market price of Company
Common Stock. In addition, no options are exercisable in the first year and
options which vest on length of service generally vest in 25% increments over
four years provided employment with the Company continues. For further
information on the terms and conditions of the options granted to the Company's
officers, see the table entitled "Option Grants in Transition Period and Last
Fiscal Year" and its footnotes found in "--Executive Compensation."
During the past fiscal year, the Compensation Committee generally granted a
standard amount of stock options to all new managerial employees based on the
employee's position with the Company. Factors used to set the standard amounts
of stock options included management's perception of (i) the incentive necessary
to motivate individuals to join the Company, (ii) the stock-based incentives
provided by similarly-situated companies, (iii) the desirability of stock-based
incentives to create teamwork and a focus on long-term results, and (iv) the
role and impact of the various management levels on achieving key strategic
results. The Compensation Committee also granted restricted stock to a certain
new executive in an amount that was subjectively determined as necessary to
induce the executive to join the Company.
POLICIES RELATING TO SECTION 162 OF THE CODE. In 1993, Section 162 of the
Code was amended to limit the deductibility for federal income tax purposes of
annual compensation of the chief executive officer of publicly held corporations
and the four other highest compensated officers (the "Covered
101
<PAGE>
Officers") in excess of $1,000,000 unless certain conditions are met. Since it
was unlikely that any of the Covered Officers would receive compensation in
excess of $1,000,000 in 1995, no change was made to conform to the requirements
of Section 162 of the Code. The Compensation Committee intends to consider this
limitation, among other factors, in making compensation decisions in the future.
CHIEF EXECUTIVE OFFICER COMPENSATION. The employment agreement between the
Company and Mr. Kahn, effective as of December 1, 1993 established a base salary
of $750,000. As in the case of all employees of the Company, Mr. Kahn received a
4.3% salary increase on his anniversary date. In October 1995, Mr. Kahn agreed
to reduce his salary to $500,000 until the Company achieved two consecutive
fiscal quarters of profitability. Based on the Company's financial performance,
the Committee decided not to award Mr. Kahn a bonus for the fourteen month
performance period from November 1, 1994 to December 31, 1995. Pursuant to a
settlement agreement dated April 18, 1996, and based on the terms of Mr. Kahn's
employment agreement with the Company, the Company paid Mr. Kahn $2,580,000 in
connection with the termination of his employment and in full settlement of the
Company's obligations under such employment agreement.
William T. Bacon, Jr.
Marshall L. Burman
Adam W. Herbert, Jr.
102
<PAGE>
EXECUTIVE COMPENSATION
In 1994, the Company effected a change in its fiscal year end from October
31 to December 31. The following table shows, for the year ended December 31,
1995, the Transition Period (as indicated on such table as "1994T"), and the
years ended October 31, 1994 and 1993, the cash and other compensation paid to,
accrued or earned by, and certain long-term awards made to the named executives
for all services to the Company in all capacities. None of the following persons
were officers of the Company during the year ending October 31, 1993. Mr. Birk
joined the Company as of September 14, 1994. Mr. Walsh joined the Company in
February 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION
--------------------------------------- AWARDS
OTHER ----------------------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
COMPEN- STOCK UNDERLYING COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) OPTIONS/ SATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) $(3) SARS (#) ($)(4)
- -------------------------------------- ----- -------- ------------------ ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul G. Kahn(5)....................... 1995 $749,683 $0 $51,528 0 0 $ 58,887
Former Chairman and CEO 1994T 120,346 0 -- 0 0 8,719
1994 686,538 950,000 -- 63,750 1,000,000 49,227
Francis J. Marino..................... 1995 364,760 0 -- 0 0 38,365
Vice Chairman and General Counsel 1994T 53,846 0 -- 0 0 3,919
1994 261,154 259,548 -- -- 300,000 21,864
G. Thomas Frankland................... 1995 364,760 0 -- 0 0 31,923
Vice Chairman and Chief Financial 1994T 53,846 0 -- 0 0 3,919
Officer 1994 175,000 189,875 -- -- 300,000 43,990
Paul F. Walsh......................... 1995 229,167 201,000 35,210 0 50,000 57,036
President and CEO of
Wright Express Corporation
Robert M. Frechette................... 1995 248,269 69,652 6,840 0 0 59,964
President and CEO of Safe Card 1994T 35,385 0 -- 0 0 --
Services, Inc. 1994 128,269 147,200 -- 0 60,000 71,626
John R. Birk(6)....................... 1995 329,949 0 79,588 0 300,000 870,066
Former President and Chief Operating 1994T 45,833 0 -- 0 0 3,079
Officer of the Company 1994 34,375 76,375 -- -- 0 --
</TABLE>
- ------------
(1) The amounts shown in 1995 include a signing bonus for Mr. Walsh of $50,000
and in 1994 the following restricted stock grants: Mr. Marino--1,000 shares
of Company Common Stock with a market value on the date of grant of $18,625,
vested on August 1, 1994, Mr. Frankland--1,000 shares of Company Common
Stock with a market value on the date of grant of $17,875, vested on
November 1, 1994 and Mr. Birk--1,000 shares of Company Common Stock with a
market value on the date of grant of $16,375, vested on March 14, 1995. Mr.
Birk's cash bonus of $60,000 was earned in calendar year 1994.
(2) The amounts shown as other annual compensation in 1995 include the
following: (i) for Mr. Walsh, $35,210 paid as reimbursement for taxes
payable on relocation benefits; (ii) for Mr. Frechette, $6,840 paid as
reimbursement for taxes payable on relocation benefits; and (iii) for Mr.
Birk, $79,588 paid as reimbursement for taxes payable on relocation
benefits. The amounts shown also include the value of all personal benefits
and perquisites received by the executives that exceed the required
reporting threshold, which is the lesser of either $50,000 or 10% of the
salary and bonus shown above for the named executive officers. For Mr. Kahn,
the amount reported as personal benefits and perquisites includes a $30,000
executive expense allowance as provided in his employment agreement with the
Company.
(3) The amount shown in the table is equal to the closing market price on the
date of grant multiplied by the number of shares of restricted Company
Common Stock granted to Mr. Kahn. Mr. Kahn
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
103
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
was granted 5,000 shares of restricted Company Common Stock as of December
6, 1993, vesting as to 1,000 shares of Company Common Stock after December
5, 1994, as to an additional 2,000 shares of Company Common Stock after
December 5, 1995, as to an additional 1,000 shares of Company Common Stock
after December 5, 1996 and as to the remaining 1,000 shares of Company
Common Stock after December 5, 1997. As of the end of the Transition Period,
his 4,000 unvested shares were valued at $75,500. As of December 31, 1995,
his 2,000 unvested shares of Company Common Stock were valued at $20,250.
Pursuant to the terms of Mr. Kahn's settlement agreement with the Company,
dated April 18, 1996, the 2,000 unexercised shares of Company Common Stock
were returned to the Company.
(4) Amounts shown in this column for 1995 and the Transition Period include the
following payments: (i) for Mr. Kahn, payments of term life insurance
premiums of $4,395 in 1995; contributions by the Company under its 401(k)
and profit sharing plan of $4,620 in 1995; and contributions to a grantor
trust as a supplemental retirement benefit of $49,872 in 1995 and $8,719 in
the Transition Period; (ii) for Mr. Marino, payments of term life insurance
premiums of $9,287 in 1995; contributions by the Company under its 401(k)
and profit sharing plan of $4,620 in 1995; and contributions to a grantor
trust as a supplemental retirement benefit of $24,458 in 1995 and $3,919 in
the Transition Period; (iii) for Mr. Frankland, payment of term life
insurance premiums of $2,845; contributions by the Company under its 401(k)
and profit sharing plan of $4,620 in 1995; and contributions to a grantor
trust as a supplemental retirement benefit of $24,458 and $3,919 in the
Transition Period; (iv) for Mr. Walsh, relocation benefits of $50,773 and
payments of term life insurance premiums of $6,263 in 1995; (v) for Mr.
Frechette, relocation benefits of $58,199 in 1995; and contributions by the
Company under its 401(k) and profit sharing plan of $1,765 in 1995; and (vi)
for Mr. Birk, relocation benefits of $149,470 in 1995; contributions to a
grantor trust as a supplemental retirement benefit of $21,309 in 1995 and
$3,079 in the Transition Period; contributions by the Company under its
401(k) and profit sharing plan of $4,620 in 1995; payments of term life
insurance premiums of $2,188; and payments under his employment agreement
upon termination of employment by the Company as provided under his
employment agreement of $692,479. See "-- Employment Contracts and
Termination of Employment Arrangements."
(5) Mr. Kahn's employment with the Company was terminated on February 5, 1996.
See "-- Employment Contracts and Termination of Employment Arrangements."
(6) Mr. Birk's employment with the Company was terminated on November 15, 1995.
See "-- Employment Contracts and Termination of Employment Arrangements."
The following table contains information concerning the grant of stock
options made during the Transition Period and fiscal year 1995 pursuant to the
1994 Plan.
OPTION GRANTS IN TRANSITION PERIOD AND LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM
-------------------------------------- ---------------------------------------------
% OF TOTAL
OPTIONS/SARS
GRANTED TO EXERCISE
OPTIONS/ EMPLOYEES OR BASE
SARS IN FISCAL YEAR PRICE EXPIRATION
NAME GRANTED (#)(1)(2)(3) ($/SH) DATE 0%(4) 5%(4) 10%(4)
- --------------------------- -------- -------------- -------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Birk............... 150,000 13.4% $ 16.375 09/14/2004 $ 0 $1,544,655 $3,914,520
150,000 13.4% $ 15.875 12/09/2004 0 1,497,480 3,795,000
Paul F. Walsh.............. 50,000 4.4% $ 18.50 01/31/2005 0 581,705 1,474,190
</TABLE>
- ------------
(1) By the terms of the 1994 Plan, Options granted thereunder are exercisable
over a period not to exceed ten years. Sixty percent of the Options granted
to Messrs. Birk and Walsh vest over a period of four years in annual
cumulative increments of 25% on each anniversary of the date of the grant.
Forty percent of the options granted to each executive vest in three equal
increments when the price of Company Common Stock trades at or above $21,
$24 and $27, respectively, over twenty consecutive days and in any case when
nine years have elapsed from the date of grant. Under the
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
104
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
1994 Plan, all Options will immediately vest and become exercisable in the
event that a Change in Control (as defined in the 1994 Plan) of the Company
occurs.
(2) The 1994 Plan provides that the Committee administering the Plan may award
tax bonuses to grantees under the 1994 Plan to be paid upon the exercise of
Options or lapse of restrictions on restricted stock.
(3) The total number of shares of Company Common Stock granted pursuant to
Options to all employees under the 1994 Plan and the Employees Stock Option
Plan during the Transition Period were 193,500 and 21,500 shares of Company
Common Stock, respectively. The total number of shares of Company Common
Stock granted pursuant to Options to all employees under the 1994 Plan and
the Employees Stock Option Plan during 1995 were 1,049,200 and 74,300 shares
of Company Common Stock, respectively. Mr. Birk's options were granted
subject to shareholder approval of an increase in the number of shares of
Company Common Stock issuable under the 1994 Plan which was obtained at the
1995 Annual Meeting of Shareholders.
(4) The dollar amount under the columns assumes that the market price of Company
Common Stock from the date of the Option grant appreciates at cumulative
annual rates of 0%, 5% and 10%, respectively, over the Option term of ten
years. The assumed rates of 5% and 10% were established by the Commission
and therefore are not intended to forecast possible future appreciation of
Company Common Stock. No gain to the optionees is possible without an
increase in stock price, which will benefit all stockholders commensurately.
A zero percent increase in the price of Company Common Stock will result in
zero dollars for the optionee. Based on a December 9, 1994 grant price
($15.875 per share of Company Common Stock) and an annual hypothetical
appreciation of 5% for ten years, Company Common Stock would be valued at
$25.858 per share of Company Common Stock. At hypothetical 10% annual
appreciation rate for ten years, Company Common Stock would be valued at
$41.175 per share of Company Common Stock.
The following table sets forth information regarding the value of the
unexercised options held by these individuals as of December 31, 1995, based on
the market value ($10.125) of the Company Common Stock on December 29, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(A) (B) (C) (D) (E)
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END (#)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Paul G. Kahn..................... 0 0 433,333/566,667(1) 0/0
Francis J. Marino................ 0 0 45,000/255,000 0/0
G. Thomas Frankland.............. 0 0 45,000/255,000 0/0
Paul F. Walsh.................... 0 0 0/50,000 0/0
Robert M. Frechette.............. 0 0 9,000/51,000 0/0
John R. Birk..................... 0 0 0/0(2) 0/0
</TABLE>
- ------------
(1) Mr. Kahn's employment was terminated effective as of February 5, 1996. His
Options were exercisable for a period of thirty days after termination of
employment and thereafter such Options expired.
(2) Mr. Birk's employment was terminated effective as of November 15, 1995. His
Options were exercisable for a period of thirty days after termination of
employment and thereafter such Options expired.
105
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative annual return for the Company's last
five fiscal years including the fiscal years ending October 31, 1991, 1992, 1993
and 1994, the Transition Period, and the fiscal year ending December 31, 1995 on
an investment of $100 in Company Common Stock with the cumulative annual return
over the same periods on an investment of $100 in each of the Standard & Poor's
500 Stock Index, and the Business Services & Supply Peer Group Index ("BS&S
Index") assuming reinvestment of all dividends. Each of the indexes is weighted
on a market capitalization basis at the time of each reported data point. The
BS&S Index1 is an index of 58 companies, including the Company, CUC
International and SPS Transaction Systems, originally constructed by Bridge
Information Services. For periods after 1992, this information was no longer
available from Bridge Information Services and therefore the Company retained a
consultant to recreate the index for 1993, 1994, the Transition Period and 1995.
The closing price of Company Common Stock on December 31, 1995 and June 26,
1996, as reported on the NYSE Composite Transactions Tape, was $10.125 and
$13.50 per share, respectively. Past performance of Company Common Stock is not
necessarily indicative of future performance or trends.
COMPARISON OF 62 MONTH CUMULATIVE TOTAL RETURN*
AMONG IDEON GROUP, INC., THE S&P 500 INDEX AND A PEER GROUP
350
300
250
[PLOT POINTS TO COME]
200
150
100
50
0
10/90 10/91 10/92 10/93 10/94 12/94 12/95
- ------------
* $100 invested on 10/31/90 in stock or index -- including reinvestment of
dividends. Fiscal year ending October 31 prior to 1994; December 31,
thereafter.
106
<PAGE>
- ------------
(1) The BS&S Index consists of the following companies: Tenera Inc., Education
Alternatives, Inc., General Employment Enterprises, Inc., GRC International,
Inc., Comdisco, Inc., Central Transport Rental Group PLC (formerly Tiphook
PLC), International Testing Services, Inc., General Physics Corporation,
Craig Corporation, PLM International, Inc., Health Professionals, Inc.,
Union Corporation, SPS Transaction Systems, Inc., National Education
Corporation, CDI Corporation, BET Public Ltd Co., Ecology & Environment,
Inc., Sotheby's Holdings, Inc., Berlitz International, Inc., Dun &
Bradstreet Corporation, Rollins, Inc., The Olsten Corp., Ideon Group, Inc.,
Ogden Corporation, Robert Half International, Inc., CUC International Inc.,
ServiceMaster L.P., Biomechanics Corporation of America, Greiner
Engineering, Inc., Joule, Inc., Kaneb Services, Inc., American Medical Alert
Corporation, Manpower, Inc., Marlton Technologies, Inc., National Patent
Development Corporation, RCM Technologies, Inc., Scandinavia Company, Inc.,
Talley Industries, Inc., Winston Resources, Inc., Executive Telecard Ltd.,
EG & G, Inc., PLM Equipment Growth Funds I and II, Wackenhut Corporation,
ADT Ltd., FlightSafety International, Inc., URS Corporation, ETS
International, Inc. ABM Industries, Inc., Stone & Webster, Inc., Baker
Michael Corporation, United American Healthcare Corporation, Huntingdon
International Holdings PLC., CompUSA, Inc., Brandon Systems Corporation,
Science Management Corporation, Automated Security Holdings PLC and Randers
Group, Inc. Several companies included in last year's BS&S Index,
Ameriscribe, Inc., Enterra Corporation, CRSS, Inc., Continental Information
Systems Corp., Partech Holdings and University Patents, Inc., are no longer
publicly traded. Science Management Corporation is not weighted in the index
because of its low stock price and low trading volume.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MUSEUM ART PROPERTIES, INC. Effective September 1994, the Company entered
into an agreement with Museum Art Properties, Inc. ("MAP") pursuant to which the
Company was granted a license to market products inspired by works in the 13
Vatican Museums. The agreement provided that the Company would pay MAP certain
royalties and other fees from the sale of such products. In 1994, the Company
paid a promotion fee of $250,000 upon award of the license and an advance
against royalties of $1,500,000 to MAP. In addition, if the Company conducted
sales under the agreement, the Company guaranteed certain royalties to MAP in
1996 and 1997. The agreement was amended twice to extend the time for testing
the products through its Collections of the Vatican Museums catalog. Under a
second amendment to the agreement, the Company had until May 1, 1996 to decide
whether to terminate the agreement without being liable for any minimum
royalties in 1996 or thereafter. On April 18, 1996, the Company notified MAP
that it was terminating the agreement and filed suit in Florida state court for
Duval County seeking a declaration of its rights to terminate the amended
agreement. On April 19, 1996, MAP filed a suit in New York state court alleging
that the Company breached the agreement and seeking damages of $50 million. On
May 14, 1996, MAP amended its complaint to add Eugene Miller and Walter Forbes,
the Chief Executive Officer of CUC International, as individual defendants, to
include claims of tortious interference with contract and business relationships
and to increase the monetary damages sought to $125 million. Director Robert L.
Dilenschneider was a director of MAP until his resignation on April 18, 1996.
Mr. Dilenschneider is a 10% shareholder of MAP, and has recused himself from
issues relating to the dispute between the Company and MAP.
PUBLIC RELATIONS AND INVESTOR RELATIONS CONSULTING. In December 1994, the
Company paid the Dilenschneider Group, Inc., a public relations firm of which
the majority shareholder is director Robert L. Dilenschneider, $180,000 for
market communications and promotion/publicity services to the Company in
connection with certain specified projects. In 1995, the Company reimbursed the
Dilenschneider Group, Inc. for out-of-pocket expenses incurred in connection
with providing market communications and promotion/publicity services to the
Company. This arrangement has not been renewed for 1996.
JACKSONVILLE JAGUARS. The Company has entered into an agreement with the
Jacksonville Jaguars, Ltd. to license a suite located in the stadium in
Jacksonville, Florida at which the Jacksonville franchise of the National
Football League plays its games for the development of business relationships.
Under the suite license, the Company has paid a security deposit of $75,000 and
license fees of $75,000 and $79,458 for 1995 and 1996, respectively. The Company
also paid $10,000 for an upgrade of the suite. Director Thomas F. Petway, III is
a limited partner owning 10% of the Jacksonville Jaguars, Ltd.
107
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENT--PAUL G. KAHN. In December 1993, the Company named Paul
G. Kahn as its Chief Executive Officer and Chairman of its Board of Directors.
On February 5, 1996, Mr. Kahn's employment with the Company was terminated.
Under his employment agreement with the Company (the "Kahn Agreement"), Mr. Kahn
received an annual base salary of at least $750,000 and was entitled to
participate in the annual performance-based incentive bonus plan of the Company.
Mr. Kahn was also granted a $250,000 bonus upon execution of the Kahn Agreement
and 5,000 restricted shares of Company Common Stock with restrictions lapsing on
each of the first four anniversary dates of his employment. Mr. Kahn was also
granted options to acquire 1,000,000 shares of Company Common Stock under the
1994 Plan.
The initial term of the Kahn Agreement was to expire on December 31, 1996
and would have been automatically renewed thereafter for additional one-year
terms unless either party notified the other within 180 days prior to any such
renewal date that the Kahn Agreement would not be extended. The Kahn Agreement
provided that if Mr. Kahn terminated his employment during the employment term
for "good reason" or was terminated by the Company during the employment term
other than for "cause", death or "disability" (all as defined in the Kahn
Agreement), he would generally be entitled to severance pay in an amount equal
to 150% of the sum of his then current base salary plus the highest amount of
incentive compensation received for any bonus period during the employment term,
provided, that if the termination occurred within three years following a
"change in control", 300% would be substituted for 150%. In addition, all of his
options would immediately vest.
Unless approved by a majority of the directors then in office, who were also
directors immediately after the adoption of the Kahn Agreement, and not preceded
in the prior year by a public disclosure, which disclosure was not approved by
the Company, by an acquiring person of a proposal regarding the following
events, the following events are defined as a "change in control": (i) the
acquisition by any person of direct or indirect beneficial ownership of 25% of
the combined voting power of the Company's then outstanding securities; (ii) an
exchange or tender offer for Company Common Stock; (iii) shareholder approval of
a merger or consolidation of the Company unless the Company is the surviving
corporation and no capital reorganization or reclassification or other change in
the then-outstanding shares of Company Common Stock occurs, a sale or
disposition of all or substantially all of the Company's assets, or liquidation
or dissolution of the Company; or (iv) turnover of more than one-third of the
directors in a two-year period, unless the nomination or election of each new
director was approved by at least two-thirds of the directors then still in
office who were directors at the beginning of the two-year period.
The Kahn Agreement also provided for certain executive benefits, including
individual life and long-term disability insurance policies, an annual executive
allowance for automobile and certain professional services, and a supplemental
retirement benefit consisting of a grantor trust to be funded by annual
contributions by the Company equal to 6.7% of Mr. Kahn's annual base salary.
Mr. Kahn agreed not to compete with, solicit any key employees of, or make
any public statements critical of, the Company during the term of his employment
or for a period of twelve months thereafter.
Pursuant to a settlement agreement dated April 18, 1996 and based on the
terms of the Kahn Agreement, the Company paid Mr. Kahn $2,580,000 in connection
with the termination of his employment and in full settlement of the Company's
obligations thereunder.
EMPLOYMENT AGREEMENTS--FRANCIS J. MARINO, G. THOMAS FRANKLAND AND JOHN R.
BIRK. On February 1, 1994, the Company named Francis J. Marino as its Vice
Chairman, and on May 1, 1994, the Company named G. Thomas Frankland as its Vice
Chairman and Chief Financial Officer. On September 14, 1994, with the closing of
the acquisition of Wright Express, the Company entered into an agreement with
John R. Birk as President and Chief Executive Officer of Wright Express. When
Mr. Birk was promoted to President and Chief Operating Officer of the Company
effective January 1, 1995, his agreement was amended to increase his base salary
and to reflect the change in his title. The Company's employment agreement with
Mr. Marino (the "Marino Agreement"), its employment
108
<PAGE>
agreement with Mr. Frankland (the "Frankland Agreement"), and its employment
agreement with Mr. Birk (as amended, the "Birk Agreement"), provide that each of
Messrs. Marino, Frankland and Birk would receive an annual base salary of at
least $350,000 and would be eligible to participate in the short-term incentive
plan of the Company. Upon the execution of their respective employment
agreements, Messrs. Marino, Frankland and Birk were each granted a $32,000 bonus
and 1,000 restricted shares of Company Common Stock with restrictions lapsing
after six months from the date of grant. Each of Messrs. Marino and Frankland
was further granted Options to acquire 300,000 shares of Company Common Stock
under the 1994 Plan. Mr. Birk was granted Options to purchase 150,000 shares of
Company Common Stock upon the Company's acquisition of Wright Express and
additional Options to purchase 150,000 shares of Company Common Stock upon his
promotion to President and Chief Operating Officer of the Company.
The initial term of the Marino Agreement expires on December 31, 1996. The
initial term of the Frankland Agreement expires on May 31, 1997, and the initial
term of the Birk Agreement would have expired on September 13, 1997. Each of
these agreements provide for automatic renewal after the initial term for
additional one-year terms unless either party notifies the other within 180 days
prior to any such renewal date that such agreement will not be extended. The
Marino Agreement, the Frankland Agreement and the Birk Agreement each contain
the same provisions as the Kahn Agreement regarding severance pay due to such
officers upon termination with "good reason" or other than for "cause," death or
"disability," and upon a "change of control," and regarding the vesting of
options.
The Marino Agreement, the Frankland Agreement and the Birk Agreement also
provide for certain executive benefits during the term of employment, including
individual life and long-term disability insurance policies, an annual executive
allowance for automobile expenses and certain professional services, and for a
supplemental retirement benefit consisting of a grantor trust to be funded by
annual contributions by the Company equal to 6.7% of such executive's respective
annual base salary. The Marino Agreement, the Frankland Agreement and the Birk
Agreement also entitle such executives to the relocation benefits (but not the
relocation bonus) provided to other Company employees, with certain adjustments.
Under their respective agreements, Messrs. Marino, Frankland and Birk agreed
not to compete with, solicit any key employees of, or make any public statements
critical of, the Company during the term of their employment or for a period of
twelve months thereafter.
Mr. Birk's employment was terminated on November 15, 1995. The Company paid
him $692,479 as severance pay pursuant to the Birk Agreement. The Company is
arbitrating a dispute with Mr. Birk regarding the Birk Agreement under which he
claims he is due additional severance pay of approximately $600,000.
EXECUTIVE AGREEMENTS. The Company has executive agreements with Messrs.
Frechette and Walsh and certain other officers. The executive agreements provide
that if, following a "change of control" of the Company, an executive's
employment is terminated by the Company other than for "cause," retirement,
"disability" or death, or by the officer for "good reason" (all as defined in
the respective executive agreements), the executive will be entitled to receive
(i) a lump sum payment equal to one year's base salary; (ii) immediate vesting
of all stock options and restricted stock grants; (iii) twelve months of medical
insurance coverage reimbursed by the Company; (iv) if the Company pays such
bonus to others in the executive's class, the bonus that the executive would
have earned under the Company's Short-Term Incentive Plan, pro-rated for the
executive's length of service; (v) certain outplacement assistance; and (vi) any
amounts accrued and owing to the executive prior to termination. If the Company
terminates the executive other than for "cause", death, "disability" or
retirement prior to a "change in control," the executive will be entitled to
receive the benefits described in the foregoing sentence except that the vesting
of any options or restricted stock will not be accelerated and no bonus payments
will be made to the executive. Mr. Walsh's executive agreement also includes
provisions preventing Mr. Walsh from competing with Wright Express for one year
after termination of his employment.
109
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires executive officers and directors,
and persons who beneficially own more than ten percent of Company Common Stock,
to file reports of their beneficial ownership and reports of changes in such
ownership with the Commission. Copies of such reports are also required to be
filed with the Company. Based solely on a review of the copies of such reports
furnished to the Company and the written representations from the executive
officers and directors regarding Form 5 reports, the following reports were not
filed on a timely basis: two Forms 4 of Mr. Richard Interdonato, an Executive
Vice President of the Company for the months of May and June 1995, regarding
transactions under the Company's stock purchase plan.
PROPOSAL III
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company's Board of Directors recommends that the shareholders ratify its
appointment of Price Waterhouse LLP as independent accountants for the year
ending December 31, 1996 or until the Merger is consummated. If the Company's
shareholders approve and adopt the Merger Agreement at the Meeting and the
Merger is consummated, at the Effective Time, Ernst & Young LLP will become the
independent accountants of the Company.
If the Company's shareholders fail to approve and adopt the Merger Agreement
and also fail to ratify the appointment of Price Waterhouse LLP, the Company's
Board of Directors will consider selecting other accountants for the subsequent
year. Even if the selection of Price Waterhouse LLP is ratified, the Company's
Board of Directors, in its discretion, may direct the appointment of a new
independent accounting firm at any time during the current fiscal year if the
Company's Board of Directors determines that such change would be in the best
interests of the Company and its shareholders.
Price Waterhouse LLP has been serving as the Company's independent
accountants since 1988. Partners and non-partner personnel are rotated on a
periodic basis. A representative of Price Waterhouse LLP will be present at the
Meeting with the opportunity to make a statement if he or she desires to do so
and will be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR
ENDING DECEMBER 31, 1996 OR UNTIL THE MERGER IS CONSUMMATED.
OTHER MATTERS
Management does not know of any business to be transacted at the Meeting
other than as indicated herein. However, certain shareholders may present topics
for discussion from the floor. Should any matter other than as indicated herein
properly come before the Meeting for a vote, the persons designated as proxies
will vote thereon in accordance with their best judgment.
1997 SHAREHOLDER PROPOSALS
If the Merger Agreement is not approved and adopted by holders of Company
Common Stock at the Meeting and the Merger is not consummated by the Outside
Termination Date, the Company presently expects to hold its 1997 Annual Meeting
of Shareholders on or about May 15, 1997. If a shareholder wishes to have a
proposal considered for inclusion in the Company's proxy solicitation materials
in connection with the Company's 1997 Annual Meeting of Shareholders, the
proposal must comply with the Commission's proxy rules, be stated in writing and
be submitted on or before March 2, 1997 to the Company at 7596 Centurion
Parkway, Jacksonville, Florida 32256, Attention: Lisa
110
<PAGE>
Ormand, Vice President and Corporate Secretary. All such proposals should be
sent by certified mail, return receipt requested.
Excluding shareholder proposals to be included in the Company's proxy
materials, a shareholder is required to comply with the Company By-laws with
respect to any proposal to be presented for action at an Annual Meeting. The
Company By-laws generally require that each written proposal be delivered to or
mailed and received by the Secretary of the Company at its principal executive
office not less than 60 days nor more than 90 days prior to the date of the
annual meeting, among other conditions. The notice must include certain
additional information as specified in the Company By-laws.
If a shareholder wishes to nominate a candidate for election as director at
any Annual Meeting of shareholders, such shareholder must comply with the
Company By-laws with respect to director nominations. Written notice of a
shareholder's intent to nominate a director must be given to the Secretary of
the Company at its principal executive office generally not less than 60 days
nor more than 90 days prior to the date of the Annual Meeting. Such written
notice must include certain additional information as specified in the Company
By-laws.
Shareholders who wish to make proposals or nominate directors should review
the Company By-laws.
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND COMPANY MANAGEMENT
The following table sets forth, as of June 6, 1996 (except as otherwise
noted), beneficial ownership of Company Common Stock by each current director,
the Nominees, the named executive officers of the Company, and all of the
foregoing, together with all other executive officers, as a group. Except as
described below, each person and group listed below has sole voting and
investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF TOTAL
SHARES WHICH NUMBER
MAY BE ACQUIRED OF SHARES
NAMES OF DIRECTORS, NOMINEES AND NUMBER OF SHARES WITHIN BENEFICIALLY PERCENT OF
EXECUTIVE OFFICERS OWNED 60 DAYS(7) OWNED CLASS(%)
- -------------------------------------- ---------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
William T. Bacon, Jr. ................ 105,300(1) 0 105,300 *
John R. Birk.......................... 8,500(2) 0 8,500 *
Marshall L. Burman.................... 2,000 100,000 102,000 *
Robert L. Dilenschneider.............. 100 100,000 100,100 *
G. Thomas Frankland................... 4,029 90,000 94,010 *
Robert M. Frechette................... 11,762(3) 18,000 29,762 *
Adam W. Herbert, Jr................... 1,418 2,250 3,668 *
Paul G. Kahn.......................... 9,100(4) 0 9,100 *
Francis J. Marino..................... 2,500(5) 90,000 92,500 *
Eugene Miller......................... 500 100,000 100,500 *
Thomas F. Petway, III................. 27,673 100,000 127,673 *
Paul F. Walsh......................... 0 7,500 7,500 *
All Directors, Nominees and
Executive Officers as a group....... 225,589(6) 652,750 878,320 3.1
</TABLE>
- ------------
* Less than one percent.
(1) The shares shown include 5,000 shares of Company Common Stock owned by the
wife of Mr. Bacon, as to which he disclaims beneficial ownership.
(2) The shares shown include 1,000 shares of Company Common Stock owned by the
sons of Mr. Birk, as to which he disclaims beneficial ownership. Mr. Birk's
employment was terminated as of
(Footnotes continued on following page)
111
<PAGE>
(Footnotes continued from preceding page)
November 15, 1995. His Options to purchase 300,000 shares of Company Common
Stock terminated pursuant to their terms on December 15, 1995. The
information regarding Mr. Birk is as of February 5, 1996.
(3) The shares shown include 103 shares owned by the wife of Mr. Frechette, as
to which he disclaims beneficial ownership.
(4) The shares shown exclude 2,000 shares of restricted Company Common Stock
that were forfeited upon Mr. Kahn's termination from the Company in February
1996. His Options to purchase 1,000,000 shares of Company Common Stock
expired on March 6, 1996. The information regarding Mr. Kahn is as of
December 31, 1995.
(5) The shares shown include 1,000 shares of Company Common Stock owned by the
wife of Mr. Marino, as to which he disclaims beneficial ownership.
(6) The shares shown include the pro-rata portion of shares issuable under the
asset purchase agreement pursuant to which National Leisure Group was
acquired by the Company to a corporation of which two National Leisure Group
officers are shareholders. These two officers, who are executive officers of
the Company, also have earn-out rights to receive a maximum of an additional
82,936 shares of Company Common Stock issuable to the corporation if
National Leisure Group achieves certain operating results.
(7) The shares shown consist of Company Common Stock subject to stock Options
currently exercisable or exercisable within sixty days of May 14, 1996. Not
shown are Options to purchase Company Common Stock not currently exercisable
and not becoming exercisable sixty days after May 14, 1996, including
210,000 shares of Company Common Stock subject to Options granted to each of
Messrs. Frankland and Marino, 12,750 shares subject to Options granted to
Dr. Herbert, 42,500 shares of Company Common Stock subject to Options
granted to Mr. Walsh, 42,000 shares of Company Common Stock subject to
Options granted to Mr. Frechette and 150,000 shares of Company Common Stock
subject to Options granted to other executive officers of the Company.
The following table sets forth, as of June 1, 1996, beneficial ownership of
Company Common Stock by persons known by the Company to beneficially own more
than 5% of Company Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL HOLDER BENEFICIAL OWNERSHIP PERCENT OF CLASS (%)
- ------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Pioneering Management Corporation...................... 2,835,000(1) 10.13%
60 State Street
Boston, Massachusetts 02109-1820
Legg Mason, Inc........................................ 2,556,400(2) 9.14%
7 East Redwood Street
Baltimore, Maryland 21203-7023
The Equitable Companies Incorporated................... 2,378,600(3) 8.50%
787 Seventh Avenue
New York, New York 10019
</TABLE>
- ------------
(1) According to a Schedule 13G filed with the Commission as of December 31,
1995, Pioneering Management Corporation claimed sole voting power with
respect to all 2,835,000 shares of Company Common Stock and shared
dispositive power with respect to all 2,835,000 shares of Company Common
Stock.
(2) According to a Schedule 13G filed with the Commission as of December 31,
1995 by Legg Mason, Inc., Legg Mason Special Investment Trust holds
2,553,500 shares of Company Common Stock, with Legg Mason Fund Advisor, Inc.
having dispositive power and the remainder is held by various clients of
Legg Mason Managed Investment Portfolio which has dispositive power.
(3) According to a Schedule 13G filed with the Commission as of December 31,
1995 jointly by five French mutual insurance companies, 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,
as a group, AXA and The Equitable Companies Incorporated and its
subsidiaries, these entities beneficially owned 2,378,600 shares of Company
Common Stock as of December 31, 1995. These entities claimed sole voting
power with respect to 1,910,000 of such
(Footnotes continued on following page)
112
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
shares of Company Common Stock and shared voting power with respect to
40,400 of such shares of Company Common Stock and claimed sole dispositive
power with respect to 2,378,300 of the shares of Company Common Stock and
shared dispositive power with respect to 300 shares of Company Common Stock
shown as of December 31, 1995.
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, 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. Davidson 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.
and Mrs. Davidson on June 7, 1996, they (collectively with certain trusts for
which they serve as fiduciaries) will beneficially own approximately 9.3% of the
then-outstanding CUC International Common Stock (assuming consummation of the
Merger and the Davidson Merger, but not the Sierra Merger), and will
beneficially own approximately 8.4% of the then-outstanding CUC International
Common Stock (assuming consummation of the Merger, the Davidson Merger and the
Sierra Merger.)
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 Merger will be
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom.
113
<PAGE>
EXPERTS
The consolidated financial statements and schedule of CUC International Inc.
appearing in CUC International'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 Securities Act.
The consolidated financial statements and related financial statement
schedules of the Company incorporated in this Proxy Statement/Prospectus by
reference to the Company 10-K have been audited by Price Waterhouse LLP,
independent accountants, 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 the
Company 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.
The consolidated financial statements and related financial statement
schedules of Davidson incorporated in this Proxy Statement/Prospectus by
reference to the Davidson 10-K 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 Sierra incorporated in this Proxy Statement/Prospectus by reference
to Sierra's Amended Quarterly Report on Form 10-Q/A for the fiscal quarter 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 has 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
114
<PAGE>
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.
* * * *
Copies of all documents incorporated by reference in this Proxy
Statement/Prospectus may be obtained by writing to the Vice President of
Investor Relations, 7596 Centurion Parkway, Jacksonville, Florida 32256.
You are urged to sign, date and promptly mail the enclosed proxy in the
prepaid envelope provided for such purpose. Prompt return of your proxy may save
your Company additional solicitation expense.
We encourage all stockholders to attend the Meeting on Wednesday, August 7,
1996. If you will need special assistance at the Meeting because of a
disability, please contact the Secretary of the Company at the address above.
115
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
IDEON GROUP, INC.,
CUC INTERNATIONAL INC.
AND
IG ACQUISITION CORP.
DATED
AS OF
APRIL 19, 1996
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER............................................................................ A-5
SECTION 1.1 The Merger........................................................ A-5
SECTION 1.2 Effect on Shares.................................................. A-6
SECTION 1.3 Exchange of Certificates.......................................... A-6
SECTION 1.4 Dividends; Transfer Taxes......................................... A-7
SECTION 1.5 No Fractional Shares.............................................. A-7
SECTION 1.6 Return of Exchange Fund........................................... A-8
SECTION 1.7 Adjustment of Conversion Number................................... A-8
SECTION 1.8 No Further Ownership Rights in Shares............................. A-8
SECTION 1.9 Closing of Company Transfer Books................................. A-8
SECTION 1.10 Stock Options..................................................... A-8
SECTION 1.11 Restricted Stock.................................................. A-9
ARTICLE II
CLOSING............................................................................... A-9
SECTION 2.1 Closing........................................................... A-9
ARTICLE III
THE SURVIVING CORPORATION............................................................. A-9
SECTION 3.1 Certificate of Incorporation...................................... A-9
SECTION 3.2 Bylaws............................................................ A-9
SECTION 3.3 Directors and Officers............................................ A-9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... A-10
SECTION 4.1 Corporate Existence and Power..................................... A-10
SECTION 4.2 Corporate Authorization........................................... A-10
SECTION 4.3 Governmental Authorization........................................ A-11
SECTION 4.4 Non-Contravention................................................. A-11
SECTION 4.5 Capitalization.................................................... A-11
SECTION 4.6 Subsidiaries...................................................... A-12
SECTION 4.7 SEC Documents..................................................... A-12
SECTION 4.8 Financial Statements; No Undisclosed Liabilities.................. A-12
SECTION 4.9 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus.............................................. A-13
SECTION 4.10 Absence of Certain Changes........................................ A-13
SECTION 4.11 Litigation........................................................ A-14
SECTION 4.12 Taxes............................................................. A-15
SECTION 4.13 Employee Matters.................................................. A-15
SECTION 4.14 Labor Matters..................................................... A-16
SECTION 4.15 Compliance with Laws.............................................. A-17
SECTION 4.16 Finders' Fees..................................................... A-17
SECTION 4.17 Environmental Matters............................................. A-17
SECTION 4.18 Property.......................................................... A-17
SECTION 4.19 Intangible Property............................................... A-22
SECTION 4.20 Material Contracts................................................ A-22
SECTION 4.21 Accounting Matters................................................ A-22
SECTION 4.22 Vote Required..................................................... A-22
SECTION 4.23 Fairness Opinion.................................................. A-19
SECTION 4.24 Disclosure........................................................ A-19
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY......................... A-19
SECTION 5.1 Corporate Existence and Power..................................... A-19
SECTION 5.2 Corporate Authorization........................................... A-19
SECTION 5.3 Governmental Authorization........................................ A-19
SECTION 5.4 Non-Contravention................................................. A-20
SECTION 5.5 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus.............................................. A-20
SECTION 5.6 Finders' Fees..................................................... A-20
SECTION 5.7 No Vote Required.................................................. A-20
SECTION 5.8 Share Ownership................................................... A-20
SECTION 5.9 Capitalization.................................................... A-20
SECTION 5.10 Accounting Matters................................................ A-21
SECTION 5.11 Ownership of Merger Subsidiary; No Prior Activities; Assets of
Merger Subsidiary................................................. A-21
SECTION 5.12 SEC Documents..................................................... A-21
SECTION 5.13 Financial Statements.............................................. A-21
SECTION 5.14 Absence of Certain Changes or Events.............................. A-22
SECTION 5.15 Litigation........................................................ A-22
SECTION 5.16 Authorization for Buyer Common Stock.............................. A-22
SECTION 5.17 Taxes............................................................. A-23
SECTION 5.18 Disclosure........................................................ A-23
ARTICLE VI
COVENANTS OF THE COMPANY.............................................................. A-23
SECTION 6.1 Conduct of the Company............................................ A-23
SECTION 6.2 Stockholder Meeting; Proxy Material............................... A-25
SECTION 6.3 Access to Information; Confidential Agreement..................... A-25
SECTION 6.4 No Solicitation................................................... A-26
SECTION 6.5 Conveyance Taxes.................................................. A-27
ARTICLE VII
COVENANTS OF BUYER.................................................................... A-27
SECTION 7.1 Obligations of Merger Subsidiary.................................. A-27
SECTION 7.2 Voting of Shares.................................................. A-27
SECTION 7.3 Director and Officer Liability.................................... A-27
ARTICLE VIII
COVENANTS OF BUYER, MERGER SUBSIDIARY AND THE COMPANY................................. A-30
SECTION 8.1 Reasonable Best Efforts........................................... A-30
SECTION 8.2 Certain Filings................................................... A-30
SECTION 8.3 Public Announcements.............................................. A-30
SECTION 8.4 Conveyance Taxes.................................................. A-30
SECTION 8.5 Further Assurances................................................ A-30
SECTION 8.6 Employee Matters.................................................. A-30
SECTION 8.7 Company Proxy Statement and Registration Statement................ A-31
SECTION 8.8 Tax-Free Reorganization Treatment................................. A-31
SECTION 8.9 Notification of Certain Matters................................... A-31
SECTION 8.10 Blue Sky Permits.................................................. A-31
SECTION 8.11 NYSE Listing...................................................... A-32
SECTION 8.12 Pooling Letter.................................................... A-32
SECTION 8.13 Pooling........................................................... A-32
SECTION 8.14 SEC Filings....................................................... A-32
SECTION 8.16 Affiliates........................................................ A-32
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX
CONDITIONS TO THE MERGER.............................................................. A-33
SECTION 9.1 Conditions to the Obligations of Each Party....................... A-33
SECTION 9.2 Conditions to the Obligations of the Company...................... A-33
SECTION 9.3 Conditions to the Obligations of Buyer and Merger Subsidiary...... A-34
ARTICLE X
TERMINATION........................................................................... A-35
SECTION 10.1 Termination....................................................... A-35
SECTION 10.2 Effect of Termination............................................. A-36
ARTICLE XI
DEFINED TERMS......................................................................... A-36
ARTICLE XII
MISCELLANEOUS......................................................................... A-39
SECTION 12.1 Notices........................................................... A-39
SECTION 12.2 Survival of Representations and Warranties........................ A-40
SECTION 12.3 Amendments; No Waivers............................................ A-40
SECTION 12.4 Expenses.......................................................... A-40
SECTION 12.5 Successors and Assigns............................................ A-41
SECTION 12.6 Governing Law..................................................... A-41
SECTION 12.7 Severability...................................................... A-41
SECTION 12.8 Third Party Beneficiaries......................................... A-41
SECTION 12.9 Entire Agreement.................................................. A-41
SECTION 12.10 Counterparts; Effectiveness....................................... A-41
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 19, 1996 (this "Agreement"),
by and among Ideon Group, Inc., a Delaware corporation (the "Company"), CUC
International Inc., a Delaware corporation ("Buyer"), and IG Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of Buyer ("Merger
Subsidiary").
WHEREAS, the respective Boards of Directors of Buyer, Merger Subsidiary and
the Company have determined that it is fair to, and in the best interests of
their respective stockholders to consummate the acquisition of the Company by
Buyer upon the terms and subject to the conditions set forth herein; and
WHEREAS, the respective Boards of Directors of the Company, Buyer and Merger
Subsidiary have approved and declared advisable this Agreement and the merger of
Merger Subsidiary with and into the Company, upon terms and subject to the
conditions set forth herein, whereby each issued and outstanding share of common
stock, par value $.01 per share, of the Company (the "Shares"), not owned
directly or indirectly by Buyer or Merger Subsidiary, will be converted into the
number of shares of common stock, par value $.01 per share of Buyer ("Buyer
Common Stock"), determined pursuant to Section 1.2(a) hereof; and
WHEREAS, it is intended that the Merger (as defined herein) shall be
recorded for accounting purposes as a pooling-of-interests; and
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, the Company has delivered to Buyer a letter (the "Company Affiliate
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 Buyer a letter substantially in the form attached
hereto as Exhibit 1 (each, an "Affiliate Letter") relating to (i) the transfer
prior to the Effective Time (as defined in Section 1.1(b)), of the Shares
beneficially owned by such Company Affiliate on the date hereof, and (ii) the
transfer of the shares of Buyer Common Stock to be received by such Company
Affiliate in the Merger (as defined in Section 1.1(a)); and
WHEREAS, Buyer, Merger Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), at the Effective Time, Merger Subsidiary shall be merged (the "Merger")
with and into the Company, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware.
A-5
<PAGE>
(b) The Company, Buyer and Merger Subsidiary will cause a certificate of
merger (the "Certificate of Merger") with respect to the Merger to be executed
and filed with the Secretary of State of the State of Delaware (the "Secretary
of State") as provided in the DGCL. The Merger shall become effective on the
date the Certificate of Merger has been duly filed with the Secretary of State
or at such date as is agreed between the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time."
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities, liabilities and duties of the Company and
Merger Subsidiary.
SECTION 1.2. Effect on Shares. At the Effective Time:
(a) Conversion of Shares; Merger Consideration. Subject to the provisions of
Section 1.5 and Section 1.7 hereof, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by the Company
as treasury stock or by any Subsidiary of the Company or owned by Buyer, Merger
Subsidiary or any other Subsidiary of Buyer) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that number of duly authorized, validly issued, fully paid and
nonassessable shares of Buyer Common Stock (the "Merger Consideration")(such
applicable number being hereinafter referred to as the "Conversion Number"),
equal to the quotient obtained by dividing (x) $13.50 by (y) the Average Stock
Price (as hereinafter defined); provided, however, that if the Average Stock
Price is $22 or less the Conversion Number shall be 0.6136 and if the Average
Stock Price is $36 or more the Conversion Number shall be 0.3750. The "Average
Stock Price" shall mean the average closing price per share of Buyer Common
Stock on the New York Stock Exchange (the "NYSE") as reported on the NYSE
Composite Tape during the fifteen consecutive trading day period (the
"Measurement Period") ending on the second calendar day immediately preceding
the Company Stockholder Meeting (as defined herein); provided, however, that if
such second calendar day is not a trading day, the Measurement Period shall end
on the next calendar day immediately preceding such second calendar day that is
a trading day.
(b) Cancellation of Shares. Each Share held by the Company as treasury stock
or owned by Buyer, Merger Subsidiary or any other Subsidiary of Buyer
immediately prior to the Effective Time shall automatically be canceled and
retired and cease to exist, and no payment shall be made with respect thereto.
All Shares to be converted into Buyer Common Stock pursuant to this Section 1.2
shall, by virtue of the Merger and without any action on the part of the holders
thereof, cease to be outstanding, be canceled and retired and cease to exist;
and each holder of a certificate representing prior to the Effective Time any
such Shares shall thereafter cease to have any rights with respect to such
Shares, except the right to receive (i) certificates representing shares of
Buyer Common Stock into which such Shares have been converted, (ii) any
dividends and other distributions in accordance with Section 1.4 hereof and
(iii) any cash, without interest, to be paid in lieu of any fractional share of
Buyer Common Stock in accordance with Section 1.5 hereof.
(c) Capital Stock of Merger Subsidiary. Each share of common stock of Merger
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and become one share of common stock, par value $0.01, of the
Surviving Corporation with the same rights, powers and privileges as the shares
so converted and shall constitute the only outstanding shares of capital stock
of the Surviving Corporation.
SECTION 1.3 Exchange of Certificates. (a) Prior to the Effective Time, Buyer
shall appoint a commercial bank having capital of not less than $500,000,000 (or
such other Person or Persons as shall be acceptable to Buyer and the Company) to
act as exchange agent hereunder (the "Exchange Agent"). At the Effective Time,
Buyer shall deposit with the Exchange Agent, certificates (the "Buyer
Certificates") representing Buyer Common Stock which immediately prior to the
Effective Time represent a number of shares of Buyer Common Stock required to be
issued pursuant to Section 1.2(a) in exchange for the outstanding Shares
(together with cash as required to (i) pay any dividends or distributions with
A-6
<PAGE>
respect thereto in accordance with Section 1.4 hereof and (ii) make payments in
lieu of fractional Shares pursuant to Section 1.5 hereof, being hereinafter
referred to as the "Exchange Fund"). The Exchange Fund shall not be used for any
other purpose except as provided for in this Agreement.
(b) Promptly 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 "Share Certificates") (i) a
form of a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Share Certificates shall pass, only
upon actual delivery thereof to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Share Certificates in exchange for the
property described in the next sentence. Upon surrender for cancellation to the
Exchange Agent of Share Certificate(s) held by any record holder of a Share
Certificate, together with such letter of transmittal duly executed, such holder
shall be entitled to receive in exchange therefor (x) a Buyer Certificate
representing the number of whole shares of Buyer Common Stock into which the
Shares represented by the surrendered Share Certificate(s) shall have been
converted at the Effective Time pursuant to this Article I, (y) cash in lieu of
any fractional share of Buyer Common Stock in accordance with Section 1.5 hereof
and (z) certain dividends and other distributions in accordance with Section 1.4
hereof; and the Share Certificate(s) so surrendered shall forthwith be
cancelled.
(c) Subject to the provisions of Section 1.4 and Section 1.5 hereof, each
Share Certificate which immediately prior to the Effective Time represented
Shares to be converted in the Merger shall, from and after the Effective Time
until surrendered in exchange for Buyer Certificate(s) in accordance with this
Section 1.3, be deemed for all purposes to represent the number of shares of
Buyer Common Stock into which such Shares shall have been so converted.
SECTION 1.4 Dividends; Transfer Taxes. No dividends or other distributions
that are declared on or after the Effective Time on Buyer Common Stock, or are
payable to the holders of record thereof who became such on or after the
Effective Time, shall be paid to any Person entitled by reason of the Merger to
receive Buyer Certificates representing Buyer Common Stock, and no cash payment
in lieu of any fractional share of Buyer Common Stock shall be paid to any such
person pursuant to Section 1.5 hereof, until such Person shall have surrendered
its Share Certificate(s) as provided in Section 1.3 hereof. Subject to
applicable law, there shall be paid to each Person receiving a Buyer Certificate
representing such shares of Buyer Common Stock: (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of any dividends
or other distributions theretofore paid with respect to the shares of Buyer
Common Stock represented by such Buyer Certificate and having a record date on
or after the Effective Time and a payment date prior to such surrender, and (ii)
at the appropriate payment date or as promptly as practicable thereafter, the
amount of any dividends or other distributions payable with respect to such
shares of Buyer Common Stock and having a record date on or after the Effective
Time but prior to such surrender and a payment date on or subsequent to such
surrender. In no event shall the Person entitled to receive such dividends or
other distributions be entitled to receive interest on such dividends or other
distributions. Buyer shall make available to the Exchange Agent the cash
necessary for this purpose. If any cash or Buyer Certificate representing shares
of Buyer Common Stock is to be paid to or issued in a name other than that in
which the Share Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Share Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of such Buyer Certificate and
the distribution of such cash payment in a name other than that of the
registered holder of the Share Certificate so surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. "Person" means an individual, a corporation, limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
SECTION 1.5 No Fractional Shares. No certificates or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Share Certificates pursuant to
A-7
<PAGE>
this Article I; no dividend or other distribution by Buyer and no stock split,
combination or reclassification shall relate to any such fractional share; and
no such fractional share shall entitle the record or beneficial owner thereof to
vote or to any other rights of a stockholder of Buyer. In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
thereto upon the surrender of Share Certificate(s) for exchange pursuant to this
Article I will be paid an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying (i) the per share closing price on
the NYSE of Buyer Common Stock (as reported on the NYSE Composite Tape) on the
date on which the Effective Time shall occur (or, if Buyer Common Stock shall
not trade on the NYSE on such date, the first day of trading in Buyer Common
Stock on the NYSE, thereafter) by (ii) the fractional share to which such holder
would otherwise be entitled. Buyer shall make available to the Exchange Agent
the cash necessary for this purpose.
SECTION 1.6 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of the Shares for one year after the
Effective Time shall be delivered to Buyer, upon its request, and any such
former holders who have not theretofore surrendered to the Exchange Agent their
Share Certificate(s) in compliance with this Article I shall thereafter look
only to Buyer for payment of their claim for shares of Buyer Common Stock, any
cash in lieu of fractional shares of Buyer Common Stock and any dividends or
distributions with respect to such shares of Buyer Common Stock. Neither Buyer
nor the Company shall be liable to any former holder of Shares for any such
shares of Buyer Common Stock held in the Exchange Fund (and any cash, dividends
and distributions payable in respect thereof) which is delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 1.7 Adjustment of Conversion Number. In the event of any stock
split, combination, reclassification or stock dividend with respect to Buyer
Common Stock, any change or conversion of Buyer Common Stock into other
securities or any other dividend or distribution with respect to Buyer Common
Stock (other than quarterly cash dividends issued in the ordinary course
consistent with past practice) and any distribution by Buyer of shares of
capital stock of any of its affiliates, or if a record date with respect to any
of the foregoing should occur, prior to the Effective Time, appropriate and
proportionate adjustments shall be made to the Conversion Number, and thereafter
all references in this Agreement to the Conversion Number shall be deemed to be
the Conversion Number as so adjusted.
SECTION 1.8 No Further Ownership Rights in Shares. All certificates
representing shares of Buyer Common Stock delivered upon the surrender for
exchange of any Share Certificate in accordance with the terms hereof (including
any cash paid pursuant to Section 1.4 or Section 1.5 hereof) shall be deemed to
have been delivered (and paid) in full satisfaction of all rights pertaining to
the Shares previously represented by such Share Certificate.
SECTION 1.9 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed, and no transfer of Shares
shall thereafter be made. Subject to the last sentence of Section 1.6 hereof, if
after the Effective Time, Share Certificates are presented to the
Surviving Corporation, they shall be cancelled and exchanged as provided in this
Article I.
SECTION 1.10 Stock Options. (a) Not later than the Effective Time, each
outstanding employee or director stock option (an "Option") to purchase Shares
granted under any employee or director stock option or compensation plan or
arrangement of the Company (other than any "stock purchase plan" within the
meaning of Section 423 of the Code) immediately prior to the Effective Time in
effect on the date hereof ("Company Stock Plans") whether or not then vested or
exercisable, shall become and represent an option to purchase the number of
shares of Buyer Common Stock (a "Substitute Option"), rounded up to the nearest
whole share, determined by multiplying (i) the number of Shares subject to such
Option immediately prior to the Effective Time by (ii) the Conversion Number, at
an exercise price per share of Buyer Common Stock (increased to the nearest
whole cent) equal to the exercise price per Share immediately prior to the
Effective Time divided by the Conversion Number; provided, however, that in the
case of any Option to which Section 421 of the Code applies by reason of its
A-8
<PAGE>
qualification as an incentive stock option under Section 422 of the Code, the
conversion formula shall be adjusted if necessary to comply with Section 424(a)
of the Code. After the Effective Time, except as provided above in this Section
1.10, each Substitute Option shall be exercisable upon the same terms and
conditions as were applicable to the related Option immediately prior to the
Effective Time. Buyer shall register under the Securities Act on Form S-8 or
another appropriate form (and use its best efforts to maintain the effectiveness
thereof and maintain the current status of the prospectuses contained therein)
all Substitute Options and all shares of Buyer Common Stock issuable pursuant to
all Substitute Options. At or prior to the Effective Time, Buyer shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Buyer Common Stock for delivery in connection with the Substitute Options.
(b) Notwithstanding the foregoing, each Option held by any director of the
Company at the Effective Time, shall be converted at the Effective Time into the
right to receive that number of duly authorized, validly issued, fully paid and
nonassessable shares of Buyer Common Stock determined by multiplying (i) the
number of Shares such holder could have purchased had such holder exercised such
Option in full immediately prior to the Effective Time by (ii) a fraction, the
numerator of which shall be the excess, if any, of (A) the Conversion Number
multiplied by the Average Stock Price over (B) the applicable exercise price of
such Option and the denominator of which shall be the Average Stock Price.
SECTION 1.11 Restricted Stock. Any unvested shares of restricted stock of
the Company, however granted, shall to the extent required in the plan,
agreement or instrument pursuant to which such restricted stock was granted,
vest and become free of all restrictions immediately prior to the Effective Time
and shall be convertible into Buyer Common Stock pursuant to Section 1.2 hereof.
ARTICLE II.
CLOSING
SECTION 2.1 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., New York City time, on a date to be specified by the
parties, which shall be no later than the third business day after satisfaction
or waiver of all of the conditions set forth in Article IX hereof (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.
ARTICLE III.
THE SURVIVING CORPORATION
SECTION 3.1 Certificate of Incorporation. The certificate of incorporation
of the Company (the "Company Certificate of Incorporation") in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 3.2 Bylaws. The by-laws of the Company (the "Company By-laws") in
effect at the Effective Time shall be the by-laws of the Surviving Corporation
until amended in accordance with applicable law.
SECTION 3.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Subsidiary at the Effective Time shall
be the initial directors of the Surviving Corporation and the officers of the
Company at the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
appointed or qualified.
A-9
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer and Merger Subsidiary that:
SECTION 4.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and except as set forth on Schedule 4.1 of the disclosure schedule
delivered by the Company in connection herewith (the "Company Disclosure
Schedule"), has all corporate powers and all governmental licenses,
authorizations, consents and approvals (collectively, "Licenses") required to
carry on its business as now conducted except where the failure to have any such
License would not have a Material Adverse Effect (as defined below). The Company
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not
have a Material Adverse Effect. As used herein, the term "Material Adverse
Effect" means a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and its
Subsidiaries (as defined in Section 4.6 hereof), or Buyer and Merger Subsidiary,
as the case may be, in each case taken as a whole, that is not a result of
general changes in the economy or the industries in which such entities operate.
The Company has heretofore delivered or made available to Buyer true and
complete copies of the Company Certificate of Incorporation and Company By-laws
as currently in effect.
SECTION 4.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and,
except for any required approval by the Company's stockholders in connection
with the consummation of the Merger, have been duly authorized by all necessary
corporate action. This Agreement, assuming due and valid authorization,
execution and delivery by the parties hereto, constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except that (i) enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. To the extent permitted under any Option
or option plan, restricted stock plan, agreement or instrument or any
employment, executive, severance or similar agreement to which the Company or
any of its Subsidiaries is a party, such that none of the execution, delivery
and performance by the Company of this Agreement or the consummation of the
transactions contemplated hereby (including, without limitation, the election of
the members of the Board of Directors of Merger Subsidiary as the initial
directors of the Surviving Corporation at the Effective Time pursuant to Section
3.3) will constitute a "change of control" or "change in control" thereunder or
result in an alteration of the benefits and burdens (including, without
limitation, by means of acceleration) thereunder, the necessary majority of
members of the Board of Directors has approved the execution, delivery and
performance by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby.
A-10
<PAGE>
SECTION 4.3 Governmental Authorization. Except as set forth in Schedule 4.3
of the Company Disclosure Schedule, the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority (each, a
"Governmental Entity") other than: (i) the filing of a certificate of merger in
accordance with the DGCL; (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (iii)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); (iv) compliance with the applicable
requirements of state blue sky laws; (v) compliance with the applicable
requirements of any applicable takeover laws; and (vi) such other actions by or
in respect of, or filings with, any Governmental Entity the failure of which to
obtain or make would not have a Material Adverse Effect and which would not
materially impair or materially delay the ability of the Company to consummate
the transactions contemplated hereby.
SECTION 4.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the Company Certificate of Incorporation or Company By-laws, (ii) except as
set forth in Schedule 4.4 of the Company Disclosure Schedule and assuming
compliance with the matters referred to in Section 4.3 hereof, contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or any Subsidiary of the Company, (iii) except as set forth in Schedule 4.4 of
the Company Disclosure Schedule, with or without the giving of notice or passage
of time or both, constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Subsidiary of the Company or to a loss of any benefit to which
the Company or any Subsidiary of the Company is entitled under any provision of
any agreement, contract or other instrument binding upon the Company or any
Subsidiary of the Company or any license, franchise, permit or other similar
authorization held by the Company or any Subsidiary of the Company, or (iv)
result in the creation or imposition of any Lien (as defined below) on any asset
of the Company or any Subsidiary of the Company, excluding from the foregoing
clauses (ii), (iii) or (iv), such violations, breaches, defaults or Liens which
would not have a Material Adverse Effect, and which will not materially impair
or materially delay the ability of the Company to consummate the transactions
contemplated hereby. For purposes of this Agreement, "Lien" means, with respect
to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset.
SECTION 4.5 Capitalization. The authorized capital stock of the Company
consists of 90,000,000 Shares and 10,000,000 shares of preferred stock (the
"Preferred Stock"). As of March 31, 1996, there were (i) 27,981,831 Shares
issued and outstanding; (ii) 6,964,169 Shares held in the Company's treasury;
and (iii) no shares of Preferred Stock issued and outstanding. As of March 31,
1996, there were (i) 1,713,900 outstanding Options pursuant to the 1994 Long
Term Stock-Based Incentive Plan with an exercise price range of a minimum
exercise price of $7.625 and a maximum exercise price of $20.75; (ii) 108,700
outstanding Options pursuant to the Employees Stock Option Plan with a minimum
exercise price of $9.875 and a maximum exercise price of $19.125; (iii) 300,000
outstanding Options granted to outside directors with an exercise price range of
a minimum exercise price of $9.00 and a maximum exercise price of $13.00; (iv)
8,333 outstanding Options pursuant to the 1991 Employee Stock Option Plan with
an exercise price of $9.00; (v) 10,000 outstanding Options pursuant to the 1992
Employee Stock Option Plan with an exercise price of $8.875 and (vi) 30,000
outstanding Options pursuant to the Directors Stock Plan with an exercise price
of $15.875. Schedule 4.5 of the Company Disclosure Schedule accurately sets
forth information regarding the exercise price, date of grant and number of
granted Options for each holder of Options as of March 31, 1996. All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this Section
4.5, and except for changes since March 31, 1996 resulting from the exercise of
employee Options outstanding on such date, there are outstanding (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company or of any Subsidiary of the Company convertible into or
exchangeable for shares of
A-11
<PAGE>
capital stock or voting securities of the Company, and (iii) except as set forth
on Schedule 4.5 of the Company Disclosure Schedule, no options or other rights
to acquire from the Company, and no obligation of the Company to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "Company Securities").
There are no outstanding obligations of the Company or any Subsidiary of the
Company to repurchase, redeem or otherwise acquire any Company Securities.
Except as set forth on Schedule 4.5 of the Company Disclosure Schedule, there
are no stockholder agreements, voting trusts or understandings to which the
Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company. Except as otherwise
provided in Section 1.11 of this Agreement, the Company has not taken any action
that would result in any Options or shares of restricted stock that are unvested
becoming vested in connection with or as a result of the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
No Subsidiary of the Company owns any capital stock of the Company.
SECTION 4.6 Subsidiaries. (a) Each Subsidiary of the Company that is
actively engaged in any business or owns any material assets (an "Active
Subsidiary") (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, (ii) except
as set forth in Schedule 4.6 of the Company Disclosure Schedule, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
(iii) is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except with respect to (ii) and (iii) above to the extent the failure of this
representation and warranty to be true would not have a Material Adverse Effect.
For purposes of this Agreement, "Subsidiary" means with respect to any Person,
any corporation or other legal entity of which such Person owns, directly or
indirectly, more than 50% of the outstanding stock or other equity interests,
the holders of which are entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity. All
Active Subsidiaries, their respective jurisdictions of incorporation and the
ownership interest of the Company and its Subsidiaries in such Active
Subsidiaries are identified on Schedule 4.6 of the Company Disclosure Schedule.
(b) Each outstanding share of capital stock of each Subsidiary of the
Company has been duly and validly authorized and issued, is fully paid and
nonassessable and is owned by the Company and/or one or more of its Subsidiaries
free and clear of any Liens. There are no subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character relating to the issuance, transfer, sale, delivery, voting or
redemption (including any rights of conversion or exchange under any outstanding
security or other instrument) for, any of the capital stock or other equity
interests of any of such Subsidiaries. There are no agreements requiring the
Company or any of its Subsidiaries to make contributions to the capital of, or
lend or advance funds to, any of the Subsidiaries of the Company.
SECTION 4.7 SEC Documents. The Company has filed all required reports, proxy
statements, forms and other documents with the SEC since January 1, 1994
("Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the Securities and Exchange Commission (the "SEC") promulgated
thereunder applicable to such Company SEC Documents, and (ii) none of the
Company SEC Documents contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 4.8 Financial Statements; No Undisclosed Liabilities. The
consolidated financial statements of the Company included in the Company SEC
Documents (i) comply as to form in all material respects with all applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in conformity with generally accepted
accounting principles ("GAAP"), applied on a consistent basis (except in the
case of unaudited statements, as
A-12
<PAGE>
permitted by Form 10-Q of the SEC) during the periods involved (except as may be
indicated in the related notes and schedules thereto) and (iii) fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in Schedule 4.8 of the Company Disclosure Schedule and
except as set forth in the Company SEC Documents filed and publicly available
prior to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business since the date of the most recent
consolidated balance sheet included in the Company SEC Documents filed and
publicly available prior to the date of this Agreement, neither the Company nor
any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of the Company and its consolidated
Subsidiaries or in the notes thereto.
SECTION 4.9 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus. None of the information to be supplied by the Company for
inclusion or incorporation by reference in the Form S-4 Registration Statement
(as hereinafter defined) or the Company Proxy Statement (as hereinafter defined)
will (i) in the case of the Form S-4 Registration Statement, at the time it
becomes effective, at the Effective Time or at the Company Stockholder Meeting
(as hereinafter defined), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) in the case of the
Company Proxy Statement, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event with respect to
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
Company Proxy Statement or the Form S-4 Registration Statement, such event shall
be so described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of the
Company. The Company Proxy Statement will (with respect to information relating
to the Company) comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in the Company
SEC Documents filed by the Company or as set forth in Schedule 4.10 of the
Company Disclosure Schedule, the Company and its Subsidiaries have conducted
their business in the ordinary course of business and there has not been since
January 1, 1996:
(a) any event, occurrence or facts which has had or reasonably could be
expected to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend (other
than regular quarterly dividends) or other distribution with respect to any
shares of capital stock of the Company, or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the Company;
(c) any amendment of any term of any outstanding security of the Company
or any Subsidiary of the Company;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of the Company of any indebtedness for borrowed money other than
in the ordinary course of business;
(e) any creation or assumption by the Company or any Subsidiary of the
Company of any Lien on any asset other than in the ordinary course of
business and other than Liens which do not have and could not reasonably be
expected to have a Material Adverse Effect;
A-13
<PAGE>
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than advances to employees in the ordinary
course of business and loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of the Company made in the ordinary
course of business;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary of the Company which has had or could reasonably be expected to
have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary of the Company relating to
its assets or business (including the acquisition or disposition of any
assets) or any relinquishment by the Company or any Subsidiary of the
Company of any contract or other right, in either case, that have had or
could reasonably be expected to have a Material Adverse Effect, other than
transactions and commitments in the ordinary course of business and those
contemplated by this Agreement;
(i) any change, or any application or request to the SEC for any change,
in any method of accounting or accounting practice by the Company or any
Subsidiary of the Company, except for any such change required by reason of
a concurrent change in generally accepted accounting principles;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary of the Company, (ii)
employment, consulting, indemnification, severance, termination, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or
any Subsidiary of the Company entered into, (iii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Company or any
Subsidiary of the Company, in each case, other than in the ordinary course
of business; or
(k) any authorization of any of, or commitment or agreement to take any
of, the foregoing actions except as otherwise expressly permitted by this
Agreement.
SECTION 4.11 Litigation. Except as set forth in either the Company SEC
Documents or in Schedule 4.11 of the Company Disclosure Schedule, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of the Company threatened against, the Company, any Subsidiary of the Company or
any of their respective properties before any court or arbitrator or any
Governmental Entity, which, (a) if determined or resolved adversely to the
Company or any Subsidiary of the Company in accordance with the plaintiff's
demands, could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect 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 by this Agreement. Except as
set forth in the Company SEC Documents, as of the date of this Agreement, 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 or would prevent or
materially delay the consummation of the transactions contemplated hereby.
Except as set forth in the Company SEC Documents, Schedule 4.11 of the Company
Disclosure Schedule sets forth a complete list of (x) all actions, suits,
investigations or proceedings pending against, or to the knowledge of the
Company, threatened against any former or current director or officer of the
Company or any Subsidiary of the Company and (y) to the knowledge of the
Company, all material actions, suits, investigations, or proceedings pending or
threatened against any former or current employee of the Company or any
Subsidiary of the Company, in the case of each of (x) and (y), based on, or
arising out of the fact that, such person is or was a director, officer or
employee, as the case may be, of the Company or any Subsidiary of the Company,
as well as such matters as have been completed and in respect of which the
Company has any remaining indemnification or other monetary obligations.
A-14
<PAGE>
SECTION 4.12 Taxes. (a) Except as set forth on Schedule 4.12 of the Company
Disclosure Schedule: (i) the Company and each of its Subsidiaries has filed or
has had filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns (as defined herein) with respect to Taxes (as defined herein) of the
Company and each of its Subsidiaries; (ii) all material Taxes with respect to
the Company and its Subsidiaries have been paid in full or have been provided
for in accordance with GAAP on the Company's most recent balance sheet which is
part of the Company SEC Documents; (iii) there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any federal,
state, local or foreign income or other material Tax Returns required to be
filed by or with respect to the Company and its Subsidiaries; (iv) none of the
Tax Returns of or with respect to the Company or any of its Subsidiaries is
currently being audited or examined by any Governmental Entity; and (v) no
deficiency for any income or other material Taxes has been assessed with respect
to the Company or any of its Subsidiaries which has not been abated or paid in
full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return" shall
mean any report, return, documents, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction with respect to
Taxes.
SECTION 4.13 Employee Matters. (a) Schedule 4.13(a) contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agreement or arrangement,
sponsored, maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b)(1) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA"), for the benefit of any employee or former employee of the
Company, whether formal or informal and whether legally binding or not (the
"Plans"). Schedule 4.13(a) identifies each of the Plans that is an "employee
welfare benefit plan," or "employee pension benefit plan" as such terms are
defined in Sections 3(1) and 3(2) of ERISA (such plans being hereinafter
referred to collectively as the "ERISA Plans").
(b) With respect to each of the Plans, the Company has heretofore delivered
or made available to Buyer true and complete copies of each of the following
documents:
(i) a copy of the Plan or a description of all material terms thereof
(including all amendments thereto);
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Plan for the last three years; and
(iv) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified
under Section 401 of the Code.
(c) No material liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate since the effective date of ERISA that has not
been satisfied in full, and no condition exists that presents a material risk to
the Company or an ERISA Affiliate of incurring a material
A-15
<PAGE>
liability under such Title, other than liability for premiums due the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been or will be made
when due.
(d) With respect to each of the ERISA Plans that is subject to Title IV of
ERISA, the present value of accrued benefits under such Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Plan's actuary with respect to such Plan, did not, as of
its latest valuation date, exceed the then current value of the assets of such
Plan allocable to such accrued benefits.
(e) Neither the Company, any ERISA Affiliate, any of the ERISA Plans, any
trust created thereunder nor any trustee or administrator thereof has engaged in
a transaction or has taken or failed to take any action in connection with which
the Company, any ERISA Affiliate, any of the ERISA Plans, any such trust, any
trustee or administrator thereof, or any party dealing with the ERISA Plans or
any such trust could be subject to either a material civil penalty assessed
pursuant to Section 409 or Section 502(i) of ERISA or a material tax imposed
pursuant to Section 4975, Section 4976 or Section 4980B of the Code.
(f) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts which the Company or any ERISA Affiliate
is required to pay under the terms of each of the ERISA Plans and Section 412 of
the Code.
(g) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code.
(h) The Company has not taken any action that would result in the
acceleration of any benefits under any Plan in connection with or as a result of
the execution, delivery and performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby.
SECTION 4.14 Labor Matters. Except to the extent set forth in Schedule 4.14
of the Disclosure Schedule (i) there is no labor strike, dispute, slowdown,
stoppage or lockout actually pending or threatened, to the knowledge of the
Company, against the Company and during the past three years there has not been
any such action; (ii) to the knowledge of the Company, there is no current union
organizing activities among the Company's employees nor does any question
concerning representation exist concerning such employees; (iii) there is no
unfair labor practice charge or complaint against the Company pending or, to the
knowledge of the Company, threatened before the National Labor Relations Board
or any similar state or foreign agency; (iv) there is no grievance pending
relating to any collective bargaining agreement or other grievance procedure;
(v) to the knowledge of the Company, no charges with respect to or relating to
the Company are pending before the Equal Employment Opportunity Commission or
any other agency responsible for the prevention of unlawful employment
practices; (vi) the Company and its Subsidiaries have complied with the Worker
Adjustment and Retraining Notification Act (the "WARN Act"), and other state or
local laws substantially similar in effect to the WARN Act, where the failure to
be in compliance with such state or local laws would have a Material Adverse
Effect; and (vii) there are no collective bargaining agreements, employment
contracts or severance agreements with any union or any employees of the
Company.
A-16
<PAGE>
SECTION 4.15 Compliance with Laws. Except as set forth in Schedule 4.11 (as
applicable) and Schedule 4.15 of the Company Disclosure Schedule, the Company
and its Subsidiaries, and their respective businesses, are in compliance with
all Licenses, laws, statutes, ordinances or regulations, including, but not
limited to, Environmental Laws (as defined in Section 4.17 below), except where
such violations would not have a Material Adverse Effect.
SECTION 4.16 Finders' Fees. Except for Lazard Freres & Co., L.L.C., there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf, of the Company or any Subsidiary
of the Company who would be entitled to any fee or commission from the Company,
any Subsidiary of the Company, Buyer or any of Buyer's affiliates upon
consummation of the transactions contemplated by this Agreement. An executed,
true and complete copy of such engagement letter has been delivered to Buyer.
SECTION 4.17 Environmental Matters. (a) Except as set forth in the Company
SEC Documents or in Schedule 4.17 of the Company Disclosure Schedule:
(i) since January 1, 1995, the Company has not received any written
communication from any person or entity (including any Governmental Entity)
stating that it or its Subsidiaries may be a potentially responsible party
under Environmental Law (as defined in Section 4.17(c) hereof) with respect
to any actual or alleged environmental contamination; neither the Company
nor its Subsidiaries nor, to the Company's knowledge, any Governmental
Entity is conducting or has conducted any environmental remediation or
environmental investigation which could reasonably be expected to result in
liability for the Company or its Subsidiaries under Environmental Law; and
the Company and its Subsidiaries have not received any request for
information under Environmental Law from any Governmental Entity with
respect to any actual or alleged environmental contamination, except, in
each case, for communications, environmental remediation and investigations
and requests for information which would not, individually or in the
aggregate, have a Material Adverse Effect; and
(ii) since January 1, 1995, the Company and its Subsidiaries have not
received any written communication from any person or entity (including any
Governmental Entity) stating or alleging that the Company or its
Subsidiaries may have violated any Environmental Law, or that the Company or
its Subsidiaries has caused or contributed to any environmental
contamination that has caused any property damage or personal injury under
Environmental Law, except, in each case, for statements and allegations of
violations and statements and allegations of responsibility for property
damage and personal injury which would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) (i) The Company has made available to Buyer each material environmental
investigation, study, audit, test, review and other analysis in the possession
of the Company or its Subsidiaries prepared in the last five years conducted in
relation to the business of the Company or any property or facility now or
previously owned, operated or leased by the Company or any Subsidiary of the
Company; and (ii) the Company has made available to Buyer each consent decree,
consent order or similar document currently in force and to which it is a party
relating to any property currently owned, leased or operated by the Company or
its Subsidiaries.
(c) For purposes of this Section 4.17, "Environmental Law" means all
applicable state, federal and local laws, regulations and rules, including
common law, judgments, decrees and orders relating to pollution, the
preservation of the environment, and the release of material into the
environment.
SECTION 4.18 Property. The Company and its Subsidiaries, as the case may be,
have good and valid title to, or in the case of leased property, have valid
leasehold interests in all properties and assets necessary to conduct the
business of the Company as currently conducted, except to the extent the failure
of this representation and warranty to be true would not have a Material Adverse
Effect. There are no developments affecting any of such properties or assets
pending or, to the knowledge of the Company threatened, which, could reasonably
be expected to have a Material Adverse Effect.
A-17
<PAGE>
SECTION 4.19 Intangible Property. (a) The Company and its Subsidiaries own
or possess adequate licenses or other valid rights to use all trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets and applications for trademarks and for service marks, which are
material to the Company's business and operations (collectively, "Intangible
Property") used or held for use in connection with the business of the Company
and the Subsidiaries of the Company as currently conducted. All material
trademarks are validly registered or registrations have been applied for.
(b) The Company, except as set forth in Schedule 4.19(b) of the Company
Disclosure Schedule, is unaware of any assertion or claim challenging the
validity of any Intangible Property. Except as set forth in Schedule 4.19(b) of
the Company Disclosure Schedule, the conduct of the business of the Company and
its Subsidiaries as currently conducted does not conflict with any trademark,
trademark right, trade name or trade name right of any third party in a manner
that could reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Company, there are no material infringements of any Intangible
Property.
SECTION 4.20 Material Contracts. Except as set forth on Schedule 4.13(a),
Schedule 4.20 or Schedule 7.3 of the Company Disclosure Schedule, the Company
SEC Documents list all Material Contracts (as defined below) of the Company (and
all material amendments thereto) and all agreements or commitments to enter into
a Material Contract, and except as set forth on Schedule 4.20 of the Company
Disclosure Schedule or in the Company SEC Documents, to the knowledge of the
Company, each Material Contract is valid, binding and enforceable and in full
force and effect, except where such failure to be valid, binding and enforceable
and in full force and effect would not have a Material Adverse Effect, and there
are no defaults thereunder, except those defaults that would not have a Material
Adverse Effect. For purposes of this Agreement, "Material Contracts" shall mean
(i) all contracts, agreements or understandings with customers of the Company
and its Subsidiaries in the last fiscal year where each customers' contracts,
agreements or understandings in the aggregate account for more than $5 million
of (x) SafeCard Services, Incorporated's ("SafeCard") net annual billings or (y)
each Subsidiaries' of the Company, other than SafeCard's, annual revenues; (ii)
all the acquisition, merger, asset purchase or sale agreements entered into by
the Company in the last two fiscal years with a transaction value in excess of
$10 million; (iii) all indemnification, termination, severance, or "golden
parachute" agreements; and (iv) any other agreement within the meaning set forth
in Item 601(b)(10) Regulation S-K of Title 17, Part 229 of the Code of Federal
Regulations. Except as set forth on Schedule 4.20 of the Company Disclosure
Schedule, no party to any such Material Contract has (i) given written notice to
the Company or any Subsidiary of the Company of or made a claim in writing
against the Company or any Subsidiary of 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 or (ii)
given written or, to the knowledge of the senior executive officers of the
Company, oral notice to the Company or any Subsidiary of the Company that it
does not intend to renew or it intends to terminate any of its business
relationships with the Company or any Subsidiary of the Company.
SECTION 4.21 Accounting Matters. Neither the Company nor, to the best of the
Company's knowledge, any of its affiliates has taken or agreed to take any
action that would prevent Buyer from accounting for the transactions to be
effected pursuant to this Agreement as a pooling of interests in accordance with
GAAP and applicable SEC regulations. The Company has not knowingly and willfully
failed to bring to the attention of Buyer any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably likely
to prevent Buyer from accounting for the Merger as a pooling of interests. The
representations and warranties of the Company in the Company Affiliate Letter
are true and correct.
SECTION 4.22 Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary or required under this
Agreement or under applicable law to approve the Merger, this Agreement and the
transactions contemplated hereby.
A-18
<PAGE>
SECTION 4.23 Fairness Opinion. The Board of Directors of the Company has
received the written opinion of Lazard Freres & Co. L.L.C., to the effect that,
as of such date, the consideration to be received by holders of Shares pursuant
to the Merger is fair from a financial point of view to such holders. An
executed, true and complete copy of such opinion has been delivered to Buyer
and, as of the date hereof, such opinion has not been modified in any material
respect or withdrawn.
SECTION 4.24 Disclosure. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate
delivered by the Company to Buyer or Merger Subsidiary 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 and therein not
misleading when taken together in light of the circumstances in which they were
made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary represent and warrant to the Company that:
SECTION 5.1 Corporate Existence and Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and except as set
forth on Schedule 5.1 of the disclosure schedule delivered by Buyer and Merger
Subsidiary in connection herewith (the "Buyer Disclosure Schedule"), has all
corporate powers and all Licenses required to carry on its business as now
conducted except where the failure to have any such License would not,
individually or in the aggregate, have a Material Adverse Effect. Each of Buyer
and Merger Subsidiary is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Each of Buyer and Merger Subsidiary has heretofore delivered or made available
to the Company true and complete copies of Buyer's and Merger Subsidiary's
Certificate of Incorporation and By-laws as currently in effect.
SECTION 5.2 Corporate Authorization. The execution, delivery and performance
by Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer
and Merger Subsidiary of the transactions contemplated hereby are within the
corporate powers of Buyer and Merger Subsidiary and have been duly authorized by
all necessary corporate action. This Agreement, assuming due and valid
authorization, execution and delivery by the other parties hereto, constitutes a
valid and binding agreement of each of Buyer and Merger Subsidiary enforceable
against Buyer and Merger Subsidiary in accordance with its terms, except that
(i) enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 5.3 Governmental Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any Governmental
Entity other than: (i) the filing of a certificate of merger in accordance with
the DGCL; (ii) compliance with any applicable requirements of the HSR Act; (iii)
compliance with any applicable requirements of the Securities Act and Exchange
Act; (iv) compliance with the applicable requirements of any applicable takeover
laws; and (v) such other actions by or in respect of, or filings with, any
Governmental Entity the failure of which to obtain or make would not have a
Material Adverse Effect and which would not materially impair or delay the
ability of Buyer or Merger Subsidiary to consummate the transactions
contemplated hereby.
A-19
<PAGE>
SECTION 5.4 Non-Contravention. The execution, delivery and performance by
Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer and
Merger Subsidiary of the transactions contemplated hereby do not and will not
(i) contravene or conflict with the Certificate of Incorporation or By-laws of
Merger Subsidiary or Buyer, (ii) assuming compliance with the matters referred
to in Section 5.3 hereof, contravene or conflict with or constitute a violation
of any provision of law, regulation, judgment, injunction, order or decree
binding upon or applicable to Buyer or Merger Subsidiary, (iii) with or without
the giving of notice or passage of time or both, constitute a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of Buyer or Merger Subsidiary or to a loss of any benefit to which
Buyer or Merger Subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon Buyer or Merger Subsidiary or any
license, franchise, permit or other similar authorization held by Buyer or
Merger Subsidiary, or (iv) result in the creation or imposition of any Lien on
any asset of Buyer or Merger Subsidiary excluding from the foregoing clauses
(ii), (iii) or (iv) such violations, breaches, defaults or Liens which would not
have a Material Adverse Effect, and which will not materially impair or
materially delay the ability of Buyer and Merger Subsidiary to consummate the
transactions contemplated hereby.
SECTION 5.5 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus. None of the information to be supplied by Buyer and Merger
Subsidiary for inclusion or incorporation by reference in the Form S-4
Registration Statement will (i) in the case of the Form S-4 Registration
Statement at the time it becomes effective, at the Effective Time or at the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) in the case of the
Company Proxy Statement, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Stockholder Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Effective Time
any event with respect to Buyer and Merger Subsidiary, their respective officers
and directors or any of Buyer's Subsidiaries should occur which is required to
be described in an amendment of, or a supplement to, the Form S-4 Registration
Statement or the Company Proxy Statement, such event shall be so described, and
such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company. The S-4
Registration Statement will (with respect to information relating to Buyer and
Merger Subsidiary) comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder.
SECTION 5.6 Finders' Fees. Except for Goldman, Sachs & Co., whose fees will
be paid by Buyer, there is no investment banker, broker, finder or other
intermediary who might be entitled to any fee or commission in connection with
or upon consummation of the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Buyer or Merger Subsidiary.
SECTION 5.7 No Vote Required. No vote or special meeting of the stockholders
of Buyer or Merger Subsidiary is necessary or required by this Agreement or
under applicable law to approve the Merger, this Agreement or the transactions
contemplated hereby.
SECTION 5.8 Share Ownership. As of the date hereof, Buyer and Merger
Subsidiary do not own any Shares.
SECTION 5.9 Capitalization. The authorized capital stock of Buyer consists
of 400,000,000 shares of Buyer Common Stock, and 1,000,000 shares of preferred
stock, par value $.01 par value per share (the "Buyer Preferred Stock"). As of
March 29, 1996, there were issued and outstanding (i) 190,460,240 shares of
Buyer Common Stock; (ii) no shares of Buyer Preferred Stock; and (iii) options
to purchase an aggregate of 21,056,064 shares of Buyer Common Stock with
exercise prices ranging from $.36 to $35.75. All of the outstanding shares of
capital stock of Buyer have been duly authorized and validly issued and are
fully paid and nonassessable. Schedule 5.9 of the Buyer Disclosure Schedule
accurately sets forth, as of the date of this Agreement, certain information
regarding the outstanding
A-20
<PAGE>
options, and such information is true and correct. Except as set forth in this
Section 5.9 or as disclosed on Schedule 5.9 of the Buyer Disclosure Schedule or
in the Buyer SEC Documents, and except for changes since March 29, 1996
resulting from the exercise of employee stock options outstanding on such date,
as of the date of this Agreement, there are outstanding (i) no shares of capital
stock or other voting securities of Buyer, (ii) no securities of Buyer or of any
Subsidiary of Buyer convertible into or exchangeable for shares of capital stock
or voting securities of Buyer, and (iii) no options or other rights to acquire
from Buyer, and no obligation of Buyer to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Buyer Securities"). There are no outstanding
obligations of Buyer or of any Subsidiary of Buyer to repurchase, redeem or
otherwise acquire any Buyer Securities. There are no stockholder agreements,
voting trusts or understandings to which Buyer is a party or to which it is
bound relating to the voting of any shares of capital stock of Buyer.
SECTION 5.10 Accounting Matters. Neither Buyer, nor Merger Subsidiary, nor,
to the best of Buyer's or Merger Subsidiary's knowledge, any of its affiliates
has taken or agreed to take any action that would prevent Buyer or Merger
Subsidiary from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable SEC
regulations. Buyer has not knowingly and willfully 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 Buyer from
accounting for the Merger as a pooling of interests.
SECTION 5.11 Ownership of Merger Subsidiary; No Prior Activities; Assets of
Merger Subsidiary. (a) Merger Subsidiary was formed solely for the purpose of
the Merger and engaging in the transactions contemplated hereby.
(b) As of the date hereof and the Effective Time, the capital stock of
Merger Subsidiary is and will be directly owned 100% by Buyer. Further, there
are not as of the date hereof and there will not be at the Effective Time any
outstanding or authorized options, warrants, calls, rights, commitments or any
other agreements of any character which Merger Subsidiary is a party to, or may
be bound by, requiring it to issue, transfer, sell, purchase, redeem or acquire
any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for or acquire, any
shares of capital stock of Merger Subsidiary.
(c) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, Merger Subsidiary has not and will not
have incurred, directly or indirectly through any Subsidiary or affiliate, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person or entity.
SECTION 5.12 SEC Documents. Buyer has filed all required reports, proxy
statements, forms and other documents with the SEC since January 1, 1994 ("Buyer
SEC Documents"). As of their respective dates (i) the Buyer SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Buyer SEC Documents, and (ii) none
of the Buyer SEC Documents contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 5.13 Financial Statements. The consolidated financial statements of
Buyer included in the Buyer SEC Documents (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
conformity with GAAP applied on a consistent basis (except in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) during the periods
involved (except as may be indicated in the related notes and schedules thereto)
and (iii) fairly present in all material respects the
A-21
<PAGE>
consolidated financial position of Buyer and its consolidated subsidiaries as of
the dates thereof, and the results of its operations and its cash flows for the
periods then ended (subject, in the case of the unaudited statements, to normal
year-end audit 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-interest, such original financial
statements do not reflect such restatements).
SECTION 5.14 Absence of Certain Changes or Events. Except as disclosed in
the Buyer SEC Documents filed by Buyer and as set forth in Schedule 5.14 of the
Buyer Disclosure Schedule, since the date of the most recent consolidated
balance sheet included in the Buyer SEC Documents filed and publicly available
prior to date of this Agreement, the business of Buyer has been carried on only
in the ordinary and usual course and there has not been any adverse change in
its business, properties, operations or financial condition and no event has
occurred and no fact or set of circumstances has arisen which has resulted in or
could reasonably be expected to result in a Material Adverse Effect.
SECTION 5.15 Litigation. Except as set forth in either Buyer SEC Documents
or in Schedule 5.15 of the Buyer Disclosure Schedule, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Buyer or
Merger Subsidiary threatened against, Buyer or Merger Subsidiary or any of their
respective properties before any court or arbitrator or any Governmental Entity,
which, (a) if determined or resolved adversely to Buyer or Merger Subsidiary in
accordance with the plaintiff's demands, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or (b) as of the
date of this Agreement, questions the validity of this Agreement or any action
to be taken by Buyer or Merger Subsidiary in connection with the consummation of
the transactions contemplated by this Agreement. Except as publicly disclosed by
Buyer, as of the date of this Agreement, none of Buyer or its Subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on Buyer or would prevent or materially delay the
consummation of the transactions contemplated hereby.
SECTION 5.16 Authorization for Buyer Common Stock. Buyer has taken all
necessary action to permit it to issue the number of shares of Buyer Common
Stock required to be issued pursuant to this Agreement. Shares of Buyer Common
Stock issued pursuant to Agreement will, when issued, be validly issued, fully
paid and nonassessable and no person will have any preemptive right of
subscription or purchase in respect thereof. Shares of Buyer Common Stock will,
when issued, be registered under the Securities Act and the Exchange Act and
registered or exempt from registration under any applicable state securities
laws and will, when issued, be listed on the NYSE, subject to official notice of
issuance.
A-22
<PAGE>
SECTION 5.17 Taxes. Except as set forth on Schedule 5.17 of the Buyer
Disclosure Schedule: (i) Buyer and each of its Subsidiaries has filed or has had
filed on its behalf in a timely manner (within any applicable extension periods)
with the appropriate Governmental Entity all income and other material Tax
Returns with respect to Taxes of Buyer and each of its Subsidiaries; (ii) all
material Taxes with respect to Buyer and its Subsidiaries have been paid in full
or have been provided for in accordance with GAAP on the Buyer's most recent
balance sheet which is part of the Buyer SEC Documents; (iii) there are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any federal, state, local or foreign income or other material Tax
Returns required to be filed by or with respect to Buyer and its Subsidiaries;
(iv) none of the Tax Returns of or with respect to Buyer or any of its
Subsidiaries is currently being audited or examined by any Governmental Entity;
and (v) no deficiency for any income or other material Taxes has been assessed
with respect to Buyer or any of its Subsidiaries which has not been abated or
paid in full.
SECTION 5.18 Disclosure. No representation or warranty by Buyer or Merger
Subsidiary contained in this Agreement and no statement contained in any
certificate delivered by Buyer or Merger Subsidiary 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 and
therein not misleading when taken together in light of the circumstances in
which they were made.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.1 Conduct of the Company. From the date hereof until the Effective
Time, the Company and its Subsidiaries shall conduct their business in the
ordinary course and shall use their reasonable efforts to preserve intact their
business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without limiting
the generality of the foregoing other than as set forth on Schedule 6.1 of the
Company Disclosure Schedule, as specifically contemplated by this Agreement or
with the written consent of Buyer or Merger Subsidiary (which consent shall not
be unreasonably withheld or delayed), from the date hereof until the Effective
Time, the Company will not (and will not cause or permit any Subsidiary to):
(a) split, combine or reclassify any shares of capital stock, declare,
set aside or pay any dividend (other than regular quarterly dividends and
any dividend of a wholly-owned Subsidiary of the Company to the Company or
another wholly-owned Subsidiary of the Company) or other distribution
(whether in cash, stock or property or any combination thereof) with respect
to any shares of capital stock of the Company, or any repurchase, redemption
or other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the Company;
(b) amend any term of any outstanding security of the Company or any
Subsidiary of the Company;
(c) except for working capital purposes pursuant to the Revolving Credit
Agreement, dated as of February 8, 1996, by and among the First National
Bank of Boston, Fleet Bank of Maine, Key Bank of Maine, Bank of Scotland and
Wright Express Corporation, and, except in the ordinary course of business
consistent with past practice pursuant to the Equipment Financing Agreement,
dated as of February 7, 1996, by and between The First National Bank of
Boston and Wright Express Corporation, incur, assume or guarantee any
indebtedness for borrowed money of (x) except in the ordinary course of
business in an amount not to exceed $500,000 in the aggregate at any one
time outstanding, the Company or any Subsidiary of the Company or (y) any
other Person;
A-23
<PAGE>
(d) create, assume or suffer to exist any Lien on any material asset,
other than in the ordinary course of business;
(e) make any loan, advance or capital contribution to or invest in any
Person, other than in the ordinary course of business;
(f) cause any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary of the Company which has had or could reasonably be expected to
have a Material Adverse Effect;
(g) (x) other than in the ordinary course of business consistent with
past practice, (i) enter into any transaction, commitment, contract or
agreement by the Company or any Subsidiary of the Company relating to their
assets or business (excluding the acquisition or disposition of any assets)
or (ii) relinquish any contract or other right, that (with respect to (ii))
has had or could reasonably be expected to have a Material Adverse Effect,
other than (with respect to each of (i) and (ii)) those expressly permitted
by this Agreement or (y) enter into any transaction, commitment, contract or
agreement to acquire or dispose of any assets of the Company or any
Subsidiary of the Company in excess of $150,000 in any individual
transaction or $750,000 in the aggregate;
(h) change, or apply to the SEC for, or request from the SEC any change
of, any method of accounting or accounting practice by the Company or any
Subsidiary of the Company, except for any such change required by reason of
a concurrent change in GAAP;
(i) (A) grant any severance or termination pay to any current or former
director or executive officer, or, other than in the ordinary course of
business, to any officer or any other employee of the Company or any
Subsidiary of the Company, (B) enter into any employment, consulting,
indemnification, severance, termination, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
current or former director or executive officer, or other than in the
ordinary course of business, with any officer or any other employee of the
Company or any Subsidiary of the Company, (C) other than in the ordinary
course of business, increase the benefits payable under any existing
severance or termination pay policies or employment agreements or (D)
increase the compensation, bonus or other benefits payable to any current or
former director or executive officer, or other than in the ordinary course
of business, to any officer or any other employee of the Company or any
Subsidiary of the Company;
(j) amend its certificate of incorporation or bylaws (or other similar
governing instrument);
(k) authorize for issuance, sell, deliver or agree 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) of the Company,
except for the issuance of stock upon the exercise of Options outstanding on
the date of this Agreement;
(l) except as may be required pursuant to GAAP, 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;
(m) 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);
(n) make or revoke any tax election or settle or compromise any tax
liability, in each case, 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;
(o) subject to Section 6.1(q) below, pay, discharge or satisfy any
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment,
A-24
<PAGE>
discharge or satisfaction in the ordinary course of business of liabilities
or obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or notes thereof) of the Company and its
Subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(p) except as otherwise permitted by paragraph (i) or as set forth on
Schedule 6.1(p) of the Company Disclosure Schedule, settle or compromise any
pending or threatened suit, action, or proceeding;
(q) enter into any agreement or understanding, whether oral or written,
with any Halmos Entity or Halmos Assign (as each such term is defined in
Section 7.3(c)); except for agreements or understandings in the ordinary
course necessary for the continued defense or prosecution of any such
pending litigation matters set forth in Schedule 4.11 of the Company
Disclosure Schedule or as disclosed in the Company SEC Documents; or
(r) take, authorize any of, or commit or agree to take any of, the
foregoing actions except as otherwise expressly permitted by this Agreement.
SECTION 6.2 Stockholder Meeting; Proxy Material. The Company shall cause a
meeting of its stockholders (including any postponements or adjournments
thereto, the "Company Stockholder Meeting") to be duly called and held as soon
as reasonably practicable for the purpose of voting on the approval and adoption
of this Agreement and the Merger. The Board of Directors of the Company shall
recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders; provided that the Company's Board of Directors may
withdraw, modify or change such recommendation if it has determined, based upon
the advice of outside legal counsel to the Company, that such recommendation
would be reasonably likely to be inconsistent with the Board of Directors'
fiduciary duties under applicable law. The Company will (i) as promptly as
practicable following the date of this Agreement, prepare and file with the SEC,
will use its reasonable efforts to have cleared by the SEC and thereafter mail
to its stockholders as promptly as practicable, a proxy statement that will be
the same proxy statement/prospectus contained in the Form S-4 Registration
Statement (as hereinafter defined) and a form of proxy, in connection with the
vote of the Company's stockholders with respect to the Merger (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's stockholders,
is herein called the "Company Proxy Statement"), (ii) use its reasonable efforts
to obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply in all material
respects with all legal requirements applicable to such meeting. The Company
may, if it withdraws, modifies or changes its recommendation in accordance with
this Section 6.2, delay the filing or mailing, as the case may be, of the
Company Proxy Statement or the holding of the Company Stockholder Meeting, in
each case only to the extent necessary to revise the Company Proxy Statement to
reflect such withdrawal, modification or change and, in the case of the Company
Stockholder Meeting, to provide the minimum notice thereof required under
applicable law, the Company Certificate of Incorporation or the Company By-laws.
In addition, the Company will upon reasonable advance notice provide Buyer with
all financial and other data regarding the Company as may be reasonably
requested by Buyer in connection with the proxy statements and registration
statements on Form S-4 relating to the transactions described in Schedule 6.2 of
the Buyer Disclosure Schedule. The Company acknowledges that such proxy
statements and registration statements may be required to include such data
concerning the Company, and that the Company Proxy Statement may be required to
contain certain financial and other data concerning the other parties to such
transactions.
SECTION 6.3 Access to Information; Confidential Agreement. (a) From the date
hereof until the Effective Time, the Company will give Buyer, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access during normal business hours to the offices, properties, books and
records of the Company and the Subsidiaries of the Company, will furnish to
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct the Company's
A-25
<PAGE>
employees, counsel and financial advisors to cooperate with Buyer in its
investigation of the business of the Company and the Subsidiaries of the
Company; provided that all requests for information, to visit plants or
facilities or to interview the Company's employees or agents should be directed
to and coordinated with an executive officer of the Company; and provided
further that no investigation pursuant to this Section 6.3 shall affect any
representation or warranty given by the Company to Buyer hereunder and any
information received by Buyer or its representatives shall remain subject to the
Confidentiality Agreement dated February 13, 1996 between Buyer and the Company
(the "Confidentiality Agreement").
(b) The parties hereto agree that the Confidentiality Agreement shall be
hereby amended to provide that any provision therein which in any manner limits,
restricts or prohibits the voting or acquisition of Shares by Buyer or any of
its affiliates or the representation of Buyer's designees on the Company's Board
of Directors or which in any manner would be inconsistent with this Agreement or
the transactions contemplated hereby shall be amended as of the date hereof to
permit the acquisition of Shares pursuant to the Merger, the voting of Shares at
the Company Stockholder Meeting or to otherwise effect the transactions
contemplated hereby. The Confidentiality Agreement shall otherwise remain in
full force and effect.
SECTION 6.4 No Solicitation. (a) From the date of this Agreement until the
termination of this Agreement in accordance with its terms, the Company and its
Subsidiaries will not, and the Company will use its reasonable best efforts to
ensure that the respective officers, directors and employees of the Company and
its Subsidiaries, and any investment banker, financial advisor, attorney,
accountant or other representative or agent retained by it or any of its
Subsidiaries, will not (i) solicit, initiate or encourage (including by way of
furnishing information) any Acquisition Proposal (as defined below) or (ii)
participate or engage in negotiations or discussions, or disclose any nonpublic
information relating to the Company or any Subsidiary of the Company or afford
access to the properties, books or records of the Company or any Subsidiary of
the Company, regarding any Acquisition Proposal; provided that, if the Company's
Board of Directors determines, based upon the advice of outside legal counsel to
the Company, that the failure to engage in such negotiations or discussions or
provide such information would be reasonably likely to be inconsistent with the
Board of Directors' fiduciary duties under applicable law, the Company may in
response to an Acquisition Proposal and subject to compliance with Section
6.4(c), furnish information with respect to the Company and its Subsidiaries
pursuant to a confidentiality agreement and participate in negotiations
regarding such Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any inquiry, offer or proposal from any person
relating to any direct or indirect acquisition or purchase of a substantial
portion of the assets of the Company or any of its Subsidiaries or of over 20%
of any class of equity securities of the equity interest of the Company or any
of its Subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more equity interest of
any class of equity securities of the Company or any of its Subsidiaries, any
merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement. Nothing contained in this Section 6.4 shall
prohibit the Company or its Board of Directors from taking and disclosing to the
Company's stockholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making such disclosure to the Company's stockholders or
making such disclosure as may be required by applicable law; provided, however,
neither the Company nor its Board of Directors nor any committee thereof shall,
except as permitted by Section 6.2 or 6.4(b), withdraw, modify or change, or
propose to withdraw, modify or change, its recommendation of approval and
adoption of this Agreement and the Merger or approve or recommend, or propose to
approve or recommend, an Acquisition Proposal.
(b) Except as set forth in this Section 6.2 or Section 6.4(b), neither the
Company nor the Board of Directors of the Company nor any committee thereof
shall (x) withdraw, modify or change, or propose to withdraw, modify or change,
in a manner adverse to Buyer, the recommendation by such Board of Directors or
such committee of the approval and adoption of this Agreement and the Merger,
(y)
A-26
<PAGE>
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or (z) cause the Company to enter into any agreement with respect to
any Acquisition Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of the Company determines, based upon the advice of outside
legal counsel to the Company, that the failure to take any of the actions
contemplated by the preceding sentence would be reasonably likely to be
inconsistent with the Board of Directors' fiduciary duties, the Board of
Directors of the Company may withdraw, modify or change its recommendation of
approval and adoption of this Agreement and the Merger, approve or recommend a
Superior Proposal or cause the Company to enter into an agreement with respect
to a Superior Proposal; but in the case of approving, recommending or causing
the Company to enter into an agreement with respect to a Superior Proposal, only
at a time that is after the second day following Buyer's receipt of written
notice (a "Notice of Superior Proposal") advising Buyer that the Board of
Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company enters into an
agreement with respect to a Superior Proposal and this Agreement is terminated
pursuant to Section 10.1(vi)(B) or Section 10.1(vii), the Company shall promptly
pay, or cause to be paid, to Buyer, the Buyers' Expenses (as such term is
defined in Section 12.4). For purposes of this Agreement, a "Superior Proposal"
means any bona fide Acquisition Proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of the Company common stock then outstanding or all or substantially all the
assets of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the Merger.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 6.4, the Company shall notify Buyer in writing
within one business day of any request for information or of any Acquisition
Proposal, or any inquiry with respect to or which would reasonably be expected
to result in an Acquisition Proposal, the material terms and conditions of such
request, Acquisition Proposal or inquiry. The Company will use it reasonable
best efforts to keep Buyer informed of the status and details (including
amendments or proposed amendments) of any such request, Acquisition Proposal or
inquiry.
SECTION 6.5 Conveyance Taxes. The Company shall timely pay any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes (collectively, the "Conveyance Taxes") which become payable prior to the
Effective Time in connection with the transactions contemplated hereunder that
are required to be paid in connection therewith.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
SECTION 7.1 Obligations of Merger Subsidiary. Buyer will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 7.2 Voting of Shares. Merger Subsidiary shall and Buyer shall cause
Merger Subsidiary to vote all Shares, if any, beneficially owned by Merger
Subsidiary or its affiliates in favor of adoption and approval of the Merger and
this Agreement at the Company Stockholder Meeting.
SECTION 7.3 Director and Officer Liability. (a) Buyer, Merger Subsidiary and
the Company agree that all rights to indemnification and all limitations on
liability existing in favor of any Indemnitee (as defined below) as provided in
the Company Certificate of Incorporation, Company By-laws or any Indemnity
Agreement (as hereinafter defined) shall survive the Merger and continue in full
force and
A-27
<PAGE>
effect. To the extent permitted by (i) the DGCL, (ii) the Company's Certificate
of Incorporation and the Company's By-laws or (iii) any agreement providing for
indemnification by the Company or any Subsidiary of the Company of any
Indemnitee (A) in effect on the date of this Agreement (or entered into
thereafter in accordance with the provisions of Section 6.1 of this Agreement)
and listed on Schedule 7.3 of the Company Disclosure Schedule (unless entered
into after the date hereof in accordance with Section 6.1) or (B) in effect on
the date of this Agreement and listed in the Company SEC Documents (each, an
"Indemnity Agreement"), advancement of Expenses (as hereinafter defined)
pursuant to this Section 7.3 shall be mandatory rather than permissive and the
Surviving Corporation shall advance Costs (as defined in Section 7.3(b) hereof)
in connection with such indemnification. Buyer shall, and shall cause the
Surviving Corporation to, expressly assume and honor in accordance with their
terms all Indemnity Agreements.
(b) In addition to the other rights provided for in this Section 7.3 and not
in limitation thereof (but without in any way limiting or modifying the
obligations of any insurance carrier contemplated by Section 7.3(d)), for ten
years from and after the Effective Time, Buyer shall, and shall cause the
Surviving Corporation to, to the fullest extent permitted by applicable law, (i)
indemnify and hold harmless the individuals who on or prior to the Effective
Time were officers, directors or employees of the Company or any of its
Subsidiaries, and the heirs, executors, trustees, fiduciaries and administrators
of such officers, directors or employees (collectively, the "Indemnitees," which
term shall not include any Halmos Entity or other Person described or referred
to in Section 7.3(c) hereof, even if any such Halmos Entity or other Person is
or was an officer, director or employee of the Company) against all losses,
Expenses (as hereinafter defined), claims, damages, liabilities, judgments, or
amounts paid in settlement (collectively, "Costs") in respect to any threatened,
pending or completed claim, action, suit or proceeding, whether criminal, civil,
administrative or investigative based on, or arising out of or relating to the
fact that such person is or was a director, officer or employee of the Company
or any of its Subsidiaries and arising out of acts or omissions occurring on or
prior to the Effective Time (including, without limitation, in respect of acts
or omissions in connection with this Agreement and the transactions contemplated
hereby) (an "Indemnifiable Claim") and (ii) advance to such Indemnitees all
Expenses incurred in connection with any Indemnifiable Claim promptly after
receipt of reasonably detailed statements therefor; provided, that, except as
otherwise provided pursuant to any Indemnity Agreement, the person to whom
Expenses are to be advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to indemnification
from Buyer or the Surviving Corporation. In the event any Indemnifiable Claim is
asserted or made within such ten year period, all rights to indemnification and
advancement of Expenses in respect of any such Indemnifiable Claim shall
continue until such Indemnifiable Claim is disposed of or all judgments, orders,
decrees or other rulings in connection with such Indemnifiable Claim are fully
satisfied; provided, however, that Buyer shall not be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld or delayed). Except as otherwise may be provided pursuant to any
Indemnity Agreement, the Indemnitees 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 Indemnitee, under applicable standards of professional
conduct, a conflict on any significant issue between positions of any two or
more Indemnitees; provided, that, any law firm or firms so retained shall be
reasonably acceptable to Buyer. For the purposes of this Section 7.3, "Expenses"
shall include reasonable attorneys' fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Indemnifiable Claim.
(c) Notwithstanding the foregoing, with respect to any Indemnifiable Claim
commenced or threatened by or on behalf of, (i) Peter Halmos, Steven Halmos,
Halmos Trading and Investment Company, The Halmos Foundation, Creditline
Corporation, Continuity Marketing Corporation and High Plains Capital
Corporation (collectively, the "Halmos Entities"), (ii) any heirs, executors,
successors, family members, assigns and any other Person claiming by, through or
because of, a Halmos Entity ("Halmos Assign"), (iii) a Person that directly or
indirectly, whether through the ownership of voting securities or otherwise,
controls or is controlled by or is under common control with any Halmos
A-28
<PAGE>
Entity, (iv) any Person in which any Halmos Entity or Halmos Assign has a 10%
ownership interest, (v) any employee or agent as of the date of this Agreement
of any Halmos Entity or (vi) any Person acting at the direct or indirect request
of any Halmos Entity or Halmos Assign, against any Indemnitee asserted at any
time after ten years after the Effective Time, Buyer shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless and advance Expenses to
such Indemnitees to the extent provided in Section 7.3(b), but without any time
limit on the period for which the obligation of Buyer pursuant to this Section
7.3(c) shall be in effect.
(d) For three years from the Effective Time, Buyer will, and will cause the
Surviving Corporation to maintain in effect the Company's current directors' and
officers' liability insurance covering those Persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been made available to Buyer), or Buyer may substitute therefor
policies for directors' and officers' liability insurance covering such Persons
for at least the same coverage with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall Buyer be required to
expend in any one year an amount in excess of $887,040 (i.e., the amount that is
200% of the annual premiums currently paid by the Company for such insurance);
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, Buyer shall be obligated to cause the Surviving Corporation to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount. In the event that any Indemnitee is entitled to coverage under an
officers' and directors' liability insurance policy pursuant to this Section
7.3(d) and such policy has lapsed, terminated, been repudiated or is otherwise
in breach or default as a result of Buyer's failure to maintain and fulfill its
obligations pursuant to such policy as provided in this Section 7.3(d), Buyer
shall, and shall cause the Surviving Corporation to pay to the Indemnitee such
amounts and provide any other coverage or benefits as the Indemnitee shall have
received pursuant to such policy. Buyer agrees that, should the Surviving
Corporation fail to comply with the obligations of this Section 7.3, Buyer shall
be responsible therefor.
(e) Notwithstanding any other provisions hereof, the obligations of the
Company, the Surviving Corporation and Buyer contained in this Section 7.3 shall
be binding upon the successors and assigns of Buyer and the Surviving
Corporation. In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other Person or (ii) transfers all or substantially all of its properties or
assets to any Person, then, and in each case, proper provision shall be made so
that successors and assigns of the Company or the Surviving Corporation, as the
case may be, honor the indemnification obligations set forth in this Section
7.3.
(f) The obligations of the Company, the Surviving Corporation, and Buyer
under this Section 7.3 shall not be terminated or modified in such a manner as
to adversely affect any Indemnitee to whom this Section 7.3 applies without the
consent of such affected Indemnitee (it being expressly agreed that the
Indemnitees to whom this Section 7.3 applies shall be third party beneficiaries
of this Section 7.3).
(g) Buyer shall, and shall cause the Surviving Corporation to, advance all
Expenses to any Indemnitee incurred by enforcing the indemnity or other
obligations provided for in this Section 7.3.
A-29
<PAGE>
ARTICLE VIII
COVENANTS OF BUYER, MERGER SUBSIDIARY
AND THE COMPANY
The parties hereto agree that:
SECTION 8.1 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 8.2 Certain Filings. The Company and Buyer shall cooperate with one
another (a) in connection with the preparation of the Proxy Statement and the
Form S-4 Registration Statement, and (b) in determining whether any action by or
in respect of, or filing with, any Governmental Entity is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (c) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Company Proxy Statement
or the Form S-4 Registration Statement and seeking timely to obtain any such
actions, consents, approvals or waivers.
SECTION 8.3 Public Announcements. Buyer, Merger Subsidiary and the Company
will consult with each other before issuing any press release or making any
public statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law or any
listing agreement with any national securities exchange or foreign securities
exchange, as determined by Buyer, Merger Subsidiary or the Company, as the case
may be, will not issue any such press release or make any such public statement
prior to such consultation.
SECTION 8.4 Conveyance Taxes. Buyer and the Company shall cooperate in the
preparation, execution and filing of all Tax Returns, questionnaires,
applications, or other documents regarding any Conveyance Taxes which become
payable in connection with the transactions contemplated hereunder that are
required to be filed on or before the Effective Time.
SECTION 8.5 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 8.6 Employee Matters. (a) For a period of one year immediately
following the Effective Time, Buyer agrees to cause the Surviving Corporation
and its Subsidiaries to provide to all active employees of the Company as of the
Effective Time who continue to be employed by the Company ("Continuing
Employees") coverage under group medical, dental, 401(k) savings, disability
insurance, life insurance, accidental death and disability, and vacation plans
or arrangements which are, in the aggregate, substantially similar to the Plans
providing such benefits to the employees immediately prior to the Effective
Time.
(b) Buyer shall, and shall cause its Subsidiaries to, honor in accordance
with their terms all agreements, contracts, arrangements, commitments and
understandings described in Schedule 8.6 of the Company Disclosure Schedule.
(c) For a period of one year immediately following the Closing Date, Buyer
agrees to cause the Surviving Corporation and its Subsidiaries to provide to all
active employees of the Company at the
A-30
<PAGE>
Closing Date which may be affected by any reduction in force subsequent to the
Closing Date the benefits set forth in the Severance Policy adopted by the Board
of Directors of the Company in connection with the July 1995 restructuring and
applied in the September 1995 and December 1995 restructurings and adopted by
resolution for any reductions in force in 1996 at the February 6, 1996 meeting
of the Board of Directors.
SECTION 8.7 Company Proxy Statement and Registration Statement. Buyer will,
as promptly as practicable, prepare and, following receipt of notification from
the SEC that it has no further comments on the Company Proxy Statement, file
with the SEC a registration statement on Form S-4 (the "Form S-4 Registration
Statement"), containing the Company Proxy Statement, and the prospectus in
connection with the registration under the Securities Act of Buyer Common Shares
issuable upon conversion of the Shares and the other transactions contemplated
hereby. Buyer will cooperate with the Company in the preparation and filing of
the Company Proxy Statement and will provide the Company with all financial and
other data concerning Buyer (including, if required, pro forma financial
statements and financial and other data regarding the other parties to the
transactions described in Schedule 6.2 of the Buyer Disclosure Schedule) as is
necessary in order for the Company to prepare the Company Proxy Statement. Buyer
and the Company will, and will cause their accountants and lawyers to, use their
best efforts to have or cause the Form S-4 Registration Statement declared
effective as promptly as practicable, including, without limitation, causing
their accountants to deliver necessary or required instruments such as opinions
and certificates, and will take any other action required or necessary to be
taken under federal or state securities laws or otherwise in connection with the
registration process.
SECTION 8.8 Tax-Free Reorganization Treatment. The Company, Buyer and Merger
Subsidiary shall execute and deliver to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Company, a certificate substantially in the form attached hereto
as Exhibit 2 or Exhibit 3, as the case may be, (the "Buyer Tax Certificate" and
the "Company Tax Certificate", as the case may be) 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 Buyer and the Company. Prior to the Effective Time, none of
the Company, Buyer and Merger Subsidiary shall take or cause to be taken any
action which would cause to be untrue (or fail to take or cause not to be taken
any action which would cause to be true) any of the information, representations
or covenants in Exhibit 2 or Exhibit 3, as the case may be.
SECTION 8.9 Notification of Certain Matters. The Company shall give prompt
notice to Buyer and Merger Subsidiary, and Buyer and Merger Subsidiary 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, Buyer or Merger Subsidiary, as the case may be,
to comply with or satisfy in any material respect 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 material contract or agreement, (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 Effect, other than changes resulting from
general economic conditions; provided, however, that the delivery of any notice
pursuant to this Section 8.9 shall not cure such breach or noncompliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 8.10 Blue Sky Permits. Buyer shall use its best efforts to obtain,
prior to the effective date of the Form S-4 Registration Statement, all
necessary state securities laws or "blue sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Merger, and
will pay all expenses incident thereto.
A-31
<PAGE>
SECTION 8.11 NYSE Listing. Buyer shall use its best efforts to cause the
shares of Buyer Common Stock constituting the Merger Consideration to be listed
on the NYSE, subject to notice of official issuance thereof.
SECTION 8.12 Pooling Letter. (a) Buyer shall use its best efforts to cause
Ernst & Young LLP, its independent auditors, to deliver to Buyer a letter to the
effect that pooling of interests accounting (under Accounting Principles Board
Opinion No. 16) is appropriate for the Merger, provided that the Merger is
consummated in accordance with the terms and conditions of this Agreement, and
the Company shall use its best efforts to cause its independent auditors, Price
Waterhouse LLP, to cooperate fully with Ernst & Young LLP (including, without
limitation, by delivering to the Company a letter substantially similar to Ernst
& Young LLP's letter to Buyer) in connection with the delivery to Buyer of such
letter.
(b) The Company shall use its best efforts to cause Price Waterhouse LLP to
deliver to the Company a letter to the effect that pooling of interests
accounting (under Accounting Principles Board Opinion No. 16) is appropriate for
the Merger, provided that the Merger is consummated in accordance with the terms
and conditions of this Agreement, and Buyer shall use its best efforts to cause
Ernst & Young LLP to cooperate fully with Price Waterhouse LLP (including,
without limitation, by delivering to Buyer a letter substantially similar to
Price Waterhouse LLP's letter to the Company) in connection with the delivery to
the Company of such letter.
SECTION 8.13 Pooling. The Company and Buyer each agrees that it will not
knowingly take any action which could prevent the Merger from being accounted
for as a pooling of interests for accounting purposes (under Accounting
Principles Board Opinion No. 16) and the Company will bring to the attention of
Buyer, and Buyer 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 Buyer from accounting for the Merger as a pooling of
interests. The Company will use its reasonable best efforts 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.
SECTION 8.14 SEC Filings. Each of Buyer 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 8.15 Affiliate Agreements. Buyer and Merger Subsidiary shall have
received the Affiliate Letters from the Company Affiliates.
SECTION 8.16 Affiliates. Promptly upon the Company obtaining knowledge of
persons who, to the best knowledge of the Company, following the date of this
Agreement until the Effective Time, become "affiliates" of the Company for
purposes of Rule 145 of the Securities Act, the Company shall use its reasonable
best efforts to identify any such person in writing to Buyer, and will use its
reasonable best efforts to cause such persons prior to the mailing of the
Company Proxy Statement, or if thereafter as soon as reasonably practicable, to
deliver to Buyer an Affiliate Letter; provided, however, that the Company will
not affirmatively, without the prior written consent of Buyer, take any action,
by hiring or appointing a new officer or director or otherwise, so as to cause
any person to become an "affiliate" unless such person executes an Affiliate
Letter prior thereto.
A-32
<PAGE>
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 Conditions to the Obligations of Each Party. The obligations of
the Company, Buyer and Merger Subsidiary to consummate the Merger are subject to
the satisfaction on or prior to the Effective Time of the following conditions,
except to the extent permitted by applicable law, that such conditions may be
waived:
(i) Stockholder Approval. The Merger shall have been duly approved by a
majority of the votes cast by stockholders of the Company entitled to vote
thereon in accordance with applicable law and the Company Certificate of
Incorporation and Company By-laws.
(ii) Listing of Buyer Common Stock. The shares of Buyer Common Stock
issuable in accordance with the Merger shall have been approved for listing
on the NYSE, subject to official notice of issuance.
(iii) Registration Statement. The Form S-4 Registration Statement shall
have become effective in accordance with the provisions of the Securities
Act, and no order suspending such effectiveness shall have been issued and
remain in effect.
(iv) HSR Act. Any applicable waiting period under the HSR Act relating
to the Merger shall have expired.
(v) No Injunction. No provision of any applicable law or regulation and
no judgment, injunction, order or decree shall prohibit the consummation of
the Merger or any transactions contemplated hereby.
(vi) Pooling. Buyer shall have received a letter from Ernst & Young LLP
and the Company shall have received a letter from Price Waterhouse LLP each
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 this
Agreement; provided, further, that the foregoing shall not be a condition to
the Company's obligations if either Price Waterhouse LLP or Ernst & Young
LLP is unable to deliver such letter as a result of the Company having
breached the Company's representation set forth in Section 4.21 or the
Company's covenants set forth in Sections 8.12, 8.13 or 8.16 or the Company
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 firm, Buyer from
accounting for the Merger as a pooling of interests.
SECTION 9.2 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the satisfaction on or prior
to the Effective Time of the following conditions, except to the extent
permitted by applicable law, that such conditions may be waived:
(i) Performance of Obligations Buyer and Merger Subsidiary. Each of
Buyer and Merger Subsidiary will have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement
which are required to be performed by it at or prior to the Effective Time.
(ii) Representations and Warranties. The representations and warranties
of Buyer and Merger Subsidiary set forth in this Agreement shall be true and
correct in all material respects (i) on and as of the date hereof and (ii)
on and as of the Closing Date with the same effect as thought such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time which need only be true and correct as of such date
and time).
A-33
<PAGE>
(iii) Closing Certificate. The Company shall have received a certificate
signed by the chief executive officer of Buyer, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 9.2(i) and 9.2(ii) hereof have been satisfied.
(iv) Tax Opinion. The Company shall have received an opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel to the Company, in form and substance
reasonably satisfactory to the Company, dated as of the Effective Time,
substantially to the effect that on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts then existing, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and, accordingly, for United
States federal income tax purposes, that:
(A) no gain or loss will be recognized by the Company, Buyer or
Merger Subsidiary as a result of the Merger;
(B) no gain or loss will be recognized by a stockholder of the
Company whose Shares are exchanged solely for Buyer Common Stock pursuant
to the Merger (except with respect to cash received by a holder of Shares
in lieu of a fractional share interest in Buyer Common Stock);
(C) the tax basis of the Buyer Common Stock received by a holder of
Shares in the Merger will be the same as the tax basis of the Shares
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest in Buyer Common Stock for which cash is
received); and
(D) the holding period of the shares of Buyer Common Stock received
by a holder of Shares in the Merger will include the period during which
such Shares surrendered in exchange therefor were held, provided that
such Shares were held as capital assets at the Effective Time of the
Merger.
In rendering such opinion, such firm may require and rely upon
representations contained in the Buyer Tax Certificate, the Company Tax
Certificate and such other certificates from such other persons as such firm may
require.
SECTION 9.3 Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction on or prior to the Effective Time of the
following conditions, except to the extent permitted by applicable law, that
such conditions may be waived:
(i) Performance of Obligations the Company. The Company will have
performed in all material respects its agreements and covenants contained in
or contemplated by this Agreement which are required to be performed by it
at or prior to the Effective Time.
(ii) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time which need only be true and correct as of such date and time).
(iii) Closing Certificate. Buyer and Merger Subsidiary shall have
received a certificate signed by the chief executive officer of the Company,
dated the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 9.3(i) and 9.3(ii) hereof
have been satisfied.
(iv) Affiliate Agreements. Each Company Affiliate shall have performed
his or its respective obligations under the applicable Affiliate Letter.
A-34
<PAGE>
ARTICLE X
TERMINATION
SECTION 10.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(i) by mutual written consent of the Company and Buyer;
(ii) by either the Company or Buyer, if the Merger has not been
consummated by December 31, 1996 (as such date may be extended by mutual
agreement or pursuant to the proviso to this sentence, the "Outside
Termination Date"); provided, however, that the right to terminate this
Agreement under this paragraph shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure to meet the date requirements of this
paragraph;
(iii) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining Buyer or the Company from consummating
the Merger is entered and such judgment, injunction, order or decree shall
become final and nonappealable;
(iv) by the Company if (A) there shall have been a breach of any
representation or warranty on the part of Buyer or Merger Subsidiary set
forth in this Agreement, or if any representation or warranty of Buyer or
Merger Subsidiary shall have become untrue, in either case such that the
condition set forth in Section 9.2(ii) would be incapable of being satisfied
by the Outside Termination Date or (B) there shall have been a breach by
Buyer or Merger Subsidiary of any of their respective covenants or
agreements hereunder having a Material Adverse Effect on Buyer or materially
adversely affecting (or materially delaying) the consummation of the Merger,
and Buyer or Merger Subsidiary, as the case may be, has not cured such
breach within twenty business days after notice by the Company thereof;
(v) by Buyer and Merger Subsidiary if (A) 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 condition set forth
in Section 9.3(ii) would be incapable of being satisfied by the Outside
Termination Date or (B) 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 Buyer or Merger Subsidiary thereof;
(vi) by Buyer or Merger Subsidiary, if (A) the Board of Directors of
the Company or any committee thereof shall have withdrawn, modified or
changed in a manner adverse to Buyer or Merger Subsidiary its recommendation
of the Merger or this Agreement or approved or recommended a Superior
Proposal or (B) the Company shall have entered into a definitive agreement
with respect to an Acquisition Proposal;
(vii) by the Company, upon entering into a definitive agreement in
accordance with Section 6.4(b), provided (x) it has complied with all
provisions of Section 6.4, including the notice provisions therein, and (y)
that it makes simultaneous payment of Buyer's Expenses (as defined in
Section 12.4); or
(viii) by Buyer, Merger Subsidiary or the Company, if the Company's
stockholders do not approve the Merger at the Company Stockholder Meeting.
The party desiring to terminate this Agreement pursuant to this Section 10.1
(other than with respect to Section 10.1(i)) shall give written notice of such
termination to the other party.
A-35
<PAGE>
SECTION 10.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1 hereof, this Agreement shall become void and of no effect with
no liability on the part of any party hereto; provided that (i) the agreements
contained in Sections 4.16, 5.6, 10.2 and 12.4, hereof shall survive the
termination hereof; (ii) the Confidentiality Agreement shall remain in full
force and effect and Section 6.3(b) hereof shall have no binding effect
whatsoever; and (iii) nothing contained in this Section 10.2 shall relieve any
party from liability for any breach of this Agreement.
ARTICLE XI
DEFINED TERMS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Active Subsidiary" shall have the meaning set forth in Section 4.6(a).
"Affiliate Letter" shall have the meaning set forth in the Introduction.
"Agreement" shall have the meaning set forth in the Introduction.
"Acquisition Proposal" shall have the meaning set forth in Section 6.4.(a).
"Affiliates" shall have the meaning set forth in Section 8.9.
"Average Stock Price" shall have the meaning set forth in Section 1.2(a).
"blue sky" shall have the meaning set forth in Section 8.10.
"Buyer" shall have the meaning set forth in the Introduction.
"Buyer Certificates" shall have the meaning set forth in Section 1.3(a).
"Buyer Common Stock" shall have the meaning set forth in the Introduction.
"Buyer Disclosure Schedule" shall have the meaning set forth in Section 5.1.
"Buyer Preferred Stock" shall have the meaning set forth in Section 5.9.
"Buyer's Expenses" shall have the meaning set forth in Section 12.4(d).
"Buyer SEC Documents" shall have the meaning set forth in Section 5.12.
"Buyer Securities" shall have the meaning set forth in Section 5.9.
"Buyer Tax Certificate" shall have the meaning set forth in Section 8.8.
"Buyer's Accountants" shall have the meaning set forth in Section 8.12(a).
"Certificate of Merger" shall have the meaning set forth in Section 1.1(b).
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall have the meaning set forth in the Introduction.
A-36
<PAGE>
"Company" shall have the meaning set forth in the Introduction.
"Company Affiliate" shall have the meaning set forth in Section the
Introduction.
"Company Affiliate Letter" shall have the meaning set forth in the
Introduction.
"Company By-laws" shall have the meaning set forth Section 3.2.
"Company Certificate of Incorporation" shall have the meaning set forth in
Section 3.1.
"Company Disclosure Schedule" shall have the meaning set forth in Section
4.1.
"Company Proxy Statement" shall have the meaning set forth in Section
6.2(i).
"Company SEC Documents" shall have the meaning set forth in Section 4.7.
"Company Securities" shall have the meaning set forth in Section 4.5.
"Company Stock Plans" shall have the meaning set forth in Section 1.10.
"Company Stockholder Meeting" shall have the meaning set forth in Section
6.2.
"Company Tax Certificate" shall have the meaning set forth in Section 8.8.
"Company's Accountants" shall have the meaning set forth in Section 8.12(a).
"Company's Expenses" shall have the meaning set forth in Section 12.4(e).
"Confidentiality Agreement" shall have the meaning set forth in Section
6.3(a).
"Continuing Employees" shall have the meaning set forth in Section 8.6(a).
"Conversion Number" shall have the meaning set forth in Section 1.2(a).
"Conveyance Taxes" shall have the meaning set forth in Section 6.5.
"Costs" shall have the meaning set forth in Section 7.3(b).
"DGCL" shall have the meaning set forth in Section 1.1(a).
"Effective Time" shall have the meaning set forth in Section 1.1(b).
"employee pension benefit plan" shall have the meaning set forth in Section
4.13(a).
"employee welfare benefit plan" shall have the meaning set forth in Section
4.13(a).
"Environmental Law" shall have the meaning set forth in Section 4.17(c).
"ERISA" shall have the meaning set forth in Section 4.13(a).
"ERISA Affiliate" shall have the meaning set forth in Section 4.13(a).
"ERISA Plans" shall have the meaning set forth in Section 4.13(a).
"Exchange Act" shall have the meaning set forth in Section 4.3.
"Exchange Agent" shall have the meaning set forth in Section 1.3(a).
"Exchange Fund" shall have the meaning set forth in Section 1.3(a).
"Expenses" shall have the meaning set forth in Section 7.3(b).
"Form S-4 Registration Statement" shall have the meaning set forth in
Section 8.7.
A-37
<PAGE>
"GAAP" shall have the meaning set forth in Section 4.8.
"Governmental Entity" shall have the meaning set forth in Section 4.3.
"Halmos Entities" shall have the meaning set forth in Section 7.3(c)(i).
"Halmos Assign" shall have the meaning set forth in Section 7.3(c)(iii).
"HSR Act" shall have the meaning set forth in Section 4.3.
"Indemnifiable Claim" shall have the meaning set forth in Section 7.3(b).
"Indemnitees" shall have the meaning set forth in Section 7.3(b).
"Indemnity Agreement" shall have the meaning set forth in Section 7.3(a).
"Intangible Property" shall have the meaning set forth in Section 4.19(a).
"Licenses" shall have the meaning set forth in Section 4.1.
"Lien" shall have the meaning set forth in Section 4.4.
"Material Adverse Effect" shall have the meaning set forth in Section 4.1.
"Material Contracts" shall have the meaning set forth in Section 4.20.
"Measurement Period" shall have the meaning set forth in Section 1.2(a).
"Merger" shall have the meaning set forth in Section 1.1(a).
"Merger Consideration" shall have the meaning set forth in Section 1.2(a).
"Merger Subsidiary" shall have the meaning set forth in the Introduction.
"Notice of Superior Proposal" shall have the meaning set forth in Section
6.4(b).
"NYSE" shall have the meaning set forth in Section 1.2(a).
"Option" shall have the meaning set forth in Section 1.10.
"Outside Termination Date" shall have the meaning set forth in Section
10.1(ii).
"PBGC" shall have the meaning set forth in Section 4.13(c).
"Person" shall have the meaning set forth in Section 1.4.
"Plans" shall have the meaning set forth in Section 4.13(a)
"Preferred Stock" shall have the meaning set forth in Section 4.5.
"SafeCard" shall have the meaning set forth in Section 4.20.
"SEC" shall have the meaning set forth in Section 4.7.
"Secretary of State" shall have the meaning set forth in Section 1.1(b).
"Securities Act" shall have the meaning set forth in the Introduction.
"Share Certificates" shall have the meaning set forth in Section 1.3(b).
"Shares" shall have the meaning set forth in the Introduction.
"single employer" shall have the meaning set forth in Section 4.13(a).
A-38
<PAGE>
"Subsidiary" shall have the meaning set forth in Section 4.6(a).
"Substitute Option" shall have the meaning set forth in Section 1.10.
"Surviving Corporation" shall have the meaning set forth in Section 1.1(a).
"Tax Return" shall have the meaning set forth in Section 4.12(b)(ii).
"Taxes" shall have the meaning set forth in Section 4.12(b)(i).
"Third Party" shall have the meaning set forth in Section 12.4(e).
"Third Party Acquisition" shall have the meaning set forth in Section
12.4(e).
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Buyer or Merger Subsidiary, to:
CUC International, Inc.
707 Summer Street
Stamford, CT 06901
Telecopy: (203) 348-1982
Attention: Amy N. Lipton, Esq.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
if to the Company, to:
Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Telecopy: (904) 218-1850
Attention: Mr. Eugene Miller, Chairman of
the Board and Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Roger S. Aaron, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 11.1
and the appropriate telecopy confirmation is received or (ii) if given by any
other means, when delivered at the address specified in this Section 12.1.
A-39
<PAGE>
SECTION 12.2 Survival of Representations and Warranties. The representations
and warranties contained herein and in any certificate or other writing
delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement. All covenants and agreements contained herein
which by their terms are to be performed in whole or in part subsequent to the
Effective Time shall survive the Merger in accordance with their terms. Nothing
contained in this Section 12.2 shall relieve any party from liability for any
willful breach of this Agreement.
SECTION 12.3 Amendments; No Waivers. (a) Except as may otherwise be provided
herein, any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Buyer and Merger Subsidiary
or in the case of a waiver, by the party against whom the waiver is to be
effective; provided that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change could adversely affect the holders of any shares of capital
stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.4 Expenses. (a) Except as provided below in this Section 12.4,
all fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to Buyer,
Buyer's Expenses (as hereinafter defined), in the event that the Company shall
enter into a definitive agreement with respect to a Superior Proposal and this
Agreement shall be terminated pursuant to Section 10.1(vi)(B) or Section
10.1(vii). In addition, in the event that this Agreement shall be terminated
pursuant to Section 10.1(vi) or Section 10.1(vii) and, (i) 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 and is completed, (ii) after the date hereof
and prior to the date of termination, (x) the Company or its agents had engaged
in negotiations with a Third Party with respect to a Third Party Acquisition,
(y) the Company or its agents furnished information to a Third Party with
respect to a Third Party Acquisition or (z) a Third Party submitted to the
Company a proposal (which shall include price and other material terms and
conditions) for a Third Party Acquisition and (iii) with respect to (x) and (y)
above, the relevant Third Party makes or announces (before or after such
termination) a proposal with respect to a Third Party Acquisition; then the
Company shall pay, or cause to be paid, in same day funds, to Buyer, (A) a
termination fee in the amount of $7,000,000, which termination fee shall be paid
on the date of consummation of a Third Party Acquisition (if and only if a Third
Party Acquisition shall be consummated within twelve months after the date of
termination), and (B) to the extent not previously paid by the Company to Buyer
pursuant to the first sentence of this Section 12.4(b), Buyers' Expenses. It is
expressly agreed that the amount to be paid pursuant to this Section 12.4(b)
represents liquidated damages and not a penalty.
(c) The cost of printing the Form S-4 Registration Statement and the Company
Proxy Statement shall be borne equally by the Company and Buyer.
(d) The Company shall pay or cause to be paid (not later than ten business
days after submission of statements therefor) in same day funds to Buyer,
Buyer's Expenses in the event this Agreement shall be terminated pursuant to
Section 10.1(v). Buyer shall pay or cause to be paid (not later than ten
business days after submission of statements therefor) in same day funds to the
Company, Company's Expenses in the event this Agreement shall be terminated
pursuant to Section 10.1(iv). If Buyer or Merger Subsidiary shall submit a
request for reimbursement hereunder, Buyer or Merger Subsidiary
A-40
<PAGE>
will provide the Company in due course with invoices or other reasonable
evidence of such expenses upon request. If the Company shall submit a request
for reimbursement hereunder, the Company will provide Buyer in due course with
invoices or other reasonable evidence of such expenses upon request.
(e) For purposes of this Section 12.4, "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 Buyer,
Merger Subsidiary or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of more than 35% of the total assets of the Company
and its Subsidiaries, taken as a whole; or (iii) the acquisition by a Third
Party of 35% or more of the outstanding shares of Company Common Stock. For
purposes of this Section 12.4, "Buyer's Expenses" shall mean documented
out-of-pocket fees and expenses reasonably and actually incurred or paid by or
on behalf of Buyer in connection with the Merger and the consummation of any of
the transactions contemplated by this Agreement, including, reasonable fees and
expenses of counsel, accountants, experts, financial advisors and consultants to
Buyer, in an aggregate amount not to exceed $1,000,000. For purposes of this
Section 12.4, "Company's Expenses" shall mean documented out-of-pocket fees and
expenses reasonably and actually incurred or paid by or on behalf of the Company
in connection with the Merger and the consummation of any of the transactions
contemplated by this Agreement, including, reasonable fees and expenses of
counsel, accountants, experts, financial advisors and consultants to the
Company, in an aggregate amount not to exceed $1,000,000.
SECTION 12.5 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 12.6 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware without regard to
conflicts of laws.
SECTION 12.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated herein is not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner.
SECTION 12.8 Third Party Beneficiaries. No provision of this Agreement other
than Section 7.3 and Section 8.6 hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 12.9 Entire Agreement. This Agreement, including any exhibits or
schedules hereto and the Confidentiality Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersede all other prior agreements or undertaking with respect thereto, both
written and oral.
SECTION 12.10 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
A-41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
IDEON GROUP, INC.
By: /s/ EUGENE MILLER
..................................
Name: Eugene Miller
Title: Chairman and CEO
CUC INTERNATIONAL INC.
By: /s/ CHRISTOPHER K. MCLEOD
..................................
Name: Christopher K. McLeod
Title: Executive Vice President
IG ACQUISITION CORP.
By: /s/ CHRISTOPHER K. MCLEOD
..................................
Name: Christopher K. McLeod
Title: Vice President
A-42
<PAGE>
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza
New York, NY 10020
Telephone (212) 632-6000 New York
Facsimile (212) 632-6060
April 19, 1996
Board of Directors
Ideon Group, Inc.
7596 Centurion Parkway
Jackonsville, Florida 32256
Dear Members of the Board:
We understand that Ideon Group, Inc. ("Target"), CUC International Inc.
("Acquiror") and Newco ("Newco"), a wholly-owned subsidiary of Acquiror, have
entered into an Agreement and Plan of Merger, dated as of April 19, 1996 (the
"Agreement"), pursuant to which Newco will merge with the Target (the "Merger").
Pursuant to the Agreement, each share of Target Common Stock (as defined below)
outstanding immediately prior to the effective time of the Merger will be
converted into the equivalent of $13.50 of Common Stock, par value $0.01 per
share (the "Acquiror Common Stock") of Acquiror (the "Exchange Ratio"), subject
to certain limitations set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of shares of the Common Stock, par value $0.01 per share
(the "Target Common Stock"), of Target of the Exchange Ratio.
In connection with this opinion, we have reviewed the financial terms of the
Agreement, certain publicly available information regarding Target and Acquiror;
and certain internal financial analyses and forecasts for Target and Acquiror
prepared and provided to us by their respective managements. We have held
separate discussions with members of the senior management of each of Target and
Acquiror regarding their past and current business operations and financial
condition, and the future prospects for their respective companies. In addition,
we have reviewed the reported price and trading activity for the Target Common
Stock and Acquiror Common Stock, compared certain financial and stock market
information for Target and Acquiror with similar information for other
comparable companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in comparable businesses
and have performed such other studies and analyses as we considered appropriate
for the purposes of this opinion.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts have been reasonably prepared on bases reflecting
the best currently available judgements and estimates of Target and Acquiror and
that the financial results contemplated by such forecasts will be realized. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
B-1
<PAGE>
We have further assumed, with your consent, that the Merger will be
consummated in accordance with the terms described in the Agreement, without any
further amendment thereto, and without waiver by Target of any of the conditions
to its obligation to close thereunder.
We have acted as financial advisor to Target in connection with the Merger
and will receive a fee for our services, a substantial portion of which is
contingent upon closing of the Merger.
It is understood that our engagement and this letter is rendered to the
Board of Directors of Target in connection with its consideration of the Merger,
and may not be used for any other purpose or disclosed or otherwise referred to
without our prior written consent. This opinion is not intended to and does not
constitute a recommendation to any holder of Target Common Stock as to whether
such stockholder should vote for the Merger.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio is fair, from a financial point of view, to the holders of the Target
Common Stock.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PAUL STREET
...................................
Managing Director
B-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
adjusted 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 officers 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
- ----------- ------------------------------------------------------------------------------
<S> <C>
2(a) 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).*
2(b) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
International Inc., Stealth Acquisition I Corp. and Davidson & Associates,
Inc. (filed as Exhibit 2A to CUC International's Current Report on Form 8-K
dated March 12, 1996).*
2(c) Agreement and Plan of Merger dated as of February 19, 1996, among CUC
International Inc., Larry Acquisition Corp. and Sierra On-Line, Inc. (the
"Sierra Merger Agreement") (filed as Exhibit 2B to CUC International's Current
Report on Form 8-K dated March 12, 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 of Robert T. Tucker, Esq. as to the legality of CUC International's
Common Stock to be registered.
8 Form of Tax opinion of Skadden, Arps, Slate Meagher & Flom
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 12,
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
12, 1996).*
15.1 Awareness Letter from Ernst & Young LLP re: unaudited interim financial
information
15.2 Awareness 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 Skadden, Arps, Meagher & Flom (included in Exhibit 8)
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.
II-2
<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 to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, 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 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 the
payment by registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the 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 governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 28th 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
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Walter A. Forbes and E. Kirk Shelton, and
each and either of them, this true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in this name, place
and stead, in any and all capacities, to sign any and all amendments (including,
without limitation, post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------- --------------
<S> <C> <C>
....................................... Chief Executive Officer and Chairman June 28, 1996
Walter A. Forbes of the Board (Principal Executive
Officer)
....................................... Senior Vice President and Chief June 28, 1996
Cosmo Corigliano Financial Officer (Principal
Financial and Accounting Officer)
....................................... Director June 28, 1996
Bartlett Burnap
....................................... Director June 28, 1996
T. Barnes Donnelley
....................................... Director June 28, 1996
Stephen A. Greyser
....................................... Director June 28, 1996
Christopher K. McLeod
....................................... Director June 28, 1996
Burton C. Perfit
....................................... Director June 28, 1996
Robert P. Rittereiser
....................................... Director June 28, 1996
Stanley M. Rumbough, Jr.
....................................... Director June 28, 1996
E. Kirk Shelton
</TABLE>
II-5
EXHIBIT 2(C)
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
IDEON GROUP, INC.,
CUC INTERNATIONAL INC.
AND
IG ACQUISITION CORP.
DATED
AS OF
APRIL 19, 1996
- --------------------------------------------------------------------------------
2(C)-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER............................................................................ 2c-6
SECTION 1.1 The Merger........................................................ 2c-6
SECTION 1.2 Effect on Shares.................................................. 2c-7
SECTION 1.3 Exchange of Certificates.......................................... 2c-7
SECTION 1.4 Dividends; Transfer Taxes......................................... 2c-8
SECTION 1.5 No Fractional Shares.............................................. 2c-8
SECTION 1.6 Return of Exchange Fund........................................... 2c-9
SECTION 1.7 Adjustment of Conversion Number................................... 2c-9
SECTION 1.8 No Further Ownership Rights in Shares............................. 2c-9
SECTION 1.9 Closing of Company Transfer Books................................. 2c-9
SECTION 1.10 Stock Options..................................................... 2c-9
SECTION 1.11 Restricted Stock.................................................. 2c-10
ARTICLE II
CLOSING............................................................................... 2c-10
SECTION 2.1 Closing........................................................... 2c-10
ARTICLE III
THE SURVIVING CORPORATION............................................................. 2c-10
SECTION 3.1 Certificate of Incorporation...................................... 2c-10
SECTION 3.2 Bylaws............................................................ 2c-10
SECTION 3.3 Directors and Officers............................................ 2c-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... 2c-11
SECTION 4.1 Corporate Existence and Power..................................... 2c-11
SECTION 4.2 Corporate Authorization........................................... 2c-11
SECTION 4.3 Governmental Authorization........................................ 2c-12
SECTION 4.4 Non-Contravention................................................. 2c-12
SECTION 4.5 Capitalization.................................................... 2c-12
SECTION 4.6 Subsidiaries...................................................... 2c-13
SECTION 4.7 SEC Documents..................................................... 2c-13
SECTION 4.8 Financial Statements; No Undisclosed Liabilities.................. 2c-13
SECTION 4.9 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus.............................................. 2c-14
SECTION 4.10 Absence of Certain Changes........................................ 2c-14
SECTION 4.11 Litigation........................................................ 2c-15
SECTION 4.12 Taxes............................................................. 2c-16
SECTION 4.13 Employee Matters.................................................. 2c-16
SECTION 4.14 Labor Matters..................................................... 2c-17
SECTION 4.15 Compliance with Laws.............................................. 2c-18
SECTION 4.16 Finders' Fees..................................................... 2c-18
SECTION 4.17 Environmental Matters............................................. 2c-18
SECTION 4.18 Property.......................................................... 2c-18
SECTION 4.19 Intangible Property............................................... 2c-19
SECTION 4.20 Material Contracts................................................ 2c-19
SECTION 4.21 Accounting Matters................................................ 2c-19
SECTION 4.22 Vote Required..................................................... 2c-20
SECTION 4.23 Fairness Opinion.................................................. 2c-20
SECTION 4.24 Disclosure........................................................ 2c-20
</TABLE>
2(C)-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUBSIDIARY......................... 2c-20
SECTION 5.1 Corporate Existence and Power..................................... 2c-20
SECTION 5.2 Corporate Authorization........................................... 2c-20
SECTION 5.3 Governmental Authorization........................................ 2c-20
SECTION 5.4 Non-Contravention................................................. 2c-21
SECTION 5.5 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus.............................................. 2c-21
SECTION 5.6 Finders' Fees..................................................... 2c-21
SECTION 5.7 No Vote Required.................................................. 2c-21
SECTION 5.8 Share Ownership................................................... 2c-22
SECTION 5.9 Capitalization.................................................... 2c-21
SECTION 5.10 Accounting Matters................................................ 2c-22
SECTION 5.11 Ownership of Merger Subsidiary; No Prior Activities; Assets of
Merger Subsidiary................................................. 2c-22
SECTION 5.12 SEC Documents..................................................... 2c-22
SECTION 5.13 Financial Statements.............................................. 2c-22
SECTION 5.14 Absence of Certain Changes or Events.............................. 2c-23
SECTION 5.15 Litigation........................................................ 2c-23
SECTION 5.16 Authorization for Buyer Common Stock.............................. 2c-23
SECTION 5.17 Taxes............................................................. 2c-24
SECTION 5.18 Disclosure........................................................ 2c-24
ARTICLE VI
COVENANTS OF THE COMPANY.............................................................. 2c-24
SECTION 6.1 Conduct of the Company............................................ 2c-24
SECTION 6.2 Stockholder Meeting; Proxy Material............................... 2c-26
SECTION 6.3 Access to Information; Confidential Agreement..................... 2c-26
SECTION 6.4 No Solicitation................................................... 2c-27
SECTION 6.5 Conveyance Taxes.................................................. 2c-28
ARTICLE VII
COVENANTS OF BUYER.................................................................... 2c-28
SECTION 7.1 Obligations of Merger Subsidiary.................................. 2c-28
SECTION 7.2 Voting of Shares.................................................. 2c-28
SECTION 7.3 Director and Officer Liability.................................... 2c-28
ARTICLE VIII
COVENANTS OF BUYER, MERGER SUBSIDIARY AND THE COMPANY................................. 2c-31
SECTION 8.1 Reasonable Best Efforts........................................... 2c-31
SECTION 8.2 Certain Filings................................................... 2c-31
SECTION 8.3 Public Announcements.............................................. 2c-31
SECTION 8.4 Conveyance Taxes.................................................. 2c-31
SECTION 8.5 Further Assurances................................................ 2c-31
SECTION 8.6 Employee Matters.................................................. 2c-31
SECTION 8.7 Company Proxy Statement and Registration Statement................ 2c-32
SECTION 8.8 Tax-Free Reorganization Treatment................................. 2c-32
SECTION 8.9 Notification of Certain Matters................................... 2c-32
SECTION 8.10 Blue Sky Permits.................................................. 2c-32
SECTION 8.11 NYSE Listing...................................................... 2c-33
SECTION 8.12 Pooling Letter.................................................... 2c-33
SECTION 8.13 Pooling........................................................... 2c-33
SECTION 8.14 SEC Filings....................................................... 2c-33
SECTION 8.16 Affiliates........................................................ 2c-33
</TABLE>
2(C)-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX
CONDITIONS TO THE MERGER.............................................................. 2c-34
SECTION 9.1 Conditions to the Obligations of Each Party....................... 2c-34
SECTION 9.2 Conditions to the Obligations of the Company...................... 2c-34
SECTION 9.3 Conditions to the Obligations of Buyer and Merger Subsidiary...... 2c-35
ARTICLE X
TERMINATION........................................................................... 2c-36
SECTION 10.1 Termination....................................................... 2c-36
SECTION 10.2 Effect of Termination............................................. 2c-37
ARTICLE XI
DEFINED TERMS......................................................................... 2c-38
ARTICLE XII
MISCELLANEOUS......................................................................... 2c-40
SECTION 12.1 Notices........................................................... 2c-40
SECTION 12.2 Survival of Representations and Warranties........................ 2c-41
SECTION 12.3 Amendments; No Waivers............................................ 2c-41
SECTION 12.4 Expenses.......................................................... 2c-41
SECTION 12.5 Successors and Assigns............................................ 2c-42
SECTION 12.6 Governing Law..................................................... 2c-42
SECTION 12.7 Severability...................................................... 2c-42
SECTION 12.8 Third Party Beneficiaries......................................... 2c-42
SECTION 12.9 Entire Agreement.................................................. 2c-42
SECTION 12.10 Counterparts; Effectiveness....................................... 2c-43
COMPANY DISCLOSURE SCHEDULE
SCHEDULE 4.1 Corporate Existence and Power
SCHEDULE 4.3 Governmental Authorization
SCHEDULE 4.4 Non-Contravention
SCHEDULE 4.5 Capitalization
SCHEDULE 4.6 Subsidiaries
SCHEDULE 4.8 Financial Statements
SCHEDULE 4.10 Absence of Certain Changes
SCHEDULE 4.11 Litigation
SCHEDULE 4.12 Taxes
SCHEDULE 4.13(a) Employee Matters
SCHEDULE 4.14 Labor Matters
SCHEDULE 4.15 Compliance With Laws
SCHEDULE 4.17 Environmental Matters
SCHEDULE 4.19 Intangible Property
SCHEDULE 4.20 Material Contracts
SCHEDULE 6.1 Conduct of the Company
SCHEDULE 6.1(p) Conduct of the Company
SCHEDULE 7.3 Directors and Officers' Liability
SCHEDULE 8.6 Employee Matters
EXHIBIT 1 Form of Affiliate Letter
EXHIBIT 2 Buyer Tax Certificate
EXHIBIT 3 Company Tax Certificate
</TABLE>
2(C)-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
BUYER DISCLOSURE SCHEDULE
SCHEDULE 5.1 Corporate Existence and Power
SCHEDULE 5.9 Capitalization
SCHEDULE 5.14 Absence of Certain Changes or Events
SCHEDULE 5.15 Litigation
SCHEDULE 5.17 Taxes
SCHEDULE 6.2 Buyer Transactions
</TABLE>
2(C)-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 19, 1996 (this "Agreement"),
by and among Ideon Group, Inc., a Delaware corporation (the "Company"), CUC
International Inc., a Delaware corporation ("Buyer"), and IG Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of Buyer ("Merger
Subsidiary").
WHEREAS, the respective Boards of Directors of Buyer, Merger Subsidiary and
the Company have determined that it is fair to, and in the best interests of
their respective stockholders to consummate the acquisition of the Company by
Buyer upon the terms and subject to the conditions set forth herein; and
WHEREAS, the respective Boards of Directors of the Company, Buyer and Merger
Subsidiary have approved and declared advisable this Agreement and the merger of
Merger Subsidiary with and into the Company, upon terms and subject to the
conditions set forth herein, whereby each issued and outstanding share of common
stock, par value $.01 per share, of the Company (the "Shares"), not owned
directly or indirectly by Buyer or Merger Subsidiary, will be converted into the
number of shares of common stock, par value $.01 per share of Buyer ("Buyer
Common Stock"), determined pursuant to Section 1.2(a) hereof; and
WHEREAS, it is intended that the Merger (as defined herein) shall be
recorded for accounting purposes as a pooling-of-interests; and
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, the Company has delivered to Buyer a letter (the "Company Affiliate
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 Buyer a letter substantially in the form attached
hereto as Exhibit 1 (each, an "Affiliate Letter") relating to (i) the transfer
prior to the Effective Time (as defined in Section 1.1(b)), of the Shares
beneficially owned by such Company Affiliate on the date hereof, and (ii) the
transfer of the shares of Buyer Common Stock to be received by such Company
Affiliate in the Merger (as defined in Section 1.1(a)); and
WHEREAS, Buyer, Merger Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), at the Effective Time, Merger Subsidiary shall be merged (the "Merger")
with and into the Company, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware.
2(C)-6
<PAGE>
(b) The Company, Buyer and Merger Subsidiary will cause a certificate of
merger (the "Certificate of Merger") with respect to the Merger to be executed
and filed with the Secretary of State of the State of Delaware (the "Secretary
of State") as provided in the DGCL. The Merger shall become effective on the
date the Certificate of Merger has been duly filed with the Secretary of State
or at such date as is agreed between the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time."
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities, liabilities and duties of the Company and
Merger Subsidiary.
SECTION 1.2. Effect on Shares. At the Effective Time:
(a) Conversion of Shares; Merger Consideration. Subject to the provisions of
Section 1.5 and Section 1.7 hereof, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held by the Company
as treasury stock or by any Subsidiary of the Company or owned by Buyer, Merger
Subsidiary or any other Subsidiary of Buyer) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive that number of duly authorized, validly issued, fully paid and
nonassessable shares of Buyer Common Stock (the "Merger Consideration")(such
applicable number being hereinafter referred to as the "Conversion Number"),
equal to the quotient obtained by dividing (x) $13.50 by (y) the Average Stock
Price (as hereinafter defined); provided, however, that if the Average Stock
Price is $22 or less the Conversion Number shall be 0.6136 and if the Average
Stock Price is $36 or more the Conversion Number shall be 0.3750. The "Average
Stock Price" shall mean the average closing price per share of Buyer Common
Stock on the New York Stock Exchange (the "NYSE") as reported on the NYSE
Composite Tape during the fifteen consecutive trading day period (the
"Measurement Period") ending on the second calendar day immediately preceding
the Company Stockholder Meeting (as defined herein); provided, however, that if
such second calendar day is not a trading day, the Measurement Period shall end
on the next calendar day immediately preceding such second calendar day that is
a trading day.
(b) Cancellation of Shares. Each Share held by the Company as treasury stock
or owned by Buyer, Merger Subsidiary or any other Subsidiary of Buyer
immediately prior to the Effective Time shall automatically be canceled and
retired and cease to exist, and no payment shall be made with respect thereto.
All Shares to be converted into Buyer Common Stock pursuant to this Section 1.2
shall, by virtue of the Merger and without any action on the part of the holders
thereof, cease to be outstanding, be canceled and retired and cease to exist;
and each holder of a certificate representing prior to the Effective Time any
such Shares shall thereafter cease to have any rights with respect to such
Shares, except the right to receive (i) certificates representing shares of
Buyer Common Stock into which such Shares have been converted, (ii) any
dividends and other distributions in accordance with Section 1.4 hereof and
(iii) any cash, without interest, to be paid in lieu of any fractional share of
Buyer Common Stock in accordance with Section 1.5 hereof.
(c) Capital Stock of Merger Subsidiary. Each share of common stock of Merger
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and become one share of common stock, par value $0.01, of the
Surviving Corporation with the same rights, powers and privileges as the shares
so converted and shall constitute the only outstanding shares of capital stock
of the Surviving Corporation.
SECTION 1.3 Exchange of Certificates. (a) Prior to the Effective Time, Buyer
shall appoint a commercial bank having capital of not less than $500,000,000 (or
such other Person or Persons as shall be acceptable to Buyer and the Company) to
act as exchange agent hereunder (the "Exchange Agent"). At the Effective Time,
Buyer shall deposit with the Exchange Agent, certificates (the "Buyer
Certificates") representing Buyer Common Stock which immediately prior to the
Effective Time represent a number of shares of Buyer Common Stock required to be
issued pursuant to Section 1.2(a) in exchange for the outstanding Shares
(together with cash as required to (i) pay any dividends or distributions with
2(C)-7
<PAGE>
respect thereto in accordance with Section 1.4 hereof and (ii) make payments in
lieu of fractional Shares pursuant to Section 1.5 hereof, being hereinafter
referred to as the "Exchange Fund"). The Exchange Fund shall not be used for any
other purpose except as provided for in this Agreement.
(b) Promptly 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 "Share Certificates") (i) a
form of a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Share Certificates shall pass, only
upon actual delivery thereof to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Share Certificates in exchange for the
property described in the next sentence. Upon surrender for cancellation to the
Exchange Agent of Share Certificate(s) held by any record holder of a Share
Certificate, together with such letter of transmittal duly executed, such holder
shall be entitled to receive in exchange therefor (x) a Buyer Certificate
representing the number of whole shares of Buyer Common Stock into which the
Shares represented by the surrendered Share Certificate(s) shall have been
converted at the Effective Time pursuant to this Article I, (y) cash in lieu of
any fractional share of Buyer Common Stock in accordance with Section 1.5 hereof
and (z) certain dividends and other distributions in accordance with Section 1.4
hereof; and the Share Certificate(s) so surrendered shall forthwith be
cancelled.
(c) Subject to the provisions of Section 1.4 and Section 1.5 hereof, each
Share Certificate which immediately prior to the Effective Time represented
Shares to be converted in the Merger shall, from and after the Effective Time
until surrendered in exchange for Buyer Certificate(s) in accordance with this
Section 1.3, be deemed for all purposes to represent the number of shares of
Buyer Common Stock into which such Shares shall have been so converted.
SECTION 1.4 Dividends; Transfer Taxes. No dividends or other distributions
that are declared on or after the Effective Time on Buyer Common Stock, or are
payable to the holders of record thereof who became such on or after the
Effective Time, shall be paid to any Person entitled by reason of the Merger to
receive Buyer Certificates representing Buyer Common Stock, and no cash payment
in lieu of any fractional share of Buyer Common Stock shall be paid to any such
person pursuant to Section 1.5 hereof, until such Person shall have surrendered
its Share Certificate(s) as provided in Section 1.3 hereof. Subject to
applicable law, there shall be paid to each Person receiving a Buyer Certificate
representing such shares of Buyer Common Stock: (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of any dividends
or other distributions theretofore paid with respect to the shares of Buyer
Common Stock represented by such Buyer Certificate and having a record date on
or after the Effective Time and a payment date prior to such surrender, and (ii)
at the appropriate payment date or as promptly as practicable thereafter, the
amount of any dividends or other distributions payable with respect to such
shares of Buyer Common Stock and having a record date on or after the Effective
Time but prior to such surrender and a payment date on or subsequent to such
surrender. In no event shall the Person entitled to receive such dividends or
other distributions be entitled to receive interest on such dividends or other
distributions. Buyer shall make available to the Exchange Agent the cash
necessary for this purpose. If any cash or Buyer Certificate representing shares
of Buyer Common Stock is to be paid to or issued in a name other than that in
which the Share Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Share Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of such Buyer Certificate and
the distribution of such cash payment in a name other than that of the
registered holder of the Share Certificate so surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. "Person" means an individual, a corporation, limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
SECTION 1.5 No Fractional Shares. No certificates or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Share Certificates pursuant to
2(C)-8
<PAGE>
this Article I; no dividend or other distribution by Buyer and no stock split,
combination or reclassification shall relate to any such fractional share; and
no such fractional share shall entitle the record or beneficial owner thereof to
vote or to any other rights of a stockholder of Buyer. In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
thereto upon the surrender of Share Certificate(s) for exchange pursuant to this
Article I will be paid an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying (i) the per share closing price on
the NYSE of Buyer Common Stock (as reported on the NYSE Composite Tape) on the
date on which the Effective Time shall occur (or, if Buyer Common Stock shall
not trade on the NYSE on such date, the first day of trading in Buyer Common
Stock on the NYSE, thereafter) by (ii) the fractional share to which such holder
would otherwise be entitled. Buyer shall make available to the Exchange Agent
the cash necessary for this purpose.
SECTION 1.6 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of the Shares for one year after the
Effective Time shall be delivered to Buyer, upon its request, and any such
former holders who have not theretofore surrendered to the Exchange Agent their
Share Certificate(s) in compliance with this Article I shall thereafter look
only to Buyer for payment of their claim for shares of Buyer Common Stock, any
cash in lieu of fractional shares of Buyer Common Stock and any dividends or
distributions with respect to such shares of Buyer Common Stock. Neither Buyer
nor the Company shall be liable to any former holder of Shares for any such
shares of Buyer Common Stock held in the Exchange Fund (and any cash, dividends
and distributions payable in respect thereof) which is delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 1.7 Adjustment of Conversion Number. In the event of any stock
split, combination, reclassification or stock dividend with respect to Buyer
Common Stock, any change or conversion of Buyer Common Stock into other
securities or any other dividend or distribution with respect to Buyer Common
Stock (other than quarterly cash dividends issued in the ordinary course
consistent with past practice) and any distribution by Buyer of shares of
capital stock of any of its affiliates, or if a record date with respect to any
of the foregoing should occur, prior to the Effective Time, appropriate and
proportionate adjustments shall be made to the Conversion Number, and thereafter
all references in this Agreement to the Conversion Number shall be deemed to be
the Conversion Number as so adjusted.
SECTION 1.8 No Further Ownership Rights in Shares. All certificates
representing shares of Buyer Common Stock delivered upon the surrender for
exchange of any Share Certificate in accordance with the terms hereof (including
any cash paid pursuant to Section 1.4 or Section 1.5 hereof) shall be deemed to
have been delivered (and paid) in full satisfaction of all rights pertaining to
the Shares previously represented by such Share Certificate.
SECTION 1.9 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed, and no transfer of Shares
shall thereafter be made. Subject to the last sentence of Section 1.6 hereof, if
after the Effective Time, Share Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged as provided in this Article
I.
SECTION 1.10 Stock Options. (a) Not later than the Effective Time, each
outstanding employee or director stock option (an "Option") to purchase Shares
granted under any employee or director stock option or compensation plan or
arrangement of the Company (other than any "stock purchase plan" within the
meaning of Section 423 of the Code) immediately prior to the Effective Time in
effect on the date hereof ("Company Stock Plans") whether or not then vested or
exercisable, shall become and represent an option to purchase the number of
shares of Buyer Common Stock (a "Substitute Option"), rounded up to the nearest
whole share, determined by multiplying (i) the number of Shares subject to such
Option immediately prior to the Effective Time by (ii) the Conversion Number, at
an exercise price per share of Buyer Common Stock (increased to the nearest
whole cent) equal to the exercise price per Share immediately prior to the
Effective Time divided by the Conversion Number; provided, however, that in the
case of any Option to which Section 421 of the Code applies by reason of its
2(C)-9
<PAGE>
qualification as an incentive stock option under Section 422 of the Code, the
conversion formula shall be adjusted if necessary to comply with Section 424(a)
of the Code. After the Effective Time, except as provided above in this Section
1.10, each Substitute Option shall be exercisable upon the same terms and
conditions as were applicable to the related Option immediately prior to the
Effective Time. Buyer shall register under the Securities Act on Form S-8 or
another appropriate form (and use its best efforts to maintain the effectiveness
thereof and maintain the current status of the prospectuses contained therein)
all Substitute Options and all shares of Buyer Common Stock issuable pursuant to
all Substitute Options. At or prior to the Effective Time, Buyer shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Buyer Common Stock for delivery in connection with the Substitute Options.
(b) Notwithstanding the foregoing, each Option held by any director of the
Company at the Effective Time, shall be converted at the Effective Time into the
right to receive that number of duly authorized, validly issued, fully paid and
nonassessable shares of Buyer Common Stock determined by multiplying (i) the
number of Shares such holder could have purchased had such holder exercised such
Option in full immediately prior to the Effective Time by (ii) a fraction, the
numerator of which shall be the excess, if any, of (A) the Conversion Number
multiplied by the Average Stock Price over (B) the applicable exercise price of
such Option and the denominator of which shall be the Average Stock Price.
SECTION 1.11 Restricted Stock. Any unvested shares of restricted stock of
the Company, however granted, shall to the extent required in the plan,
agreement or instrument pursuant to which such restricted stock was granted,
vest and become free of all restrictions immediately prior to the Effective Time
and shall be convertible into Buyer Common Stock pursuant to Section 1.2 hereof.
ARTICLE II.
CLOSING
SECTION 2.1 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., New York City time, on a date to be specified by the
parties, which shall be no later than the third business day after satisfaction
or waiver of all of the conditions set forth in Article IX hereof (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.
ARTICLE III.
THE SURVIVING CORPORATION
SECTION 3.1 Certificate of Incorporation. The certificate of incorporation
of the Company (the "Company Certificate of Incorporation") in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 3.2 Bylaws. The by-laws of the Company (the "Company By-laws") in
effect at the Effective Time shall be the by-laws of the Surviving Corporation
until amended in accordance with applicable law.
SECTION 3.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of Merger Subsidiary at the Effective Time shall
be the initial directors of the Surviving Corporation and the officers of the
Company at the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected and
appointed or qualified.
2(C)-10
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer and Merger Subsidiary that:
SECTION 4.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and except as set forth on Schedule 4.1 of the disclosure schedule
delivered by the Company in connection herewith (the "Company Disclosure
Schedule"), has all corporate powers and all governmental licenses,
authorizations, consents and approvals (collectively, "Licenses") required to
carry on its business as now conducted except where the failure to have any such
License would not have a Material Adverse Effect (as defined below). The Company
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not
have a Material Adverse Effect. As used herein, the term "Material Adverse
Effect" means a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and its
Subsidiaries (as defined in Section 4.6 hereof), or Buyer and Merger Subsidiary,
as the case may be, in each case taken as a whole, that is not a result of
general changes in the economy or the industries in which such entities operate.
The Company has heretofore delivered or made available to Buyer true and
complete copies of the Company Certificate of Incorporation and Company By-laws
as currently in effect.
SECTION 4.2 Corporate Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and,
except for any required approval by the Company's stockholders in connection
with the consummation of the Merger, have been duly authorized by all necessary
corporate action. This Agreement, assuming due and valid authorization,
execution and delivery by the parties hereto, constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except that (i) enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. To the extent permitted under any Option
or option plan, restricted stock plan, agreement or instrument or any
employment, executive, severance or similar agreement to which the Company or
any of its Subsidiaries is a party, such that none of the execution, delivery
and performance by the Company of this Agreement or the consummation of the
transactions contemplated hereby (including, without limitation, the election of
the members of the Board of Directors of Merger Subsidiary as the initial
directors of the Surviving Corporation at the Effective Time pursuant to Section
3.3) will constitute a "change of control" or "change in control" thereunder or
result in an alteration of the benefits and burdens (including, without
limitation, by means of acceleration) thereunder, the necessary majority of
members of the Board of Directors has approved the execution, delivery and
performance by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby.
2(C)-11
<PAGE>
SECTION 4.3 Governmental Authorization. Except as set forth in Schedule 4.3
of the Company Disclosure Schedule, the execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority (each, a
"Governmental Entity") other than: (i) the filing of a certificate of merger in
accordance with the DGCL; (ii) compliance with any applicable requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (iii)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); (iv) compliance with the applicable
requirements of state blue sky laws; (v) compliance with the applicable
requirements of any applicable takeover laws; and (vi) such other actions by or
in respect of, or filings with, any Governmental Entity the failure of which to
obtain or make would not have a Material Adverse Effect and which would not
materially impair or materially delay the ability of the Company to consummate
the transactions contemplated hereby.
SECTION 4.4 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the Company Certificate of Incorporation or Company By-laws, (ii) except as
set forth in Schedule 4.4 of the Company Disclosure Schedule and assuming
compliance with the matters referred to in Section 4.3 hereof, contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or any Subsidiary of the Company, (iii) except as set forth in Schedule 4.4 of
the Company Disclosure Schedule, with or without the giving of notice or passage
of time or both, constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Subsidiary of the Company or to a loss of any benefit to which
the Company or any Subsidiary of the Company is entitled under any provision of
any agreement, contract or other instrument binding upon the Company or any
Subsidiary of the Company or any license, franchise, permit or other similar
authorization held by the Company or any Subsidiary of the Company, or (iv)
result in the creation or imposition of any Lien (as defined below) on any asset
of the Company or any Subsidiary of the Company, excluding from the foregoing
clauses (ii), (iii) or (iv), such violations, breaches, defaults or Liens which
would not have a Material Adverse Effect, and which will not materially impair
or materially delay the ability of the Company to consummate the transactions
contemplated hereby. For purposes of this Agreement, "Lien" means, with respect
to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset.
SECTION 4.5 Capitalization. The authorized capital stock of the Company
consists of 90,000,000 Shares and 10,000,000 shares of preferred stock (the
"Preferred Stock"). As of March 31, 1996, there were (i) 27,981,831 Shares
issued and outstanding; (ii) 6,964,169 Shares held in the Company's treasury;
and (iii) no shares of Preferred Stock issued and outstanding. As of March 31,
1996, there were (i) 1,713,900 outstanding Options pursuant to the 1994 Long
Term Stock-Based Incentive Plan with an exercise price range of a minimum
exercise price of $7.625 and a maximum exercise price of $20.75; (ii) 108,700
outstanding Options pursuant to the Employees Stock Option Plan with a minimum
exercise price of $9.875 and a maximum exercise price of $19.125; (iii) 300,000
outstanding Options granted to outside directors with an exercise price range of
a minimum exercise price of $9.00 and a maximum exercise price of $13.00; (iv)
8,333 outstanding Options pursuant to the 1991 Employee Stock Option Plan with
an exercise price of $9.00; (v) 10,000 outstanding Options pursuant to the 1992
Employee Stock Option Plan with an exercise price of $8.875 and (vi) 30,000
outstanding Options pursuant to the Directors Stock Plan with an exercise price
of $15.875. Schedule 4.5 of the Company Disclosure Schedule accurately sets
forth information regarding the exercise price, date of grant and number of
granted Options for each holder of Options as of March 31, 1996. All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this Section
4.5, and except for changes since March 31, 1996 resulting from the exercise of
employee Options outstanding on such date, there are outstanding (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company or of any Subsidiary of the Company convertible into or
exchangeable for shares of
2(C)-12
<PAGE>
capital stock or voting securities of the Company, and (iii) except as set forth
on Schedule 4.5 of the Company Disclosure Schedule, no options or other rights
to acquire from the Company, and no obligation of the Company to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "Company Securities").
There are no outstanding obligations of the Company or any Subsidiary of the
Company to repurchase, redeem or otherwise acquire any Company Securities.
Except as set forth on Schedule 4.5 of the Company Disclosure Schedule, there
are no stockholder agreements, voting trusts or understandings to which the
Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company. Except as otherwise
provided in Section 1.11 of this Agreement, the Company has not taken any action
that would result in any Options or shares of restricted stock that are unvested
becoming vested in connection with or as a result of the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
No Subsidiary of the Company owns any capital stock of the Company.
SECTION 4.6 Subsidiaries. (a) Each Subsidiary of the Company that is
actively engaged in any business or owns any material assets (an "Active
Subsidiary") (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, (ii) except
as set forth in Schedule 4.6 of the Company Disclosure Schedule, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
(iii) is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except with respect to (ii) and (iii) above to the extent the failure of this
representation and warranty to be true would not have a Material Adverse Effect.
For purposes of this Agreement, "Subsidiary" means with respect to any Person,
any corporation or other legal entity of which such Person owns, directly or
indirectly, more than 50% of the outstanding stock or other equity interests,
the holders of which are entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity. All
Active Subsidiaries, their respective jurisdictions of incorporation and the
ownership interest of the Company and its Subsidiaries in such Active
Subsidiaries are identified on Schedule 4.6 of the Company Disclosure Schedule.
(b) Each outstanding share of capital stock of each Subsidiary of the
Company has been duly and validly authorized and issued, is fully paid and
nonassessable and is owned by the Company and/or one or more of its Subsidiaries
free and clear of any Liens. There are no subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character relating to the issuance, transfer, sale, delivery, voting or
redemption (including any rights of conversion or exchange under any outstanding
security or other instrument) for, any of the capital stock or other equity
interests of any of such Subsidiaries. There are no agreements requiring the
Company or any of its Subsidiaries to make contributions to the capital of, or
lend or advance funds to, any of the Subsidiaries of the Company.
SECTION 4.7 SEC Documents. The Company has filed all required reports, proxy
statements, forms and other documents with the SEC since January 1, 1994
("Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the Securities and Exchange Commission (the "SEC") promulgated
thereunder applicable to such Company SEC Documents, and (ii) none of the
Company SEC Documents contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 4.8 Financial Statements; No Undisclosed Liabilities. The
consolidated financial statements of the Company included in the Company SEC
Documents (i) comply as to form in all material respects with all applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in conformity with generally accepted
accounting principles ("GAAP"), applied on a consistent basis (except in the
case of unaudited statements, as
2(C)-13
<PAGE>
permitted by Form 10-Q of the SEC) during the periods involved (except as may be
indicated in the related notes and schedules thereto) and (iii) fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in Schedule 4.8 of the Company Disclosure Schedule and
except as set forth in the Company SEC Documents filed and publicly available
prior to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business since the date of the most recent
consolidated balance sheet included in the Company SEC Documents filed and
publicly available prior to the date of this Agreement, neither the Company nor
any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of the Company and its consolidated
Subsidiaries or in the notes thereto.
SECTION 4.9 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus. None of the information to be supplied by the Company for
inclusion or incorporation by reference in the Form S-4 Registration Statement
(as hereinafter defined) or the Company Proxy Statement (as hereinafter defined)
will (i) in the case of the Form S-4 Registration Statement, at the time it
becomes effective, at the Effective Time or at the Company Stockholder Meeting
(as hereinafter defined), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) in the case of the
Company Proxy Statement, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event with respect to
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
Company Proxy Statement or the Form S-4 Registration Statement, such event shall
be so described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of the
Company. The Company Proxy Statement will (with respect to information relating
to the Company) comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in the Company
SEC Documents filed by the Company or as set forth in Schedule 4.10 of the
Company Disclosure Schedule, the Company and its Subsidiaries have conducted
their business in the ordinary course of business and there has not been since
January 1, 1996:
(a) any event, occurrence or facts which has had or reasonably could be
expected to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend (other
than regular quarterly dividends) or other distribution with respect to any
shares of capital stock of the Company, or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the Company;
(c) any amendment of any term of any outstanding security of the Company
or any Subsidiary of the Company;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of the Company of any indebtedness for borrowed money other than
in the ordinary course of business;
(e) any creation or assumption by the Company or any Subsidiary of the
Company of any Lien on any asset other than in the ordinary course of
business and other than Liens which do not have and could not reasonably be
expected to have a Material Adverse Effect;
2(C)-14
<PAGE>
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than advances to employees in the ordinary
course of business and loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of the Company made in the ordinary
course of business;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary of the Company which has had or could reasonably be expected to
have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary of the Company relating to
its assets or business (including the acquisition or disposition of any
assets) or any relinquishment by the Company or any Subsidiary of the
Company of any contract or other right, in either case, that have had or
could reasonably be expected to have a Material Adverse Effect, other than
transactions and commitments in the ordinary course of business and those
contemplated by this Agreement;
(i) any change, or any application or request to the SEC for any change,
in any method of accounting or accounting practice by the Company or any
Subsidiary of the Company, except for any such change required by reason of
a concurrent change in generally accepted accounting principles;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary of the Company, (ii)
employment, consulting, indemnification, severance, termination, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or
any Subsidiary of the Company entered into, (iii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Company or any
Subsidiary of the Company, in each case, other than in the ordinary course
of business; or
(k) any authorization of any of, or commitment or agreement to take any
of, the foregoing actions except as otherwise expressly permitted by this
Agreement.
SECTION 4.11 Litigation. Except as set forth in either the Company SEC
Documents or in Schedule 4.11 of the Company Disclosure Schedule, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of the Company threatened against, the Company, any Subsidiary of the Company or
any of their respective properties before any court or arbitrator or any
Governmental Entity, which, (a) if determined or resolved adversely to the
Company or any Subsidiary of the Company in accordance with the plaintiff's
demands, could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect 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 by this Agreement. Except as
set forth in the Company SEC Documents, as of the date of this Agreement, 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 or would prevent or
materially delay the consummation of the transactions contemplated hereby.
Except as set forth in the Company SEC Documents, Schedule 4.11 of the Company
Disclosure Schedule sets forth a complete list of (x) all actions, suits,
investigations or proceedings pending against, or to the knowledge of the
Company, threatened against any former or current director or officer of the
Company or any Subsidiary of the Company and (y) to the knowledge of the
Company, all material actions, suits, investigations, or proceedings pending or
threatened against any former or current employee of the Company or any
Subsidiary of the Company, in the case of each of (x) and (y), based on, or
arising out of the fact that, such person is or was a director, officer or
employee, as the case may be, of the Company or any Subsidiary of the Company,
as well as such matters as have been completed and in respect of which the
Company has any remaining indemnification or other monetary obligations.
2(C)-15
<PAGE>
SECTION 4.12 Taxes. (a) Except as set forth on Schedule 4.12 of the Company
Disclosure Schedule: (i) the Company and each of its Subsidiaries has filed or
has had filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns (as defined herein) with respect to Taxes (as defined herein) of the
Company and each of its Subsidiaries; (ii) all material Taxes with respect to
the Company and its Subsidiaries have been paid in full or have been provided
for in accordance with GAAP on the Company's most recent balance sheet which is
part of the Company SEC Documents; (iii) there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any federal,
state, local or foreign income or other material Tax Returns required to be
filed by or with respect to the Company and its Subsidiaries; (iv) none of the
Tax Returns of or with respect to the Company or any of its Subsidiaries is
currently being audited or examined by any Governmental Entity; and (v) no
deficiency for any income or other material Taxes has been assessed with respect
to the Company or any of its Subsidiaries which has not been abated or paid in
full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return" shall
mean any report, return, documents, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction with respect to
Taxes.
SECTION 4.13 Employee Matters. (a) Schedule 4.13(a) contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee benefit plan, program, agreement or arrangement,
sponsored, maintained or contributed to or required to be contributed to by the
Company or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b)(1) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA"), for the benefit of any employee or former employee of the
Company, whether formal or informal and whether legally binding or not (the
"Plans"). Schedule 4.13(a) identifies each of the Plans that is an "employee
welfare benefit plan," or "employee pension benefit plan" as such terms are
defined in Sections 3(1) and 3(2) of ERISA (such plans being hereinafter
referred to collectively as the "ERISA Plans").
(b) With respect to each of the Plans, the Company has heretofore delivered
or made available to Buyer true and complete copies of each of the following
documents:
(i) a copy of the Plan or a description of all material terms thereof
(including all amendments thereto);
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Plan for the last three years; and
(iv) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified
under Section 401 of the Code.
(c) No material liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate since the effective date of ERISA that has not
been satisfied in full, and no condition exists that presents a material risk to
the Company or an ERISA Affiliate of incurring a material
2(C)-16
<PAGE>
liability under such Title, other than liability for premiums due the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been or will be made
when due.
(d) With respect to each of the ERISA Plans that is subject to Title IV of
ERISA, the present value of accrued benefits under such Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Plan's actuary with respect to such Plan, did not, as of
its latest valuation date, exceed the then current value of the assets of such
Plan allocable to such accrued benefits.
(e) Neither the Company, any ERISA Affiliate, any of the ERISA Plans, any
trust created thereunder nor any trustee or administrator thereof has engaged in
a transaction or has taken or failed to take any action in connection with which
the Company, any ERISA Affiliate, any of the ERISA Plans, any such trust, any
trustee or administrator thereof, or any party dealing with the ERISA Plans or
any such trust could be subject to either a material civil penalty assessed
pursuant to Section 409 or Section 502(i) of ERISA or a material tax imposed
pursuant to Section 4975, Section 4976 or Section 4980B of the Code.
(f) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts which the Company or any ERISA Affiliate
is required to pay under the terms of each of the ERISA Plans and Section 412 of
the Code.
(g) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code.
(h) The Company has not taken any action that would result in the
acceleration of any benefits under any Plan in connection with or as a result of
the execution, delivery and performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby.
SECTION 4.14 Labor Matters. Except to the extent set forth in Schedule 4.14
of the Disclosure Schedule (i) there is no labor strike, dispute, slowdown,
stoppage or lockout actually pending or threatened, to the knowledge of the
Company, against the Company and during the past three years there has not been
any such action; (ii) to the knowledge of the Company, there is no current union
organizing activities among the Company's employees nor does any question
concerning representation exist concerning such employees; (iii) there is no
unfair labor practice charge or complaint against the Company pending or, to the
knowledge of the Company, threatened before the National Labor Relations Board
or any similar state or foreign agency; (iv) there is no grievance pending
relating to any collective bargaining agreement or other grievance procedure;
(v) to the knowledge of the Company, no charges with respect to or relating to
the Company are pending before the Equal Employment Opportunity Commission or
any other agency responsible for the prevention of unlawful employment
practices; (vi) the Company and its Subsidiaries have complied with the Worker
Adjustment and Retraining Notification Act (the "WARN Act"), and other state or
local laws substantially similar in effect to the WARN Act, where the failure to
be in compliance with such state or local laws would have a Material Adverse
Effect; and (vii) there are no collective bargaining agreements, employment
contracts or severance agreements with any union or any employees of the
Company.
2(C)-17
<PAGE>
SECTION 4.15 Compliance with Laws. Except as set forth in Schedule 4.11 (as
applicable) and Schedule 4.15 of the Company Disclosure Schedule, the Company
and its Subsidiaries, and their respective businesses, are in compliance with
all Licenses, laws, statutes, ordinances or regulations, including, but not
limited to, Environmental Laws (as defined in Section 4.17 below), except where
such violations would not have a Material Adverse Effect.
SECTION 4.16 Finders' Fees. Except for Lazard Freres & Co., L.L.C., there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf, of the Company or any Subsidiary
of the Company who would be entitled to any fee or commission from the Company,
any Subsidiary of the Company, Buyer or any of Buyer's affiliates upon
consummation of the transactions contemplated by this Agreement. An executed,
true and complete copy of such engagement letter has been delivered to Buyer.
SECTION 4.17 Environmental Matters. (a) Except as set forth in the Company
SEC Documents or in Schedule 4.17 of the Company Disclosure Schedule:
(i) since January 1, 1995, the Company has not received any written
communication from any person or entity (including any Governmental Entity)
stating that it or its Subsidiaries may be a potentially responsible party
under Environmental Law (as defined in Section 4.17(c) hereof) with respect
to any actual or alleged environmental contamination; neither the Company
nor its Subsidiaries nor, to the Company's knowledge, any Governmental
Entity is conducting or has conducted any environmental remediation or
environmental investigation which could reasonably be expected to result in
liability for the Company or its Subsidiaries under Environmental Law; and
the Company and its Subsidiaries have not received any request for
information under Environmental Law from any Governmental Entity with
respect to any actual or alleged environmental contamination, except, in
each case, for communications, environmental remediation and investigations
and requests for information which would not, individually or in the
aggregate, have a Material Adverse Effect; and
(ii) since January 1, 1995, the Company and its Subsidiaries have not
received any written communication from any person or entity (including any
Governmental Entity) stating or alleging that the Company or its
Subsidiaries may have violated any Environmental Law, or that the Company or
its Subsidiaries has caused or contributed to any environmental
contamination that has caused any property damage or personal injury under
Environmental Law, except, in each case, for statements and allegations of
violations and statements and allegations of responsibility for property
damage and personal injury which would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) (i) The Company has made available to Buyer each material environmental
investigation, study, audit, test, review and other analysis in the possession
of the Company or its Subsidiaries prepared in the last five years conducted in
relation to the business of the Company or any property or facility now or
previously owned, operated or leased by the Company or any Subsidiary of the
Company; and (ii) the Company has made available to Buyer each consent decree,
consent order or similar document currently in force and to which it is a party
relating to any property currently owned, leased or operated by the Company or
its Subsidiaries.
(c) For purposes of this Section 4.17, "Environmental Law" means all
applicable state, federal and local laws, regulations and rules, including
common law, judgments, decrees and orders relating to pollution, the
preservation of the environment, and the release of material into the
environment.
SECTION 4.18 Property. The Company and its Subsidiaries, as the case may be,
have good and valid title to, or in the case of leased property, have valid
leasehold interests in all properties and assets necessary to conduct the
business of the Company as currently conducted, except to the extent the failure
of this representation and warranty to be true would not have a Material Adverse
Effect. There are no developments affecting any of such properties or assets
pending or, to the knowledge of the Company threatened, which, could reasonably
be expected to have a Material Adverse Effect.
2(C)-18
<PAGE>
SECTION 4.19 Intangible Property. (a) The Company and its Subsidiaries own
or possess adequate licenses or other valid rights to use all trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets and applications for trademarks and for service marks, which are
material to the Company's business and operations (collectively, "Intangible
Property") used or held for use in connection with the business of the Company
and the Subsidiaries of the Company as currently conducted. All material
trademarks are validly registered or registrations have been applied for.
(b) The Company, except as set forth in Schedule 4.19(b) of the Company
Disclosure Schedule, is unaware of any assertion or claim challenging the
validity of any Intangible Property. Except as set forth in Schedule 4.19(b) of
the Company Disclosure Schedule, the conduct of the business of the Company and
its Subsidiaries as currently conducted does not conflict with any trademark,
trademark right, trade name or trade name right of any third party in a manner
that could reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Company, there are no material infringements of any Intangible
Property.
SECTION 4.20 Material Contracts. Except as set forth on Schedule 4.13(a),
Schedule 4.20 or Schedule 7.3 of the Company Disclosure Schedule, the Company
SEC Documents list all Material Contracts (as defined below) of the Company (and
all material amendments thereto) and all agreements or commitments to enter into
a Material Contract, and except as set forth on Schedule 4.20 of the Company
Disclosure Schedule or in the Company SEC Documents, to the knowledge of the
Company, each Material Contract is valid, binding and enforceable and in full
force and effect, except where such failure to be valid, binding and enforceable
and in full force and effect would not have a Material Adverse Effect, and there
are no defaults thereunder, except those defaults that would not have a Material
Adverse Effect. For purposes of this Agreement, "Material Contracts" shall mean
(i) all contracts, agreements or understandings with customers of the Company
and its Subsidiaries in the last fiscal year where each customers' contracts,
agreements or understandings in the aggregate account for more than $5 million
of (x) SafeCard Services, Incorporated's ("SafeCard") net annual billings or (y)
each Subsidiaries' of the Company, other than SafeCard's, annual revenues; (ii)
all the acquisition, merger, asset purchase or sale agreements entered into by
the Company in the last two fiscal years with a transaction value in excess of
$10 million; (iii) all indemnification, termination, severance, or "golden
parachute" agreements; and (iv) any other agreement within the meaning set forth
in Item 601(b)(10) Regulation S-K of Title 17, Part 229 of the Code of Federal
Regulations. Except as set forth on Schedule 4.20 of the Company Disclosure
Schedule, no party to any such Material Contract has (i) given written notice to
the Company or any Subsidiary of the Company of or made a claim in writing
against the Company or any Subsidiary of 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 or (ii)
given written or, to the knowledge of the senior executive officers of the
Company, oral notice to the Company or any Subsidiary of the Company that it
does not intend to renew or it intends to terminate any of its business
relationships with the Company or any Subsidiary of the Company.
SECTION 4.21 Accounting Matters. Neither the Company nor, to the best of the
Company's knowledge, any of its affiliates has taken or agreed to take any
action that would prevent Buyer from accounting for the transactions to be
effected pursuant to this Agreement as a pooling of interests in accordance with
GAAP and applicable SEC regulations. The Company has not knowingly and willfully
failed to bring to the attention of Buyer any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably likely
to prevent Buyer from accounting for the Merger as a pooling of interests. The
representations and warranties of the Company in the Company Affiliate Letter
are true and correct.
SECTION 4.22 Vote Required. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary or required under this
Agreement or under applicable law to approve the Merger, this Agreement and the
transactions contemplated hereby.
2(C)-19
<PAGE>
SECTION 4.23 Fairness Opinion. The Board of Directors of the Company has
received the written opinion of Lazard Freres & Co. L.L.C., to the effect that,
as of such date, the consideration to be received by holders of Shares pursuant
to the Merger is fair from a financial point of view to such holders. An
executed, true and complete copy of such opinion has been delivered to Buyer
and, as of the date hereof, such opinion has not been modified in any material
respect or withdrawn.
SECTION 4.24 Disclosure. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate
delivered by the Company to Buyer or Merger Subsidiary 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 and therein not
misleading when taken together in light of the circumstances in which they were
made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary represent and warrant to the Company that:
SECTION 5.1 Corporate Existence and Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and except as set
forth on Schedule 5.1 of the disclosure schedule delivered by Buyer and Merger
Subsidiary in connection herewith (the "Buyer Disclosure Schedule"), has all
corporate powers and all Licenses required to carry on its business as now
conducted except where the failure to have any such License would not,
individually or in the aggregate, have a Material Adverse Effect. Each of Buyer
and Merger Subsidiary is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Each of Buyer and Merger Subsidiary has heretofore delivered or made available
to the Company true and complete copies of Buyer's and Merger Subsidiary's
Certificate of Incorporation and By-laws as currently in effect.
SECTION 5.2 Corporate Authorization. The execution, delivery and performance
by Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer
and Merger Subsidiary of the transactions contemplated hereby are within the
corporate powers of Buyer and Merger Subsidiary and have been duly authorized by
all necessary corporate action. This Agreement, assuming due and valid
authorization, execution and delivery by the other parties hereto, constitutes a
valid and binding agreement of each of Buyer and Merger Subsidiary enforceable
against Buyer and Merger Subsidiary in accordance with its terms, except that
(i) enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 5.3 Governmental Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any Governmental
Entity other than: (i) the filing of a certificate of merger in accordance with
the DGCL; (ii) compliance with any applicable requirements of the HSR Act; (iii)
compliance with any applicable requirements of the Securities Act and Exchange
Act; (iv) compliance with the applicable requirements of any applicable takeover
laws; and (v) such other actions by or in respect of, or filings with, any
Governmental Entity the failure of which to obtain or make would not have a
Material Adverse Effect and which would not materially impair or delay the
ability of Buyer or Merger Subsidiary to consummate the transactions
contemplated hereby.
2(C)-20
<PAGE>
SECTION 5.4 Non-Contravention. The execution, delivery and performance by
Buyer and Merger Subsidiary of this Agreement and the consummation by Buyer and
Merger Subsidiary of the transactions contemplated hereby do not and will not
(i) contravene or conflict with the Certificate of Incorporation or By-laws of
Merger Subsidiary or Buyer, (ii) assuming compliance with the matters referred
to in Section 5.3 hereof, contravene or conflict with or constitute a violation
of any provision of law, regulation, judgment, injunction, order or decree
binding upon or applicable to Buyer or Merger Subsidiary, (iii) with or without
the giving of notice or passage of time or both, constitute a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of Buyer or Merger Subsidiary or to a loss of any benefit to which
Buyer or Merger Subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon Buyer or Merger Subsidiary or any
license, franchise, permit or other similar authorization held by Buyer or
Merger Subsidiary, or (iv) result in the creation or imposition of any Lien on
any asset of Buyer or Merger Subsidiary excluding from the foregoing clauses
(ii), (iii) or (iv) such violations, breaches, defaults or Liens which would not
have a Material Adverse Effect, and which will not materially impair or
materially delay the ability of Buyer and Merger Subsidiary to consummate the
transactions contemplated hereby.
SECTION 5.5 Form S-4 Registration Statement and Company Proxy
Statement/Prospectus. None of the information to be supplied by Buyer and Merger
Subsidiary for inclusion or incorporation by reference in the Form S-4
Registration Statement will (i) in the case of the Form S-4 Registration
Statement at the time it becomes effective, at the Effective Time or at the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) in the case of the
Company Proxy Statement, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Stockholder Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Effective Time
any event with respect to Buyer and Merger Subsidiary, their respective officers
and directors or any of Buyer's Subsidiaries should occur which is required to
be described in an amendment of, or a supplement to, the Form S-4 Registration
Statement or the Company Proxy Statement, such event shall be so described, and
such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company. The S-4
Registration Statement will (with respect to information relating to Buyer and
Merger Subsidiary) comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder.
SECTION 5.6 Finders' Fees. Except for Goldman, Sachs & Co., whose fees will
be paid by Buyer, there is no investment banker, broker, finder or other
intermediary who might be entitled to any fee or commission in connection with
or upon consummation of the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Buyer or Merger Subsidiary.
SECTION 5.7 No Vote Required. No vote or special meeting of the stockholders
of Buyer or Merger Subsidiary is necessary or required by this Agreement or
under applicable law to approve the Merger, this Agreement or the transactions
contemplated hereby.
SECTION 5.8 Share Ownership. As of the date hereof, Buyer and Merger
Subsidiary do not own any Shares.
SECTION 5.9 Capitalization. The authorized capital stock of Buyer consists
of 400,000,000 shares of Buyer Common Stock, and 1,000,000 shares of preferred
stock, par value $.01 par value per share (the "Buyer Preferred Stock"). As of
March 29, 1996, there were issued and outstanding (i) 190,460,240 shares of
Buyer Common Stock; (ii) no shares of Buyer Preferred Stock; and (iii) options
to purchase an aggregate of 21,056,064 shares of Buyer Common Stock with
exercise prices ranging from $.36 to $35.75. All of the outstanding shares of
capital stock of Buyer have been duly authorized and validly issued and are
fully paid and nonassessable. Schedule 5.9 of the Buyer Disclosure Schedule
accurately sets forth, as of the date of this Agreement, certain information
regarding the outstanding
2(C)-21
<PAGE>
options, and such information is true and correct. Except as set forth in this
Section 5.9 or as disclosed on Schedule 5.9 of the Buyer Disclosure Schedule or
in the Buyer SEC Documents, and except for changes since March 29, 1996
resulting from the exercise of employee stock options outstanding on such date,
as of the date of this Agreement, there are outstanding (i) no shares of capital
stock or other voting securities of Buyer, (ii) no securities of Buyer or of any
Subsidiary of Buyer convertible into or exchangeable for shares of capital stock
or voting securities of Buyer, and (iii) no options or other rights to acquire
from Buyer, and no obligation of Buyer to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "Buyer Securities"). There are no outstanding
obligations of Buyer or of any Subsidiary of Buyer to repurchase, redeem or
otherwise acquire any Buyer Securities. There are no stockholder agreements,
voting trusts or understandings to which Buyer is a party or to which it is
bound relating to the voting of any shares of capital stock of Buyer.
SECTION 5.10 Accounting Matters. Neither Buyer, nor Merger Subsidiary, nor,
to the best of Buyer's or Merger Subsidiary's knowledge, any of its affiliates
has taken or agreed to take any action that would prevent Buyer or Merger
Subsidiary from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable SEC
regulations. Buyer has not knowingly and willfully 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 Buyer from
accounting for the Merger as a pooling of interests.
SECTION 5.11 Ownership of Merger Subsidiary; No Prior Activities; Assets of
Merger Subsidiary. (a) Merger Subsidiary was formed solely for the purpose of
the Merger and engaging in the transactions contemplated hereby.
(b) As of the date hereof and the Effective Time, the capital stock of
Merger Subsidiary is and will be directly owned 100% by Buyer. Further, there
are not as of the date hereof and there will not be at the Effective Time any
outstanding or authorized options, warrants, calls, rights, commitments or any
other agreements of any character which Merger Subsidiary is a party to, or may
be bound by, requiring it to issue, transfer, sell, purchase, redeem or acquire
any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for or acquire, any
shares of capital stock of Merger Subsidiary.
(c) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated hereby, Merger Subsidiary has not and will not
have incurred, directly or indirectly through any Subsidiary or affiliate, any
obligations or liabilities or engaged in any business or activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person or entity.
SECTION 5.12 SEC Documents. Buyer has filed all required reports, proxy
statements, forms and other documents with the SEC since January 1, 1994 ("Buyer
SEC Documents"). As of their respective dates (i) the Buyer SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such Buyer SEC Documents, and (ii) none
of the Buyer SEC Documents contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 5.13 Financial Statements. The consolidated financial statements of
Buyer included in the Buyer SEC Documents (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
conformity with GAAP applied on a consistent basis (except in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) during the periods
involved (except as may be indicated in the related notes and schedules thereto)
and (iii) fairly present in all material respects the
2(C)-22
<PAGE>
consolidated financial position of Buyer and its consolidated subsidiaries as of
the dates thereof, and the results of its operations and its cash flows for the
periods then ended (subject, in the case of the unaudited statements, to normal
year-end audit 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-interest, such original financial
statements do not reflect such restatements).
SECTION 5.14 Absence of Certain Changes or Events. Except as disclosed in
the Buyer SEC Documents filed by Buyer and as set forth in Schedule 5.14 of the
Buyer Disclosure Schedule, since the date of the most recent consolidated
balance sheet included in the Buyer SEC Documents filed and publicly available
prior to date of this Agreement, the business of Buyer has been carried on only
in the ordinary and usual course and there has not been any adverse change in
its business, properties, operations or financial condition and no event has
occurred and no fact or set of circumstances has arisen which has resulted in or
could reasonably be expected to result in a Material Adverse Effect.
SECTION 5.15 Litigation. Except as set forth in either Buyer SEC Documents
or in Schedule 5.15 of the Buyer Disclosure Schedule, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Buyer or
Merger Subsidiary threatened against, Buyer or Merger Subsidiary or any of their
respective properties before any court or arbitrator or any Governmental Entity,
which, (a) if determined or resolved adversely to Buyer or Merger Subsidiary in
accordance with the plaintiff's demands, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or (b) as of the
date of this Agreement, questions the validity of this Agreement or any action
to be taken by Buyer or Merger Subsidiary in connection with the consummation of
the transactions contemplated by this Agreement. Except as publicly disclosed by
Buyer, as of the date of this Agreement, none of Buyer or its Subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on Buyer or would prevent or materially delay the
consummation of the transactions contemplated hereby.
SECTION 5.16 Authorization for Buyer Common Stock. Buyer has taken all
necessary action to permit it to issue the number of shares of Buyer Common
Stock required to be issued pursuant to this Agreement. Shares of Buyer Common
Stock issued pursuant to Agreement will, when issued, be validly issued, fully
paid and nonassessable and no person will have any preemptive right of
subscription or purchase in respect thereof. Shares of Buyer Common Stock will,
when issued, be registered under the Securities Act and the Exchange Act and
registered or exempt from registration under any applicable state securities
laws and will, when issued, be listed on the NYSE, subject to official notice of
issuance.
2(C)-23
<PAGE>
SECTION 5.17 Taxes. Except as set forth on Schedule 5.17 of the Buyer
Disclosure Schedule: (i) Buyer and each of its Subsidiaries has filed or has had
filed on its behalf in a timely manner (within any applicable extension periods)
with the appropriate Governmental Entity all income and other material Tax
Returns with respect to Taxes of Buyer and each of its Subsidiaries; (ii) all
material Taxes with respect to Buyer and its Subsidiaries have been paid in full
or have been provided for in accordance with GAAP on the Buyer's most recent
balance sheet which is part of the Buyer SEC Documents; (iii) there are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any federal, state, local or foreign income or other material Tax
Returns required to be filed by or with respect to Buyer and its Subsidiaries;
(iv) none of the Tax Returns of or with respect to Buyer or any of its
Subsidiaries is currently being audited or examined by any Governmental Entity;
and (v) no deficiency for any income or other material Taxes has been assessed
with respect to Buyer or any of its Subsidiaries which has not been abated or
paid in full.
SECTION 5.18 Disclosure. No representation or warranty by Buyer or Merger
Subsidiary contained in this Agreement and no statement contained in any
certificate delivered by Buyer or Merger Subsidiary 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 and
therein not misleading when taken together in light of the circumstances in
which they were made.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.1 Conduct of the Company. From the date hereof until the Effective
Time, the Company and its Subsidiaries shall conduct their business in the
ordinary course and shall use their reasonable efforts to preserve intact their
business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Without limiting
the generality of the foregoing other than as set forth on Schedule 6.1 of the
Company Disclosure Schedule, as specifically contemplated by this Agreement or
with the written consent of Buyer or Merger Subsidiary (which consent shall not
be unreasonably withheld or delayed), from the date hereof until the Effective
Time, the Company will not (and will not cause or permit any Subsidiary to):
(a) split, combine or reclassify any shares of capital stock, declare,
set aside or pay any dividend (other than regular quarterly dividends and
any dividend of a wholly-owned Subsidiary of the Company to the Company or
another wholly-owned Subsidiary of the Company) or other distribution
(whether in cash, stock or property or any combination thereof) with respect
to any shares of capital stock of the Company, or any repurchase, redemption
or other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the Company;
(b) amend any term of any outstanding security of the Company or any
Subsidiary of the Company;
(c) except for working capital purposes pursuant to the Revolving Credit
Agreement, dated as of February 8, 1996, by and among the First National
Bank of Boston, Fleet Bank of Maine, Key Bank of Maine, Bank of Scotland and
Wright Express Corporation, and, except in the ordinary course of business
consistent with past practice pursuant to the Equipment Financing Agreement,
dated as of February 7, 1996, by and between The First National Bank of
Boston and Wright Express Corporation, incur, assume or guarantee any
indebtedness for borrowed money of (x) except in the ordinary course of
business in an amount not to exceed $500,000 in the aggregate at any one
time outstanding, the Company or any Subsidiary of the Company or (y) any
other Person;
2(C)-24
<PAGE>
(d) create, assume or suffer to exist any Lien on any material asset,
other than in the ordinary course of business;
(e) make any loan, advance or capital contribution to or invest in any
Person, other than in the ordinary course of business;
(f) cause any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary of the Company which has had or could reasonably be expected to
have a Material Adverse Effect;
(g) (x) other than in the ordinary course of business consistent with
past practice, (i) enter into any transaction, commitment, contract or
agreement by the Company or any Subsidiary of the Company relating to their
assets or business (excluding the acquisition or disposition of any assets)
or (ii) relinquish any contract or other right, that (with respect to (ii))
has had or could reasonably be expected to have a Material Adverse Effect,
other than (with respect to each of (i) and (ii)) those expressly permitted
by this Agreement or (y) enter into any transaction, commitment, contract or
agreement to acquire or dispose of any assets of the Company or any
Subsidiary of the Company in excess of $150,000 in any individual
transaction or $750,000 in the aggregate;
(h) change, or apply to the SEC for, or request from the SEC any change
of, any method of accounting or accounting practice by the Company or any
Subsidiary of the Company, except for any such change required by reason of
a concurrent change in GAAP;
(i) (A) grant any severance or termination pay to any current or former
director or executive officer, or, other than in the ordinary course of
business, to any officer or any other employee of the Company or any
Subsidiary of the Company, (B) enter into any employment, consulting,
indemnification, severance, termination, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
current or former director or executive officer, or other than in the
ordinary course of business, with any officer or any other employee of the
Company or any Subsidiary of the Company, (C) other than in the ordinary
course of business, increase the benefits payable under any existing
severance or termination pay policies or employment agreements or (D)
increase the compensation, bonus or other benefits payable to any current or
former director or executive officer, or other than in the ordinary course
of business, to any officer or any other employee of the Company or any
Subsidiary of the Company;
(j) amend its certificate of incorporation or bylaws (or other similar
governing instrument);
(k) authorize for issuance, sell, deliver or agree 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) of the Company,
except for the issuance of stock upon the exercise of Options outstanding on
the date of this Agreement;
(l) except as may be required pursuant to GAAP, 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;
(m) 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);
(n) make or revoke any tax election or settle or compromise any tax
liability, in each case, 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;
(o) subject to Section 6.1(q) below, pay, discharge or satisfy any
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment,
2(C)-25
<PAGE>
discharge or satisfaction in the ordinary course of business of liabilities
or obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or notes thereof) of the Company and its
Subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(p) except as otherwise permitted by paragraph (i) or as set forth on
Schedule 6.1(p) of the Company Disclosure Schedule, settle or compromise any
pending or threatened suit, action, or proceeding;
(q) enter into any agreement or understanding, whether oral or written,
with any Halmos Entity or Halmos Assign (as each such term is defined in
Section 7.3(c)); except for agreements or understandings in the ordinary
course necessary for the continued defense or prosecution of any such
pending litigation matters set forth in Schedule 4.11 of the Company
Disclosure Schedule or as disclosed in the Company SEC Documents; or
(r) take, authorize any of, or commit or agree to take any of, the
foregoing actions except as otherwise expressly permitted by this Agreement.
SECTION 6.2 Stockholder Meeting; Proxy Material. The Company shall cause a
meeting of its stockholders (including any postponements or adjournments
thereto, the "Company Stockholder Meeting") to be duly called and held as soon
as reasonably practicable for the purpose of voting on the approval and adoption
of this Agreement and the Merger. The Board of Directors of the Company shall
recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders; provided that the Company's Board of Directors may
withdraw, modify or change such recommendation if it has determined, based upon
the advice of outside legal counsel to the Company, that such recommendation
would be reasonably likely to be inconsistent with the Board of Directors'
fiduciary duties under applicable law. The Company will (i) as promptly as
practicable following the date of this Agreement, prepare and file with the SEC,
will use its reasonable efforts to have cleared by the SEC and thereafter mail
to its stockholders as promptly as practicable, a proxy statement that will be
the same proxy statement/prospectus contained in the Form S-4 Registration
Statement (as hereinafter defined) and a form of proxy, in connection with the
vote of the Company's stockholders with respect to the Merger (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's stockholders,
is herein called the "Company Proxy Statement"), (ii) use its reasonable efforts
to obtain the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply in all material
respects with all legal requirements applicable to such meeting. The Company
may, if it withdraws, modifies or changes its recommendation in accordance with
this Section 6.2, delay the filing or mailing, as the case may be, of the
Company Proxy Statement or the holding of the Company Stockholder Meeting, in
each case only to the extent necessary to revise the Company Proxy Statement to
reflect such withdrawal, modification or change and, in the case of the Company
Stockholder Meeting, to provide the minimum notice thereof required under
applicable law, the Company Certificate of Incorporation or the Company By-laws.
In addition, the Company will upon reasonable advance notice provide Buyer with
all financial and other data regarding the Company as may be reasonably
requested by Buyer in connection with the proxy statements and registration
statements on Form S-4 relating to the transactions described in Schedule 6.2 of
the Buyer Disclosure Schedule. The Company acknowledges that such proxy
statements and registration statements may be required to include such data
concerning the Company, and that the Company Proxy Statement may be required to
contain certain financial and other data concerning the other parties to such
transactions.
SECTION 6.3 Access to Information; Confidential Agreement. (a) From the date
hereof until the Effective Time, the Company will give Buyer, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access during normal business hours to the offices, properties, books and
records of the Company and the Subsidiaries of the Company, will furnish to
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct the Company's
2(C)-26
<PAGE>
employees, counsel and financial advisors to cooperate with Buyer in its
investigation of the business of the Company and the Subsidiaries of the
Company; provided that all requests for information, to visit plants or
facilities or to interview the Company's employees or agents should be directed
to and coordinated with an executive officer of the Company; and provided
further that no investigation pursuant to this Section 6.3 shall affect any
representation or warranty given by the Company to Buyer hereunder and any
information received by Buyer or its representatives shall remain subject to the
Confidentiality Agreement dated February 13, 1996 between Buyer and the Company
(the "Confidentiality Agreement").
(b) The parties hereto agree that the Confidentiality Agreement shall be
hereby amended to provide that any provision therein which in any manner limits,
restricts or prohibits the voting or acquisition of Shares by Buyer or any of
its affiliates or the representation of Buyer's designees on the Company's Board
of Directors or which in any manner would be inconsistent with this Agreement or
the transactions contemplated hereby shall be amended as of the date hereof to
permit the acquisition of Shares pursuant to the Merger, the voting of Shares at
the Company Stockholder Meeting or to otherwise effect the transactions
contemplated hereby. The Confidentiality Agreement shall otherwise remain in
full force and effect.
SECTION 6.4 No Solicitation. (a) From the date of this Agreement until the
termination of this Agreement in accordance with its terms, the Company and its
Subsidiaries will not, and the Company will use its reasonable best efforts to
ensure that the respective officers, directors and employees of the Company and
its Subsidiaries, and any investment banker, financial advisor, attorney,
accountant or other representative or agent retained by it or any of its
Subsidiaries, will not (i) solicit, initiate or encourage (including by way of
furnishing information) any Acquisition Proposal (as defined below) or (ii)
participate or engage in negotiations or discussions, or disclose any nonpublic
information relating to the Company or any Subsidiary of the Company or afford
access to the properties, books or records of the Company or any Subsidiary of
the Company, regarding any Acquisition Proposal; provided that, if the Company's
Board of Directors determines, based upon the advice of outside legal counsel to
the Company, that the failure to engage in such negotiations or discussions or
provide such information would be reasonably likely to be inconsistent with the
Board of Directors' fiduciary duties under applicable law, the Company may in
response to an Acquisition Proposal and subject to compliance with Section
6.4(c), furnish information with respect to the Company and its Subsidiaries
pursuant to a confidentiality agreement and participate in negotiations
regarding such Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any inquiry, offer or proposal from any person
relating to any direct or indirect acquisition or purchase of a substantial
portion of the assets of the Company or any of its Subsidiaries or of over 20%
of any class of equity securities of the equity interest of the Company or any
of its Subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more equity interest of
any class of equity securities of the Company or any of its Subsidiaries, any
merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement. Nothing contained in this Section 6.4 shall
prohibit the Company or its Board of Directors from taking and disclosing to the
Company's stockholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making such disclosure to the Company's stockholders or
making such disclosure as may be required by applicable law; provided, however,
neither the Company nor its Board of Directors nor any committee thereof shall,
except as permitted by Section 6.2 or 6.4(b), withdraw, modify or change, or
propose to withdraw, modify or change, its recommendation of approval and
adoption of this Agreement and the Merger or approve or recommend, or propose to
approve or recommend, an Acquisition Proposal.
(b) Except as set forth in this Section 6.2 or Section 6.4(b), neither the
Company nor the Board of Directors of the Company nor any committee thereof
shall (x) withdraw, modify or change, or propose to withdraw, modify or change,
in a manner adverse to Buyer, the recommendation by such Board of Directors or
such committee of the approval and adoption of this Agreement and the Merger,
(y)
2(C)-27
<PAGE>
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or (z) cause the Company to enter into any agreement with respect to
any Acquisition Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of the Company determines, based upon the advice of outside
legal counsel to the Company, that the failure to take any of the actions
contemplated by the preceding sentence would be reasonably likely to be
inconsistent with the Board of Directors' fiduciary duties, the Board of
Directors of the Company may withdraw, modify or change its recommendation of
approval and adoption of this Agreement and the Merger, approve or recommend a
Superior Proposal or cause the Company to enter into an agreement with respect
to a Superior Proposal; but in the case of approving, recommending or causing
the Company to enter into an agreement with respect to a Superior Proposal, only
at a time that is after the second day following Buyer's receipt of written
notice (a "Notice of Superior Proposal") advising Buyer that the Board of
Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company enters into an
agreement with respect to a Superior Proposal and this Agreement is terminated
pursuant to Section 10.1(vi)(B) or Section 10.1(vii), the Company shall promptly
pay, or cause to be paid, to Buyer, the Buyers' Expenses (as such term is
defined in Section 12.4). For purposes of this Agreement, a "Superior Proposal"
means any bona fide Acquisition Proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of the Company common stock then outstanding or all or substantially all the
assets of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the Merger.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 6.4, the Company shall notify Buyer in writing
within one business day of any request for information or of any Acquisition
Proposal, or any inquiry with respect to or which would reasonably be expected
to result in an Acquisition Proposal, the material terms and conditions of such
request, Acquisition Proposal or inquiry. The Company will use it reasonable
best efforts to keep Buyer informed of the status and details (including
amendments or proposed amendments) of any such request, Acquisition Proposal or
inquiry.
SECTION 6.5 Conveyance Taxes. The Company shall timely pay any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes (collectively, the "Conveyance Taxes") which become payable prior to the
Effective Time in connection with the transactions contemplated hereunder that
are required to be paid in connection therewith.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
SECTION 7.1 Obligations of Merger Subsidiary. Buyer will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 7.2 Voting of Shares. Merger Subsidiary shall and Buyer shall cause
Merger Subsidiary to vote all Shares, if any, beneficially owned by Merger
Subsidiary or its affiliates in favor of adoption and approval of the Merger and
this Agreement at the Company Stockholder Meeting.
SECTION 7.3 Director and Officer Liability. (a) Buyer, Merger Subsidiary and
the Company agree that all rights to indemnification and all limitations on
liability existing in favor of any Indemnitee (as defined below) as provided in
the Company Certificate of Incorporation, Company By-laws or any Indemnity
Agreement (as hereinafter defined) shall survive the Merger and continue in full
force and
2(C)-28
<PAGE>
effect. To the extent permitted by (i) the DGCL, (ii) the Company's Certificate
of Incorporation and the Company's By-laws or (iii) any agreement providing for
indemnification by the Company or any Subsidiary of the Company of any
Indemnitee (A) in effect on the date of this Agreement (or entered into
thereafter in accordance with the provisions of Section 6.1 of this Agreement)
and listed on Schedule 7.3 of the Company Disclosure Schedule (unless entered
into after the date hereof in accordance with Section 6.1) or (B) in effect on
the date of this Agreement and listed in the Company SEC Documents (each, an
"Indemnity Agreement"), advancement of Expenses (as hereinafter defined)
pursuant to this Section 7.3 shall be mandatory rather than permissive and the
Surviving Corporation shall advance Costs (as defined in Section 7.3(b) hereof)
in connection with such indemnification. Buyer shall, and shall cause the
Surviving Corporation to, expressly assume and honor in accordance with their
terms all Indemnity Agreements.
(b) In addition to the other rights provided for in this Section 7.3 and not
in limitation thereof (but without in any way limiting or modifying the
obligations of any insurance carrier contemplated by Section 7.3(d)), for ten
years from and after the Effective Time, Buyer shall, and shall cause the
Surviving Corporation to, to the fullest extent permitted by applicable law, (i)
indemnify and hold harmless the individuals who on or prior to the Effective
Time were officers, directors or employees of the Company or any of its
Subsidiaries, and the heirs, executors, trustees, fiduciaries and administrators
of such officers, directors or employees (collectively, the "Indemnitees," which
term shall not include any Halmos Entity or other Person described or referred
to in Section 7.3(c) hereof, even if any such Halmos Entity or other Person is
or was an officer, director or employee of the Company) against all losses,
Expenses (as hereinafter defined), claims, damages, liabilities, judgments, or
amounts paid in settlement (collectively, "Costs") in respect to any threatened,
pending or completed claim, action, suit or proceeding, whether criminal, civil,
administrative or investigative based on, or arising out of or relating to the
fact that such person is or was a director, officer or employee of the Company
or any of its Subsidiaries and arising out of acts or omissions occurring on or
prior to the Effective Time (including, without limitation, in respect of acts
or omissions in connection with this Agreement and the transactions contemplated
hereby) (an "Indemnifiable Claim") and (ii) advance to such Indemnitees all
Expenses incurred in connection with any Indemnifiable Claim promptly after
receipt of reasonably detailed statements therefor; provided, that, except as
otherwise provided pursuant to any Indemnity Agreement, the person to whom
Expenses are to be advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to indemnification
from Buyer or the Surviving Corporation. In the event any Indemnifiable Claim is
asserted or made within such ten year period, all rights to indemnification and
advancement of Expenses in respect of any such Indemnifiable Claim shall
continue until such Indemnifiable Claim is disposed of or all judgments, orders,
decrees or other rulings in connection with such Indemnifiable Claim are fully
satisfied; provided, however, that Buyer shall not be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld or delayed). Except as otherwise may be provided pursuant to any
Indemnity Agreement, the Indemnitees 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 Indemnitee, under applicable standards of professional
conduct, a conflict on any significant issue between positions of any two or
more Indemnitees; provided, that, any law firm or firms so retained shall be
reasonably acceptable to Buyer. For the purposes of this Section 7.3, "Expenses"
shall include reasonable attorneys' fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Indemnifiable Claim.
(c) Notwithstanding the foregoing, with respect to any Indemnifiable Claim
commenced or threatened by or on behalf of, (i) Peter Halmos, Steven Halmos,
Halmos Trading and Investment Company, The Halmos Foundation, Creditline
Corporation, Continuity Marketing Corporation and High Plains Capital
Corporation (collectively, the "Halmos Entities"), (ii) any heirs, executors,
successors, family members, assigns and any other Person claiming by, through or
because of, a Halmos Entity ("Halmos Assign"), (iii) a Person that directly or
indirectly, whether through the ownership of voting securities or otherwise,
controls or is controlled by or is under common control with any Halmos
2(C)-29
<PAGE>
Entity, (iv) any Person in which any Halmos Entity or Halmos Assign has a 10%
ownership interest, (v) any employee or agent as of the date of this Agreement
of any Halmos Entity or (vi) any Person acting at the direct or indirect request
of any Halmos Entity or Halmos Assign, against any Indemnitee asserted at any
time after ten years after the Effective Time, Buyer shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless and advance Expenses to
such Indemnitees to the extent provided in Section 7.3(b), but without any time
limit on the period for which the obligation of Buyer pursuant to this Section
7.3(c) shall be in effect.
(d) For three years from the Effective Time, Buyer will, and will cause the
Surviving Corporation to maintain in effect the Company's current directors' and
officers' liability insurance covering those Persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a copy of
which has been made available to Buyer), or Buyer may substitute therefor
policies for directors' and officers' liability insurance covering such Persons
for at least the same coverage with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall Buyer be required to
expend in any one year an amount in excess of $887,040 (i.e., the amount that is
200% of the annual premiums currently paid by the Company for such insurance);
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, Buyer shall be obligated to cause the Surviving Corporation to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount. In the event that any Indemnitee is entitled to coverage under an
officers' and directors' liability insurance policy pursuant to this Section
7.3(d) and such policy has lapsed, terminated, been repudiated or is otherwise
in breach or default as a result of Buyer's failure to maintain and fulfill its
obligations pursuant to such policy as provided in this Section 7.3(d), Buyer
shall, and shall cause the Surviving Corporation to pay to the Indemnitee such
amounts and provide any other coverage or benefits as the Indemnitee shall have
received pursuant to such policy. Buyer agrees that, should the Surviving
Corporation fail to comply with the obligations of this Section 7.3, Buyer shall
be responsible therefor.
(e) Notwithstanding any other provisions hereof, the obligations of the
Company, the Surviving Corporation and Buyer contained in this Section 7.3 shall
be binding upon the successors and assigns of Buyer and the Surviving
Corporation. In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other Person or (ii) transfers all or substantially all of its properties or
assets to any Person, then, and in each case, proper provision shall be made so
that successors and assigns of the Company or the Surviving Corporation, as the
case may be, honor the indemnification obligations set forth in this Section
7.3.
(f) The obligations of the Company, the Surviving Corporation, and Buyer
under this Section 7.3 shall not be terminated or modified in such a manner as
to adversely affect any Indemnitee to whom this Section 7.3 applies without the
consent of such affected Indemnitee (it being expressly agreed that the
Indemnitees to whom this Section 7.3 applies shall be third party beneficiaries
of this Section 7.3).
(g) Buyer shall, and shall cause the Surviving Corporation to, advance all
Expenses to any Indemnitee incurred by enforcing the indemnity or other
obligations provided for in this Section 7.3.
2(C)-30
<PAGE>
ARTICLE VIII
COVENANTS OF BUYER, MERGER SUBSIDIARY
AND THE COMPANY
The parties hereto agree that:
SECTION 8.1 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
SECTION 8.2 Certain Filings. The Company and Buyer shall cooperate with one
another (a) in connection with the preparation of the Proxy Statement and the
Form S-4 Registration Statement, and (b) in determining whether any action by or
in respect of, or filing with, any Governmental Entity is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (c) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Company Proxy Statement
or the Form S-4 Registration Statement and seeking timely to obtain any such
actions, consents, approvals or waivers.
SECTION 8.3 Public Announcements. Buyer, Merger Subsidiary and the Company
will consult with each other before issuing any press release or making any
public statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law or any
listing agreement with any national securities exchange or foreign securities
exchange, as determined by Buyer, Merger Subsidiary or the Company, as the case
may be, will not issue any such press release or make any such public statement
prior to such consultation.
SECTION 8.4 Conveyance Taxes. Buyer and the Company shall cooperate in the
preparation, execution and filing of all Tax Returns, questionnaires,
applications, or other documents regarding any Conveyance Taxes which become
payable in connection with the transactions contemplated hereunder that are
required to be filed on or before the Effective Time.
SECTION 8.5 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 8.6 Employee Matters. (a) For a period of one year immediately
following the Effective Time, Buyer agrees to cause the Surviving Corporation
and its Subsidiaries to provide to all active employees of the Company as of the
Effective Time who continue to be employed by the Company ("Continuing
Employees") coverage under group medical, dental, 401(k) savings, disability
insurance, life insurance, accidental death and disability, and vacation plans
or arrangements which are, in the aggregate, substantially similar to the Plans
providing such benefits to the employees immediately prior to the Effective
Time.
(b) Buyer shall, and shall cause its Subsidiaries to, honor in accordance
with their terms all agreements, contracts, arrangements, commitments and
understandings described in Schedule 8.6 of the Company Disclosure Schedule.
(c) For a period of one year immediately following the Closing Date, Buyer
agrees to cause the Surviving Corporation and its Subsidiaries to provide to all
active employees of the Company at the
2(C)-31
<PAGE>
Closing Date which may be affected by any reduction in force subsequent to the
Closing Date the benefits set forth in the Severance Policy adopted by the Board
of Directors of the Company in connection with the July 1995 restructuring and
applied in the September 1995 and December 1995 restructurings and adopted by
resolution for any reductions in force in 1996 at the February 6, 1996 meeting
of the Board of Directors.
SECTION 8.7 Company Proxy Statement and Registration Statement. Buyer will,
as promptly as practicable, prepare and, following receipt of notification from
the SEC that it has no further comments on the Company Proxy Statement, file
with the SEC a registration statement on Form S-4 (the "Form S-4 Registration
Statement"), containing the Company Proxy Statement, and the prospectus in
connection with the registration under the Securities Act of Buyer Common Shares
issuable upon conversion of the Shares and the other transactions contemplated
hereby. Buyer will cooperate with the Company in the preparation and filing of
the Company Proxy Statement and will provide the Company with all financial and
other data concerning Buyer (including, if required, pro forma financial
statements and financial and other data regarding the other parties to the
transactions described in Schedule 6.2 of the Buyer Disclosure Schedule) as is
necessary in order for the Company to prepare the Company Proxy Statement. Buyer
and the Company will, and will cause their accountants and lawyers to, use their
best efforts to have or cause the Form S-4 Registration Statement declared
effective as promptly as practicable, including, without limitation, causing
their accountants to deliver necessary or required instruments such as opinions
and certificates, and will take any other action required or necessary to be
taken under federal or state securities laws or otherwise in connection with the
registration process.
SECTION 8.8 Tax-Free Reorganization Treatment. The Company, Buyer and Merger
Subsidiary shall execute and deliver to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Company, a certificate substantially in the form attached hereto
as Exhibit 2 or Exhibit 3, as the case may be, (the "Buyer Tax Certificate" and
the "Company Tax Certificate", as the case may be) 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 Buyer and the Company. Prior to the Effective Time, none of
the Company, Buyer and Merger Subsidiary shall take or cause to be taken any
action which would cause to be untrue (or fail to take or cause not to be taken
any action which would cause to be true) any of the information, representations
or covenants in Exhibit 2 or Exhibit 3, as the case may be.
SECTION 8.9 Notification of Certain Matters. The Company shall give prompt
notice to Buyer and Merger Subsidiary, and Buyer and Merger Subsidiary 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, Buyer or Merger Subsidiary, as the case may be,
to comply with or satisfy in any material respect 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 material contract or agreement, (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 Effect, other than changes resulting from
general economic conditions; provided, however, that the delivery of any notice
pursuant to this Section 8.9 shall not cure such breach or noncompliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 8.10 Blue Sky Permits. Buyer shall use its best efforts to obtain,
prior to the effective date of the Form S-4 Registration Statement, all
necessary state securities laws or "blue sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Merger, and
will pay all expenses incident thereto.
2(C)-32
<PAGE>
SECTION 8.11 NYSE Listing. Buyer shall use its best efforts to cause the
shares of Buyer Common Stock constituting the Merger Consideration to be listed
on the NYSE, subject to notice of official issuance thereof.
SECTION 8.12 Pooling Letter. (a) Buyer shall use its best efforts to cause
Ernst & Young LLP, its independent auditors, to deliver to Buyer a letter to the
effect that pooling of interests accounting (under Accounting Principles Board
Opinion No. 16) is appropriate for the Merger, provided that the Merger is
consummated in accordance with the terms and conditions of this Agreement, and
the Company shall use its best efforts to cause its independent auditors, Price
Waterhouse LLP, to cooperate fully with Ernst & Young LLP (including, without
limitation, by delivering to the Company a letter substantially similar to Ernst
& Young LLP's letter to Buyer) in connection with the delivery to Buyer of such
letter.
(b) The Company shall use its best efforts to cause Price Waterhouse LLP to
deliver to the Company a letter to the effect that pooling of interests
accounting (under Accounting Principles Board Opinion No. 16) is appropriate for
the Merger, provided that the Merger is consummated in accordance with the terms
and conditions of this Agreement, and Buyer shall use its best efforts to cause
Ernst & Young LLP to cooperate fully with Price Waterhouse LLP (including,
without limitation, by delivering to Buyer a letter substantially similar to
Price Waterhouse LLP's letter to the Company) in connection with the delivery to
the Company of such letter.
SECTION 8.13 Pooling. The Company and Buyer each agrees that it will not
knowingly take any action which could prevent the Merger from being accounted
for as a pooling of interests for accounting purposes (under Accounting
Principles Board Opinion No. 16) and the Company will bring to the attention of
Buyer, and Buyer 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 Buyer from accounting for the Merger as a pooling of
interests. The Company will use its reasonable best efforts 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.
SECTION 8.14 SEC Filings. Each of Buyer 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 8.15 Affiliate Agreements. Buyer and Merger Subsidiary shall have
received the Affiliate Letters from the Company Affiliates.
SECTION 8.16 Affiliates. Promptly upon the Company obtaining knowledge of
persons who, to the best knowledge of the Company, following the date of this
Agreement until the Effective Time, become "affiliates" of the Company for
purposes of Rule 145 of the Securities Act, the Company shall use its reasonable
best efforts to identify any such person in writing to Buyer, and will use its
reasonable best efforts to cause such persons prior to the mailing of the
Company Proxy Statement, or if thereafter as soon as reasonably practicable, to
deliver to Buyer an Affiliate Letter; provided, however, that the Company will
not affirmatively, without the prior written consent of Buyer, take any action,
by hiring or appointing a new officer or director or otherwise, so as to cause
any person to become an "affiliate" unless such person executes an Affiliate
Letter prior thereto.
2(C)-33
<PAGE>
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 Conditions to the Obligations of Each Party. The obligations of
the Company, Buyer and Merger Subsidiary to consummate the Merger are subject to
the satisfaction on or prior to the Effective Time of the following conditions,
except to the extent permitted by applicable law, that such conditions may be
waived:
(i) Stockholder Approval. The Merger shall have been duly approved by a
majority of the votes cast by stockholders of the Company entitled to vote
thereon in accordance with applicable law and the Company Certificate of
Incorporation and Company By-laws.
(ii) Listing of Buyer Common Stock. The shares of Buyer Common Stock
issuable in accordance with the Merger shall have been approved for listing
on the NYSE, subject to official notice of issuance.
(iii) Registration Statement. The Form S-4 Registration Statement shall
have become effective in accordance with the provisions of the Securities
Act, and no order suspending such effectiveness shall have been issued and
remain in effect.
(iv) HSR Act. Any applicable waiting period under the HSR Act relating
to the Merger shall have expired.
(v) No Injunction. No provision of any applicable law or regulation and
no judgment, injunction, order or decree shall prohibit the consummation of
the Merger or any transactions contemplated hereby.
(vi) Pooling. Buyer shall have received a letter from Ernst & Young LLP
and the Company shall have received a letter from Price Waterhouse LLP each
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 this
Agreement; provided, further, that the foregoing shall not be a condition to
the Company's obligations if either Price Waterhouse LLP or Ernst & Young
LLP is unable to deliver such letter as a result of the Company having
breached the Company's representation set forth in Section 4.21 or the
Company's covenants set forth in Sections 8.12, 8.13 or 8.16 or the Company
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 firm, Buyer from
accounting for the Merger as a pooling of interests.
SECTION 9.2 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the satisfaction on or prior
to the Effective Time of the following conditions, except to the extent
permitted by applicable law, that such conditions may be waived:
(i) Performance of Obligations Buyer and Merger Subsidiary. Each of
Buyer and Merger Subsidiary will have performed in all material respects its
agreements and covenants contained in or contemplated by this Agreement
which are required to be performed by it at or prior to the Effective Time.
(ii) Representations and Warranties. The representations and warranties
of Buyer and Merger Subsidiary set forth in this Agreement shall be true and
correct in all material respects (i) on and as of the date hereof and (ii)
on and as of the Closing Date with the same effect as thought such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that expressly speak only as of a
specific date or time which need only be true and correct as of such date
and time).
2(C)-34
<PAGE>
(iii) Closing Certificate. The Company shall have received a certificate
signed by the chief executive officer of Buyer, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 9.2(i) and 9.2(ii) hereof have been satisfied.
(iv) Tax Opinion. The Company shall have received an opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel to the Company, in form and substance
reasonably satisfactory to the Company, dated as of the Effective Time,
substantially to the effect that on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts then existing, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and, accordingly, for United
States federal income tax purposes, that:
(A) no gain or loss will be recognized by the Company, Buyer or
Merger Subsidiary as a result of the Merger;
(B) no gain or loss will be recognized by a stockholder of the
Company whose Shares are exchanged solely for Buyer Common Stock pursuant
to the Merger (except with respect to cash received by a holder of Shares
in lieu of a fractional share interest in Buyer Common Stock);
(C) the tax basis of the Buyer Common Stock received by a holder of
Shares in the Merger will be the same as the tax basis of the Shares
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest in Buyer Common Stock for which cash is
received); and
(D) the holding period of the shares of Buyer Common Stock received
by a holder of Shares in the Merger will include the period during which
such Shares surrendered in exchange therefor were held, provided that
such Shares were held as capital assets at the Effective Time of the
Merger.
In rendering such opinion, such firm may require and rely upon
representations contained in the Buyer Tax Certificate, the Company Tax
Certificate and such other certificates from such other persons as such firm may
require.
SECTION 9.3 Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction on or prior to the Effective Time of the
following conditions, except to the extent permitted by applicable law, that
such conditions may be waived:
(i) Performance of Obligations the Company. The Company will have
performed in all material respects its agreements and covenants contained in
or contemplated by this Agreement which are required to be performed by it
at or prior to the Effective Time.
(ii) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects (i) on and as of the date hereof and (ii) on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time which need only be true and correct as of such date and time).
(iii) Closing Certificate. Buyer and Merger Subsidiary shall have
received a certificate signed by the chief executive officer of the Company,
dated the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 9.3(i) and 9.3(ii) hereof
have been satisfied.
(iv) Affiliate Agreements. Each Company Affiliate shall have performed
his or its respective obligations under the applicable Affiliate Letter.
2(C)-35
<PAGE>
ARTICLE X
TERMINATION
SECTION 10.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(i) by mutual written consent of the Company and Buyer;
(ii) by either the Company or Buyer, if the Merger has not been
consummated by December 31, 1996 (as such date may be extended by mutual
agreement or pursuant to the proviso to this sentence, the "Outside
Termination Date"); provided, however, that the right to terminate this
Agreement under this paragraph shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure to meet the date requirements of this
paragraph;
(iii) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining Buyer or the Company from consummating
the Merger is entered and such judgment, injunction, order or decree shall
become final and nonappealable;
(iv) by the Company if (A) there shall have been a breach of any
representation or warranty on the part of Buyer or Merger Subsidiary set
forth in this Agreement, or if any representation or warranty of Buyer or
Merger Subsidiary shall have become untrue, in either case such that the
condition set forth in Section 9.2(ii) would be incapable of being satisfied
by the Outside Termination Date or (B) there shall have been a breach by
Buyer or Merger Subsidiary of any of their respective covenants or
agreements hereunder having a Material Adverse Effect on Buyer or materially
adversely affecting (or materially delaying) the consummation of the Merger,
and Buyer or Merger Subsidiary, as the case may be, has not cured such
breach within twenty business days after notice by the Company thereof;
(v) by Buyer and Merger Subsidiary if (A) 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 condition set forth
in Section 9.3(ii) would be incapable of being satisfied by the Outside
Termination Date or (B) 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 Buyer or Merger Subsidiary thereof;
(vi) by Buyer or Merger Subsidiary, if (A) the Board of Directors of
the Company or any committee thereof shall have withdrawn, modified or
changed in a manner adverse to Buyer or Merger Subsidiary its recommendation
of the Merger or this Agreement or approved or recommended a Superior
Proposal or (B) the Company shall have entered into a definitive agreement
with respect to an Acquisition Proposal;
(vii) by the Company, upon entering into a definitive agreement in
accordance with Section 6.4(b), provided (x) it has complied with all
provisions of Section 6.4, including the notice provisions therein, and (y)
that it makes simultaneous payment of Buyer's Expenses (as defined in
Section 12.4); or
(viii) by Buyer, Merger Subsidiary or the Company, if the Company's
stockholders do not approve the Merger at the Company Stockholder Meeting.
The party desiring to terminate this Agreement pursuant to this Section 10.1
(other than with respect to Section 10.1(i)) shall give written notice of such
termination to the other party.
2(C)-36
<PAGE>
SECTION 10.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1 hereof, this Agreement shall become void and of no effect with
no liability on the part of any party hereto; provided that (i) the agreements
contained in Sections 4.16, 5.6, 10.2 and 12.4, hereof shall survive the
termination hereof; (ii) the Confidentiality Agreement shall remain in full
force and effect and Section 6.3(b) hereof shall have no binding effect
whatsoever; and (iii) nothing contained in this Section 10.2 shall relieve any
party from liability for any breach of this Agreement.
ARTICLE XI
DEFINED TERMS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Active Subsidiary" shall have the meaning set forth in Section 4.6(a).
"Affiliate Letter" shall have the meaning set forth in the Introduction.
"Agreement" shall have the meaning set forth in the Introduction.
"Acquisition Proposal" shall have the meaning set forth in Section 6.4.(a).
"Affiliates" shall have the meaning set forth in Section 8.9.
"Average Stock Price" shall have the meaning set forth in Section 1.2(a).
"blue sky" shall have the meaning set forth in Section 8.10.
"Buyer" shall have the meaning set forth in the Introduction.
"Buyer Certificates" shall have the meaning set forth in Section 1.3(a).
"Buyer Common Stock" shall have the meaning set forth in the Introduction.
"Buyer Disclosure Schedule" shall have the meaning set forth in Section 5.1.
"Buyer Preferred Stock" shall have the meaning set forth in Section 5.9.
"Buyer's Expenses" shall have the meaning set forth in Section 12.4(d).
"Buyer SEC Documents" shall have the meaning set forth in Section 5.12.
"Buyer Securities" shall have the meaning set forth in Section 5.9.
"Buyer Tax Certificate" shall have the meaning set forth in Section 8.8.
"Buyer's Accountants" shall have the meaning set forth in Section 8.12(a).
"Certificate of Merger" shall have the meaning set forth in Section 1.1(b).
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall have the meaning set forth in the Introduction.
2(C)-37
<PAGE>
"Company" shall have the meaning set forth in the Introduction.
"Company Affiliate" shall have the meaning set forth in Section the
Introduction.
"Company Affiliate Letter" shall have the meaning set forth in the
Introduction.
"Company By-laws" shall have the meaning set forth Section 3.2.
"Company Certificate of Incorporation" shall have the meaning set forth in
Section 3.1.
"Company Disclosure Schedule" shall have the meaning set forth in Section
4.1.
"Company Proxy Statement" shall have the meaning set forth in Section
6.2(i).
"Company SEC Documents" shall have the meaning set forth in Section 4.7.
"Company Securities" shall have the meaning set forth in Section 4.5.
"Company Stock Plans" shall have the meaning set forth in Section 1.10.
"Company Stockholder Meeting" shall have the meaning set forth in Section
6.2.
"Company Tax Certificate" shall have the meaning set forth in Section 8.8.
"Company's Accountants" shall have the meaning set forth in Section 8.12(a).
"Company's Expenses" shall have the meaning set forth in Section 12.4(e).
"Confidentiality Agreement" shall have the meaning set forth in Section
6.3(a).
"Continuing Employees" shall have the meaning set forth in Section 8.6(a).
"Conversion Number" shall have the meaning set forth in Section 1.2(a).
"Conveyance Taxes" shall have the meaning set forth in Section 6.5.
"Costs" shall have the meaning set forth in Section 7.3(b).
"DGCL" shall have the meaning set forth in Section 1.1(a).
"Effective Time" shall have the meaning set forth in Section 1.1(b).
"employee pension benefit plan" shall have the meaning set forth in Section
4.13(a).
"employee welfare benefit plan" shall have the meaning set forth in Section
4.13(a).
"Environmental Law" shall have the meaning set forth in Section 4.17(c).
"ERISA" shall have the meaning set forth in Section 4.13(a).
"ERISA Affiliate" shall have the meaning set forth in Section 4.13(a).
"ERISA Plans" shall have the meaning set forth in Section 4.13(a).
"Exchange Act" shall have the meaning set forth in Section 4.3.
"Exchange Agent" shall have the meaning set forth in Section 1.3(a).
"Exchange Fund" shall have the meaning set forth in Section 1.3(a).
"Expenses" shall have the meaning set forth in Section 7.3(b).
"Form S-4 Registration Statement" shall have the meaning set forth in
Section 8.7.
2(C)-38
<PAGE>
"GAAP" shall have the meaning set forth in Section 4.8.
"Governmental Entity" shall have the meaning set forth in Section 4.3.
"Halmos Entities" shall have the meaning set forth in Section 7.3(c)(i).
"Halmos Assign" shall have the meaning set forth in Section 7.3(c)(iii).
"HSR Act" shall have the meaning set forth in Section 4.3.
"Indemnifiable Claim" shall have the meaning set forth in Section 7.3(b).
"Indemnitees" shall have the meaning set forth in Section 7.3(b).
"Indemnity Agreement" shall have the meaning set forth in Section 7.3(a).
"Intangible Property" shall have the meaning set forth in Section 4.19(a).
"Licenses" shall have the meaning set forth in Section 4.1.
"Lien" shall have the meaning set forth in Section 4.4.
"Material Adverse Effect" shall have the meaning set forth in Section 4.1.
"Material Contracts" shall have the meaning set forth in Section 4.20.
"Measurement Period" shall have the meaning set forth in Section 1.2(a).
"Merger" shall have the meaning set forth in Section 1.1(a).
"Merger Consideration" shall have the meaning set forth in Section 1.2(a).
"Merger Subsidiary" shall have the meaning set forth in the Introduction.
"Notice of Superior Proposal" shall have the meaning set forth in Section
6.4(b).
"NYSE" shall have the meaning set forth in Section 1.2(a).
"Option" shall have the meaning set forth in Section 1.10.
"Outside Termination Date" shall have the meaning set forth in Section
10.1(ii).
"PBGC" shall have the meaning set forth in Section 4.13(c).
"Person" shall have the meaning set forth in Section 1.4.
"Plans" shall have the meaning set forth in Section 4.13(a)
"Preferred Stock" shall have the meaning set forth in Section 4.5.
"SafeCard" shall have the meaning set forth in Section 4.20.
"SEC" shall have the meaning set forth in Section 4.7.
"Secretary of State" shall have the meaning set forth in Section 1.1(b).
"Securities Act" shall have the meaning set forth in the Introduction.
"Share Certificates" shall have the meaning set forth in Section 1.3(b).
"Shares" shall have the meaning set forth in the Introduction.
"single employer" shall have the meaning set forth in Section 4.13(a).
2(C)-39
<PAGE>
"Subsidiary" shall have the meaning set forth in Section 4.6(a).
"Substitute Option" shall have the meaning set forth in Section 1.10.
"Surviving Corporation" shall have the meaning set forth in Section 1.1(a).
"Tax Return" shall have the meaning set forth in Section 4.12(b)(ii).
"Taxes" shall have the meaning set forth in Section 4.12(b)(i).
"Third Party" shall have the meaning set forth in Section 12.4(e).
"Third Party Acquisition" shall have the meaning set forth in Section
12.4(e).
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Buyer or Merger Subsidiary, to:
CUC International, Inc.
707 Summer Street
Stamford, CT 06901
Telecopy: (203) 348-1982
Attention: Amy N. Lipton, Esq.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
if to the Company, to:
Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Florida 32256
Telecopy: (904) 218-1850
Attention: Mr. Eugene Miller, Chairman of
the Board and Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Roger S. Aaron, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 11.1
and the appropriate telecopy confirmation is received or (ii) if given by any
other means, when delivered at the address specified in this Section 12.1.
2(C)-40
<PAGE>
SECTION 12.2 Survival of Representations and Warranties. The representations
and warranties contained herein and in any certificate or other writing
delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement. All covenants and agreements contained herein
which by their terms are to be performed in whole or in part subsequent to the
Effective Time shall survive the Merger in accordance with their terms. Nothing
contained in this Section 12.2 shall relieve any party from liability for any
willful breach of this Agreement.
SECTION 12.3 Amendments; No Waivers. (a) Except as may otherwise be provided
herein, any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company, Buyer and Merger Subsidiary
or in the case of a waiver, by the party against whom the waiver is to be
effective; provided that after the adoption of this Agreement by the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change could adversely affect the holders of any shares of capital
stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.4 Expenses. (a) Except as provided below in this Section 12.4,
all fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to Buyer,
Buyer's Expenses (as hereinafter defined), in the event that the Company shall
enter into a definitive agreement with respect to a Superior Proposal and this
Agreement shall be terminated pursuant to Section 10.1(vi)(B) or Section
10.1(vii). In addition, in the event that this Agreement shall be terminated
pursuant to Section 10.1(vi) or Section 10.1(vii) and, (i) 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 and is completed, (ii) after the date hereof
and prior to the date of termination, (x) the Company or its agents had engaged
in negotiations with a Third Party with respect to a Third Party Acquisition,
(y) the Company or its agents furnished information to a Third Party with
respect to a Third Party Acquisition or (z) a Third Party submitted to the
Company a proposal (which shall include price and other material terms and
conditions) for a Third Party Acquisition and (iii) with respect to (x) and (y)
above, the relevant Third Party makes or announces (before or after such
termination) a proposal with respect to a Third Party Acquisition; then the
Company shall pay, or cause to be paid, in same day funds, to Buyer, (A) a
termination fee in the amount of $7,000,000, which termination fee shall be paid
on the date of consummation of a Third Party Acquisition (if and only if a Third
Party Acquisition shall be consummated within twelve months after the date of
termination), and (B) to the extent not previously paid by the Company to Buyer
pursuant to the first sentence of this Section 12.4(b), Buyers' Expenses. It is
expressly agreed that the amount to be paid pursuant to this Section 12.4(b)
represents liquidated damages and not a penalty.
(c) The cost of printing the Form S-4 Registration Statement and the Company
Proxy Statement shall be borne equally by the Company and Buyer.
(d) The Company shall pay or cause to be paid (not later than ten business
days after submission of statements therefor) in same day funds to Buyer,
Buyer's Expenses in the event this Agreement shall be terminated pursuant to
Section 10.1(v). Buyer shall pay or cause to be paid (not later than ten
business days after submission of statements therefor) in same day funds to the
Company, Company's Expenses in the event this Agreement shall be terminated
pursuant to Section 10.1(iv). If Buyer or Merger Subsidiary shall submit a
request for reimbursement hereunder, Buyer or Merger Subsidiary
2(C)-41
<PAGE>
will provide the Company in due course with invoices or other reasonable
evidence of such expenses upon request. If the Company shall submit a request
for reimbursement hereunder, the Company will provide Buyer in due course with
invoices or other reasonable evidence of such expenses upon request.
(e) For purposes of this Section 12.4, "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 Buyer,
Merger Subsidiary or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of more than 35% of the total assets of the Company
and its Subsidiaries, taken as a whole; or (iii) the acquisition by a Third
Party of 35% or more of the outstanding shares of Company Common Stock. For
purposes of this Section 12.4, "Buyer's Expenses" shall mean documented
out-of-pocket fees and expenses reasonably and actually incurred or paid by or
on behalf of Buyer in connection with the Merger and the consummation of any of
the transactions contemplated by this Agreement, including, reasonable fees and
expenses of counsel, accountants, experts, financial advisors and consultants to
Buyer, in an aggregate amount not to exceed $1,000,000. For purposes of this
Section 12.4, "Company's Expenses" shall mean documented out-of-pocket fees and
expenses reasonably and actually incurred or paid by or on behalf of the Company
in connection with the Merger and the consummation of any of the transactions
contemplated by this Agreement, including, reasonable fees and expenses of
counsel, accountants, experts, financial advisors and consultants to the
Company, in an aggregate amount not to exceed $1,000,000.
SECTION 12.5 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 12.6 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware without regard to
conflicts of laws.
SECTION 12.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated herein is not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner.
SECTION 12.8 Third Party Beneficiaries. No provision of this Agreement other
than Section 7.3 and Section 8.6 hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 12.9 Entire Agreement. This Agreement, including any exhibits or
schedules hereto and the Confidentiality Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersede all other prior agreements or undertaking with respect thereto, both
written and oral.
SECTION 12.10 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
2(C)-42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
IDEON GROUP, INC.
By: /s/ EUGENE MILLER
..................................
Name: Eugene Miller
Title: Chairman and CEO
CUC INTERNATIONAL INC.
By: /s/ CHRISTOPHER K. MCLEOD
..................................
Name: Christopher K. McLeod
Title: Executive Vice President
IG ACQUISITION CORP.
By: /s/ CHRISTOPHER K. MCLEOD
..................................
Name: Christopher K. McLeod
Title: Vice President
2(C)-43
EXHIBIT 5
ROBERT T. TUCKER
ATTORNEY AT LAW
61 PURCHASE ST. (914) 967-8105
RYE, N.Y. 10580 FAX: (914) 967-8161
June 28, 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 17,170,469 shares of common stock par value $ .01 per share of CUC
(the "Shares") to be issued to the shareholders of Ideon Group, Inc.
("Ideon") in connection with the merger of CUC's wholly owned subsidiary,
IG Acquisition Corp. ("Merger Sub"), into and with Ideon, all as set
forth in the Agreement and Plan of Merger dated April 19, 1996, among
CUC, Ideon 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 Ideon 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
[FORM OF TAX OPINION TO BE DELIVERED BY SASM&F TO
THE COMPANY AT THE EFFECTIVE TIME]
___________ ___, 1996
Ideon Group, Inc.
7596 Centurion Parkway
Jacksonville, Floria 32256
Re: Merger of IG Acquisition Corp., a wholly-owned
subsidiary of CUC International Inc., with and into
Ideon Group, Inc.
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Ideon Group, Inc., a
Delaware corporation ("Ideon"), in connection with the merger
(the "Merger") of IG Acquisition Corp., a Delaware corporation
("Sub") and a wholly-owned subsidiary of CUC International Inc.,
a Delaware corporation ("CUC"), with and into Ideon with Ideon
surviving as a wholly-owned subsidiary of CUC, pursuant to the
terms and provisions of the Agreement and Plan of Merger, dated
as of April 19, 1996 by and among Ideon, CUC and Sub (the "Merger
Agreement"). This opinion is being furnished to you pursuant to
Section 9.2(iv) of the Merger Agreement. Unless otherwise
defined herein, all capitalized terms used herein shall have the
meanings assigned to them in the Joint Proxy Statement and
Prospectus relating to the Merger, dated June 28, 1996
(the "Proxy Statement-Prospectus").
In rendering our opinion, we have examined and relied upon
the accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Proxy
Statement-Prospectus, and such other documents as we have deemed
relevant for purposes of this opinion. In addition, as to certain
facts material to our opinion, we
<PAGE>
Ideon Group, Inc.
__________ ___, 1996
Page 2
have relied upon statements and representations of officers of
Ideon, CUC and others. Our opinion is conditioned on, among
other things, the accuracy and completeness as of the Effective
Time, of such facts, information, covenants and representations
referred to above.
We have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of
such documents. In rendering our opinion, we have also assumed
that (i) the transactions contemplated by the Merger Agreement
will be consummated (A) in accordance with the Merger Agreement
and that none of the terms and conditions contained therein has
been waived or modified in any respect and (B) as described in
the Proxy Statement-Prospectus and (ii) the Merger qualifies as a
statutory merger under the laws of the State of Delaware. A
change in any of the facts set forth or assumed herein could
affect our conclusions.
In rendering our opinion, we have considered the
applicable provisions of the Code, Treasury regulations
promulgated thereunder by the Treasury Department (the
"Regulations"), pertinent judicial authorities, rulings of the
United States Internal Revenue Service and such other authorities
as we have considered relevant. It should be noted that such
Code, Regulations, judicial decisions, administrative
interpretations and such other authorities are subject to change
at any time and, in some circumstances, with retroactive effect.
A change in any of the authorities upon which our opinion is
based could affect our conclusions.
<PAGE>
Ideon Group, Inc.
__________ ___, 1996
Page 3
Opinion
-------
Based solely upon and subject to the foregoing, we are
of the opinion that for United States federal income tax
purposes:
1. The Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and Ideon, CUC
and Sub will each be a party to such reorganization within the
meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by Ideon, CUC
or Sub as a result of the Merger;
3. No gain or loss will be recognized by the
shareholders of Ideon upon the exchange of their Shares solely
for shares of Buyer Common Stock pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional
shares of Buyer Common Stock;
4. The tax basis of the Buyer Common Stock received
by a holder of Shares in the Merger will be the same as the tax
basis of the Shares surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest in Buyer
Common Stock for which cash is received); and
5. The holding period for shares of Buyer Common
Stock received in exchange for Shares pursuant to the Merger will
include the holding period of the Shares exchanged therefor,
provided such Shares were held as capital assets by the
shareholder at the Effective Time.
<PAGE>
Ideon Group, Inc.
__________ ___, 1996
Page 4
We express no opinion with respect to the matters
addressed in this opinion other than as set forth above. This
opinion is provided solely for the use of Ideon (in connection
with Section 9.2(iv) of the Merger Agreement), and is not to be
used, circulated, quoted or otherwise referred to for any other
purpose without our prior written consent in each instance;
provided, however, that this opinion may be referred to in the
- -------- -------
sections of the Proxy Statement-Prospectus entitled "The Merger--
Certain Federal Income Tax Considerations." This opinion may not
be relied upon or otherwise used by either CUC or Sub.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
Exhibit 15.1
Letter Re: Unaudited Interim Financial Information
June 27, 1996
Board of Directors and Shareholders'
CUC International Inc.
We are aware of the incorporation by reference in the Proxy Statement of Ideon
Group, Inc. that is made a part of the Registration Statement (Form S-4) and
Prospectus of CUC International Inc. for the registration of 17,170,469 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 28, 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 Ideon Group, 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 23.3
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 Ideon Group, 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 26, 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 Ideon Group, 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 27, 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 Ideon Group, Inc., which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
June 27, 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 Proxy Statement of Ideon
Group, Inc., which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
June 28, 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 Ideon Group, 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 28, 1996
