AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CUC INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8699 06-0918165
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
(208) 324-9261
</TABLE>
(Address, including ZIP code, and telephone number, including area code, of
agent for service)
<TABLE>
<S> <C>
COSMO CORIGLIANO AMY N. LIPTON, ESQ.
EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER GENERAL COUNSEL
CUC INTERNATIONAL INC. CUC INTERNATIONAL INC.
707 SUMMER STREET 707 SUMMER STREET
STAMFORD, CONNECTICUT 06901 STAMFORD, CONNECTICUT 06901
(203) 324-9261 (203) 324-9261
</TABLE>
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
HOWARD CHATZINOFF, ESQ. PETER F. ZIEGLER, ESQ.
WEIL, GOTSHAL & MANGES LLP BRADFORD P. WEIRICK, ESQ.
767 FIFTH AVENUE GIBSON, DUNN & CRUTCHER
NEW YORK, NEW YORK 10153 333 SOUTH GRAND AVENUE
(212) 310-8000 LOS ANGELES, CALIFORNIA 90071-3197
(213) 229-7000
</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 Stealth Acquisition I Corp., a
California corporation and wholly owned subsidiary of CUC International Inc., a
Delaware corporation (the "CUC International"), with and into Davidson &
Associates, Inc., a California corporation ("Davidson"), as described in the
Agreement and Plan of Merger dated as of February 19, 1996 (the "Merger
Agreement") attached as Annex A to the Proxy Statement/Prospectus forming part
of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
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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.... 30,039,606 $36.75 $1,103,955,520.50 $380,674.32
</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 rate for such shares in the Merger (i.e., .85 of one share
of CUC Common Stock for each outstanding share of common stock, $.00025 par
value, of Davidson ("Davidson Common Stock")).
(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), based upon the market value of the shares of
CUC Common Stock to be received by the holders of Davidson Common Stock in
the Merger ($36.75 per share, i.e., the average of the high and low sale
prices per share of the CUC Common Stock as reported in The New York Stock
Exchange, Inc. ("NYSE") Composite Transactions on June 19, 1996).
(3) The registration fee for the CUC Common Stock registered hereby,
$380,674.32, has been calculated pursuant to Section 6(b) of, and Rule
457(c) under, the Securities Act, as follows: 1/29th of 1% of the product
of: (x) $36.75, the average of the high and low sale prices per share of CUC
Common Stock as reported in the NYSE Composite Transactions on June 19,
1996, and (y) 30,039,606. A fee of $167,367.92 was paid on April 18, 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 Davidson 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 $213,306.40 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.
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<PAGE>
[LOGO]
DAVIDSON & ASSOCIATES, INC.
June 21, 1996
To Our Shareholders:
You are hereby cordially invited to attend a special meeting of the holders
of common stock, $.00025 par value ("Company Common Stock"), of Davidson &
Associates, Inc., a California corporation (the "Company"), to be held at the
Summerfield Suites, 19901 Prairie Avenue, Torrance, California 90503, on
Wednesday, July 24, 1996, convening at 10:00 a.m., local time (the "Meeting").
At the Meeting, holders of record of Company Common Stock at the close of
business on June 7, 1996 will be requested to consider and vote upon (i) a
proposal to adopt an Agreement and Plan of Merger dated as of February 19, 1996
(the "Merger Agreement"), among the Company, CUC International Inc., a Delaware
corporation ("CUC International"), and Stealth Acquisition I Corp., a California
corporation and wholly owned subsidiary of CUC International ("Merger Sub"),
pursuant to which, among other things, Merger Sub will be merged with and into
the Company (the "Merger") and the Company (as the surviving corporation in the
Merger) will become a wholly owned subsidiary of CUC International, and holders
of Company Common Stock immediately prior to the effective time of the Merger
will, by virtue of the Merger and without any action on their part, become
holders of the common stock, $.01 par value, of CUC International ("CUC
International Common Stock"), in accordance with the exchange ratio (i.e., .85
of one share of CUC International Common Stock for each outstanding share of
Company Common Stock (the "Exchange Ratio")) and other terms and conditions
specified in the Merger Agreement, and (ii) such other business as properly may
be presented at the Meeting or any adjournments or postponements thereof.
Pursuant to a certain shareholders agreement dated as of February 19, 1996, the
holders of approximately 72% of the outstanding Company Common Stock (which
include your Chairman and Chief Executive Officer, and President, respectively)
have agreed with CUC International, subject to certain conditions, to vote at
the Meeting all shares held of record or beneficially owned by them for adoption
of the Merger Agreement and against certain other transactions which could
impede or delay consummation of the Merger. Accordingly, assuming that such
shareholders will vote at the Meeting for adoption of the Merger Agreement, such
adoption will be assured irrespective of the votes cast by any other holders of
Company Common Stock.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger. In addition, the Board of Directors has received the
written opinion dated February 19, 1996 of Smith Barney Inc., the Company's
financial advisor, to the effect that, as of such date and based upon and
subject to certain matters specified in such opinion, the Exchange Ratio was
fair, from a financial point of view, to the holders of Company Common Stock.
The full text of such opinion, which is attached as Annex C to the accompanying
Proxy Statement/Prospectus, should be read carefully in its entirety.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT EACH
OF THE MERGER AGREEMENT AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS, APPROVED THE MERGER AGREEMENT (AND THE
TRANSACTIONS CONTEMPLATED THEREBY), AND RECOMMENDS THAT HOLDERS OF COMPANY
COMMON STOCK VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
<PAGE>
You should read carefully and in their entirety the accompanying Notice of
Meeting and the Proxy Statement/Prospectus for details concerning the Merger and
additional related information.
It is important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, I encourage you to sign, date and return the
enclosed proxy card at your earliest convenience in the enclosed postage-prepaid
envelope. Your shares of Company Common Stock will be voted in accordance with
the instructions you have given in your proxy. If you attend the Meeting, you
may vote in person if you wish, even though you previously have returned your
proxy card. Your prompt cooperation will be greatly appreciated.
Very truly yours,
/s/ Robert M. Davidson
Robert M. Davidson
Chairman of the Board
and Chief Executive Officer
<PAGE>
[LOGO]
DAVIDSON & ASSOCIATES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of the holders of common stock, $.00025 par value
("Company Common Stock"), of Davidson & Associates, Inc., a California
corporation ("Davidson" or the "Company"), will be held at the Summerfield
Suites, 19901 Prairie Avenue, Torrance, California 90503, on Wednesday, July 24,
1996, convening at 10:00 a.m., local time (the "Meeting"), for the purpose of
considering and acting upon the following matters, which are described more
fully in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to adopt an Agreement and Plan
of Merger dated as of February 19, 1996 (the "Merger Agreement"), among the
Company, CUC International Inc., a Delaware corporation ("CUC
International"), and Stealth Acquisition I Corp., a California corporation
and wholly owned subsidiary of CUC International ("Merger Sub"). Pursuant to
the Merger Agreement, among other things, Merger Sub will be merged with and
into the Company (the "Merger") and the Company, as the surviving
corporation in the Merger, will become a wholly owned subsidiary of CUC
International. At the effective time of the Merger (the "Effective Time"),
each share of Company Common Stock which was outstanding immediately prior
thereto (other than shares held by CUC International, Merger Sub or any
other subsidiary of CUC International or any subsidiary of the Company, or
shares to which dissenters' rights are granted and properly exercised under
applicable California law) will be converted into .85 of one share of common
stock, $.01 par value, of CUC International ("CUC International Common
Stock"), in accordance with the terms and subject to the conditions of the
Merger Agreement. The Company has the right (but is not required) to
terminate the Merger Agreement and abandon the Merger if, among other
things, the Average Stock Price (as defined in the accompanying Proxy
Statement/Prospectus) is less than $29.00 (which represents a value to the
Company's shareholders of $24.65 per share of Company Common Stock based on
the Merger exchange ratio of .85 of one share of CUC International Common
Stock for each share of Company Common Stock). THE MERGER (AND THE RELATED
TRANSACTIONS CONTEMPLATED THEREBY) ARE MORE FULLY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS, AND THE FULL TEXT OF THE MERGER
AGREEMENT IS ATTACHED THERETO AS ANNEX A AND SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY.
2. To transact such other business as properly may be presented at the
Meeting or any adjournments or postponements thereof.
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 12% to 14% of the CUC
International Common Stock outstanding immediately after the Effective Time.
The affirmative vote of the holders of a majority of the outstanding Company
Common Stock is necessary to adopt the Merger Agreement. Pursuant to a certain
shareholders agreement dated as of February 19, 1996, the holders of
approximately 72% of the outstanding Company Common Stock (which include your
Chairman and Chief Executive Officer, and President, respectively) have agreed
with CUC International, subject to certain conditions, to vote at the Meeting
all shares held of record or beneficially owned by them for adoption of the
Merger Agreement and against certain other transactions which could impede or
delay consummation of the Merger. Accordingly, assuming that such
<PAGE>
shareholders will vote at the Meeting for adoption of the Merger Agreement, such
adoption will be assured irrespective of the votes cast by any other holders of
Company Common Stock. The shareholders agreement terminates by its terms upon
the earlier to occur of the termination of the Merger Agreement in accordance
with its terms and the Effective Time, and may be terminated at the election of
the holders of Company Common Stock party to the shareholders agreement if the
Average Stock Price is less than $29.00.
The Board of Directors of the Company has fixed the close of business on
June 7, 1996 as the record date for the purpose of determining the holders of
Company Common Stock who are entitled to receive notice of and to vote at the
Meeting and any adjournments or postponements thereof (the "Record Date"). No
other business may be transacted at the Meeting absent the provision of proper
notice in accordance with the Company's Bylaws.
A list of the holders of Company Common Stock entitled to vote at the
Meeting will be made available for examination by any holder of Company Common
Stock, for any purpose germane to the Meeting, during ordinary business hours,
at the offices of the Company at 19840 Pioneer Avenue, Torrance, California
90503, commencing on June 14, 1996, and at the Meeting.
Holders of Company Common Stock may be entitled to dissenters' rights if
their shares qualify as "dissenting shares" under applicable California law. If
properly exercised, these rights would require the Company to purchase such
"dissenting shares" for cash, at the fair market value thereof. However, CUC
International has the right (but is not required) to terminate the Merger
Agreement and abandon the Merger if the aggregate number of dissenting shares in
respect of the Merger exceeds 5% of the total outstanding shares of Company
Common Stock as of the Effective Time. The full text of the pertinent statutory
provisions relating to the proper exercise of such dissenters' rights is
attached to the accompanying Proxy Statement/Prospectus as Annex D and should be
read carefully and in its entirety.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHICH HAS BEEN PROVIDED FOR YOUR CONVENIENCE
AND WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. ANY HOLDER OF
COMPANY COMMON STOCK WHO SO DESIRES MAY REVOKE HIS OR ITS PROXY AT ANY TIME
PRIOR TO THE TIME IT IS EXERCISED BY (I) PROVIDING WRITTEN NOTICE TO SUCH EFFECT
TO THE SECRETARY OF 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 THEREAT IN PERSON.
The Board of Directors of the Company unanimously has determined that the
Merger is fair to and in the best interests of the Company and its shareholders,
has approved the Merger Agreement (and the transactions contemplated thereby),
and recommends that holders of Company Common Stock vote FOR adoption of the
Merger Agreement.
By Order of the Board of Directors,
/s/ Paula V. Duffy
Paula V. Duffy
Secretary
Torrance, California
June 21, 1996
<PAGE>
[FACING SIDE OF PROXY CARD]
DAVIDSON & ASSOCIATES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
DAVIDSON & ASSOCIATES, INC.
The undersigned hereby appoints Robert M. Davidson and Janice G. Davidson, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and vote, as designated below, all shares of Common
Stock, $.00025 par value, of Davidson & Associates, Inc. (the "Company"), held
of record by the undersigned on June 7, 1996, at the Special Meeting of
Shareholders of the Company (the "Special Meeting") to be held at the
Summerfield Suites, 19901 Prairie Avenue, Torrance California 90503 on
Wednesday, July 24, 1996, at 10:00 a.m., local time, and at any adjournments or
postponements thereof.
1. APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF
FEBRUARY 19, 1996, AMONG THE COMPANY, CUC INTERNATIONAL INC. AND STEALTH
ACQUISITION I CORP.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as properly may be presented at the
Special Meeting or any adjournments or postponements of the Special
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1.
[REVERSE SIDE OF PROXY CARD]
THIS PROXY WILL BE VOTED AS DIRECTED ON THE FRONT SIDE OF THIS PROXY CARD.
WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. In their
discretion, the proxy holders are authorized to vote upon such other business as
may properly come before the meeting or any adjournments or postponements
thereof to the extent authorized by Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as amended.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DAVIDSON &
ASSOCIATES, INC.
.....................................
(Print Shareholder(s) Name)
.....................................
(Signature(s) of Shareholder
or Authorized Signatory)
Dated ........................... ,
1996
Please sign exactly as your
name(s) appears on your
stock certificate. If shares
of stock stand of record in
the names of two or more
persons or in the name of
husband and wife, whether as
joint tenants or otherwise,
both or all of such persons
should sign the proxy. If
shares of stock are held of
record by a corporation, the
proxy should be executed by
the president or vice
president and the secretary
or assistant secretary.
Executors, administrators or
other fiduciaries who
execute the above proxy for
a deceased shareholder
should give their full
title. Please date this
proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING.
<PAGE>
PROXY STATEMENT/PROSPECTUS
[LOGO] [LOGO]
DAVIDSON & ASSOCIATES, INC. CUC INTERNATIONAL, INC.
19840 PIONEER AVENUE 707 SUMMER STREET
TORRANCE, CALIFORNIA 90503 STAMFORD, CONNECTICUT 06901
(310) 793-0600 (203) 324-9261
PROXY STATEMENT RELATING TO
SPECIAL MEETING OF SHAREHOLDERS OF DAVIDSON & ASSOCIATES, INC.
TO BE HELD ON WEDNESDAY, JULY 24, 1996
PROSPECTUS RELATING TO 30,039,606 SHARES OF CUC
INTERNATIONAL COMMON STOCK, $.01 PAR VALUE
THIS PROXY STATEMENT/PROSPECTUS IS BEING FURNISHED TO HOLDERS OF SHARES OF
COMMON STOCK, $.00025 PAR VALUE ("COMPANY COMMON STOCK"), OF DAVIDSON &
ASSOCIATES, INC., A CALIFORNIA CORPORATION ("DAVIDSON" OR THE "COMPANY"), IN
CONNECTION WITH THE SOLICITATION OF PROXIES BY THE COMPANY'S BOARD OF DIRECTORS
FOR USE AT A SPECIAL MEETING OF THE HOLDERS OF COMPANY COMMON STOCK TO BE HELD
AT THE SUMMERFIELD SUITES, 19901 PRAIRIE AVENUE, TORRANCE, CALIFORNIA 90503, ON
WEDNESDAY JULY 24, 1996, CONVENING AT 10:00 A.M., LOCAL TIME, AND AT ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF (THE "MEETING"). AT THE MEETING, HOLDERS
OF RECORD AS OF JUNE 7, 1996 OF COMPANY COMMON STOCK WILL BE REQUESTED TO
CONSIDER AND VOTE UPON THE ADOPTION OF AN AGREEMENT AND PLAN OF MERGER DATED AS
OF FEBRUARY 19, 1996 (THE "MERGER AGREEMENT"), AMONG CUC INTERNATIONAL INC., A
DELAWARE CORPORATION ("CUC INTERNATIONAL"), STEALTH ACQUISITION I CORP., A
CALIFORNIA CORPORATION AND WHOLLY OWNED SUBSIDIARY OF CUC INTERNATIONAL ("MERGER
SUB"), AND THE COMPANY. PURSUANT TO THE MERGER AGREEMENT, (I) MERGER SUB WILL BE
MERGED 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 HEREINAFTER REFERRED TO IN SUCH CONTEXT AS THE "SURVIVING
CORPORATION"), AND (II) EACH SHARE OF COMPANY COMMON STOCK OUTSTANDING
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER (THE "EFFECTIVE TIME")
(OTHER THAN SHARES HELD BY CUC INTERNATIONAL, MERGER SUB OR ANY OTHER SUBSIDIARY
OF CUC INTERNATIONAL OR ANY SUBSIDIARY OF THE COMPANY, OR SHARES TO WHICH
DISSENTERS' RIGHTS ARE GRANTED AND PROPERLY EXERCISED UNDER APPLICABLE
CALIFORNIA LAW) WILL BE CONVERTED INTO .85 OF ONE SHARE OF COMMON STOCK, $.01
PAR VALUE, OF CUC INTERNATIONAL ("CUC INTERNATIONAL COMMON STOCK"), ALL AS MORE
FULLY DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND AS SET FORTH IN THE
MERGER AGREEMENT ATTACHED HERETO AS ANNEX A AND INCORPORATED BY REFERENCE HEREIN
(WHICH SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY). NO FRACTIONAL SHARES OF
CUC INTERNATIONAL COMMON STOCK WILL BE ISSUED IN THE MERGER TO HOLDERS OF
COMPANY COMMON STOCK. SEE "THE MERGER AGREEMENT--CONVERSION OF SHARES; EXCHANGE
OF STOCK CERTIFICATES; NO FRACTIONAL SHARES."
As more fully described in "The Merger-Certain Consequences of the Merger,"
based upon the equity capitalization of the Company and CUC International as
of June 7, 1996, holders of Company Common Stock immediately prior to the
Effective Time will own, in the aggregate, approximately 12% to 14% of the
CUC International Common Stock outstanding immediately after the Effective
Time. See "Information Concerning CUC International - other CUC International
Business Combinations."
SEE "SUMMARY--RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CAREFULLY CONSIDERED BY HOLDERS OF COMPANY COMMON STOCK IN DETERMINING HOW TO
VOTE IN RESPECT OF THE MERGER AGREEMENT.
The Company has the right (but is not required) to terminate the Merger
Agreement and abandon the proposed Merger if the "Average Stock Price" (as
defined in "Summary--Certain Definitions") of CUC International Common Stock is
less than $29.00 (which represents a value to the Company's shareholders of
$24.65 per share of Company Common Stock based on the "Exchange Ratio" (as
defined in "Summary-- Certain Definitions")).
Because the market price of shares of CUC International Common Stock is
inherently subject to fluctuation, the value of the shares of CUC International
Common Stock that holders of shares of Company Common Stock will receive in the
Merger may increase or decrease prior to the Effective Time. The Merger
Agreement does not contain any minimum or maximum price protection provisions
and the Exchange Ratio is not subject to adjustment. The Merger Agreement is
subject to termination by CUC International or the Company if, without fault of
the terminating party, the Merger is not consummated by September 30, 1996, and
is subject to termination prior to such date upon the occurrence of certain
events. See "The Merger Agreement--Termination." Upon termination of the Merger
Agreement under certain circumstances related to a "Third Party Acquisition" (as
defined in "Summary--Certain Definitions"), the Company may be required to pay
CUC International up to an aggregate of $25.0 million in liquidated damages,
together with reimbursement for certain out-of-pocket fees and expenses incurred
by CUC International (including certain professional advisory fees) not to
exceed $2.5 million. See "Summary--Risk Factors--Fixed Exchange Ratio" and "The
Merger Agreement--Termination; Fees and Expenses."
CUC International Common Stock is traded on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "CU" and Company Common Stock is traded on the
NASDAQ Stock Market under the symbol "DAVD." The closing sale prices of CUC
International Common Stock and Company Common Stock were $37.50 and $18.50,
respectively, on February 16, 1996 (the last trading day preceding the public
announcement of the Merger), and were $36.875 and $31.50, respectively, on June
19, 1996 (the latest practicable date preceding the mailing of this Proxy
Statement/Prospectus for which such prices were available). See "The Merger
Agreement--Termination."
(cover page continues)
<PAGE>
(cover page continued)
Pursuant to a certain shareholders agreement dated as of February 19, 1996,
and entered into in connection with the Merger Agreement (the "Shareholders
Agreement"), the holders of approximately 72% of the outstanding Company Common
Stock (which consist of Robert M. Davidson, the Company's Chairman and Chief
Executive Officer, Janice G. Davidson, the Company's President, and certain
trusts for which such persons serve as fiduciaries) have agreed with CUC
International, subject to certain conditions, to vote at the Meeting all shares
held of record or beneficially owned by them for adoption of the Merger
Agreement and against certain other transactions which could impede or delay
consummation of the Merger. Accordingly, assuming that such shareholders will
vote at the Meeting for adoption of the Merger Agreement, such adoption will be
assured irrespective of the votes cast by any other holders of Company Common
Stock. The Shareholders Agreement terminates by its terms upon the earlier to
occur of the termination of the Merger Agreement in accordance with its terms
and the Effective Time, and in any case may be terminated at the election of
such shareholders if the Average Stock Price is less than $29.00. See
"Shareholders Agreement." The Shareholders Agreement is attached to this Proxy
Statement/Prospectus as Annex B and incorporated herein by reference and should
be read carefully and in its entirety.
Effective on February 19, 1996, simultaneously with the execution of the
Merger Agreement, CUC International and 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 being the surviving corporation and a
wholly owned subsidiary of CUC International following such merger (the "Sierra
Merger"). In addition, effective on April 19, 1996, CUC International and IG
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of CUC
International ("IGA"), entered into an Agreement and Plan of Merger (the "Ideon
Merger Agreement") with Ideon Group, Inc., a Delaware corporation ("Ideon"),
providing for the merger of IGA with and into Ideon, with Ideon as the surviving
corporation in such merger (the "Ideon Merger"). THE MERGER, THE SIERRA MERGER
AND THE IDEON MERGER ARE INDEPENDENT TRANSACTIONS AND CONSUMMATION OF NONE OF
SUCH TRANSACTIONS IS CONDITIONED UPON CONSUMMATION OF ANY OF THE OTHER
TRANSACTIONS. IN ADDITION, PURSUANT TO APPLICABLE LAW AND THE COMPANY'S AND CUC
INTERNATIONAL'S RESPECTIVE ARTICLES AND CERTIFICATE 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 SIERRA MERGER OR THE IDEON MERGER. SIMILARLY, NEITHER HOLDERS
OF SIERRA COMMON STOCK NOR HOLDERS OF IDEON COMMON STOCK, AS SUCH, ARE ENTITLED
TO NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER. For additional information
regarding the terms and conditions of the Sierra Merger and the Ideon Merger,
see "Information Concerning CUC International-- Other CUC International Business
Combinations" and "Unaudited Pro Forma Condensed Combined Financial Statements."
This document, in addition to constituting the Company's Proxy Statement
relating to the Meeting, also includes and constitutes the Prospectus of CUC
International filed as part of its Registration Statement on Form S-4 (together
with all amendments thereto, the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the CUC International Common Stock
issuable in the Merger to holders of outstanding shares of Company Common Stock.
All information concerning CUC International contained (or, as permitted by
applicable rules and regulations of the Commission, incorporated by reference
with respect to CUC International) in this Proxy Statement/Prospectus has been
furnished or prepared by CUC International, and all information concerning the
Company contained (or, as permitted by applicable rules and regulations of the
Commission, incorporated by reference with respect to the Company) in this Proxy
Statement/Prospectus has been furnished or prepared by the Company.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to holders of record of Company Common Stock on or about June 24,
1996.
THE SHARES OF CUC INTERNATIONAL COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is June 21, 1996.
(end of cover page)
<PAGE>
AVAILABLE INFORMATION
Each of CUC International, the Company, Sierra and Ideon is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. The periodic reports,
proxy statements and other information filed by CUC International, the Company,
Sierra and Ideon 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 also can be obtained, at prescribed
rates, from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, periodic reports, proxy statements
and other information filed by CUC International and Ideon may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005, and periodic
reports, proxy statements and other information filed by the Company and Sierra
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
issuable in the Merger to holders of Company Common Stock. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted as permitted by
applicable rules and regulations of the Commission. The Registration Statement
and all amendments thereto, including the exhibits filed as a part thereof, are
available for inspection and copying as set forth above.
THIS PROXY STATEMENT/PROSPECTUS, WHICH IS INCLUDED IN AND FORMS AN INTEGRAL
PART OF THE REGISTRATION STATEMENT, INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE 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, 19840 PIONEER AVENUE, TORRANCE, CA 90503, ATTENTION: SECRETARY,
TELEPHONE: (310) 793-0600. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BEFORE JULY 10, 1996.
EXCEPT FOR THE DESCRIPTIONS OF THE SIERRA MERGER AND THE IDEON MERGER, ALL
DISCLOSURES CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING SIERRA AND IDEON ARE DERIVED FROM THE PUBLICLY
AVAILABLE DOCUMENTS REFERRED TO BELOW AND HAVE BEEN INCLUDED OR INCORPORATED BY
REFERENCE HEREIN WITH SIERRA'S AND IDEON'S RESPECTIVE CONSENTS. THE COMPANY AND
CUC INTERNATIONAL HAVE NOT PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS,
NOR 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 SIERRA OR IDEON ARE ACCURATE OR COMPLETE. FURTHERMORE, THERE CAN BE NO
ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE DATE HEREOF (INCLUDING EVENTS
THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF SUCH PUBLICLY AVAILABLE
DOCUMENTS) THAT WOULD AFFECT SIERRA OR IDEON HAVE BEEN PUBLICLY DISCLOSED.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by CUC International (File No.
1-10308), the Company (File No. 0-21280), Sierra (File No. 0-17154) and Ideon
(File No. 1-11465), respectively, with the Commission pursuant to the Exchange
Act are incorporated by reference in this Proxy Statement/Prospectus: (i) CUC
International's Annual Report on Form 10-K for the fiscal year ended January 31,
1996, filed with the Commission on April 26, 1996 (the "CUC 10-K"); (ii) CUC
International's 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"); (iii) CUC
International's Current Reports on Form 8-K, filed with the Commission on April
19, 1996, March 12, 1996, February 22, 1996 and February 21, 1996, respectively;
(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 29, 1996 (the "Company 10-K"); (vi) the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1996, filed with the Commission on
May 15, 1996, as amended by the Company's Form 10-Q/A for the first quarter
ended March 31, 1996, filed with the Commission on June 13, 1996 (the "Company
10-Q"); (vii) the Company's Current Reports on Form 8-K, filed with the
Commission on March 11, 1996 and February 21, 1996, respectively; (viii) the
description of Company Common Stock contained in the Company's registration
statement on Form 8-A, filed with the Commission on February 19, 1993, as
amended on March 31, 1993; (ix) Sierra's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995, filed with the Commission on June 29, 1995;
(x) Sierra's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1995, filed with the Commission on August 17, 1995; (xi) Sierra's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1995, filed with
the Commission on November 15, 1995; (xii) 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 Amendment 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"); (xiii) Sierra's Current Reports
on Form 8-K, filed with the Commission on March 1, 1996 and December 6, 1995,
respectively; (xiv) the description of Sierra Common Stock contained in Sierra's
registration statement on Form 8-A, filed with the Commission on September 15,
1988; (xv) Ideon's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, filed with the Commission on March 20, 1996, as amended by Amendment
No. 1 to Ideon's Annual Report on Form 10-K/A for the fiscal year ended December
31, 1995, filed with the Commission on April 29, 1996, and as further amended by
Amendment No. 2 to Ideon's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1995, filed with the Commission on June 20, 1996 (the "Ideon
10-K"); and (xvi) Ideon's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, filed with the Commission on May 15, 1996, as amended by
Amendment No. 1 to Ideon's Quarterly Report on Form 10-Q/A for the fiscal
quarter ended March 31, 1996, filed with the Commission on June 20, 1996 (the
"Ideon 10-Q").
All documents filed with the Commission by CUC International, the Company,
Sierra and Ideon, respectively, pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date of the
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date any such document is filed.
(ii)
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
hereof. All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
the notes thereto) contained in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding sentence.
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CUC INTERNATIONAL OR THE COMPANY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF CUC INTERNATIONAL OR THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
(iii)
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... ii
SUMMARY............................................................................... 1
SUMMARY--RISK FACTORS
Fixed Exchange Ratio................................................................ 14
Integration of Certain Operations................................................... 15
Reliance Upon Company and Sierra Management......................................... 15
Effect of Antitakeover Provisions of Delaware Law and CUC International's Charter
Documents............................................................................. 16
SUMMARY SELECTED FINANCIAL DATA....................................................... 19
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA......................... 24
COMPARATIVE MARKET PRICE INFORMATION.................................................. 26
INFORMATION CONCERNING CUC INTERNATIONAL.............................................. 29
Description of CUC International's Business......................................... 29
Other CUC International Business Combinations....................................... 30
INFORMATION CONCERNING THE COMPANY.................................................... 36
Description of the Company's Business............................................... 36
Recent Developments................................................................. 38
THE MEETING........................................................................... 38
General............................................................................. 38
Matters to Be Considered at the Meeting............................................. 39
Record Date; Quorum; Voting at the Meeting.......................................... 39
Proxies............................................................................. 40
THE MERGER............................................................................ 41
Background of the Merger............................................................ 41
Reasons for the Merger.............................................................. 47
Recommendation of the Company's Board of Directors.................................. 49
Opinion of the Company's Financial Advisor.......................................... 49
Certain Forward Looking Information................................................. 55
Management of the Company After the Merger.......................................... 57
Conduct of the Business of the Company if the Merger Is Not Consummated............. 58
Interests of Certain Persons in the Merger.......................................... 58
Accounting Treatment................................................................ 62
Certain Federal Income Tax Consequences............................................. 62
Regulatory Approvals................................................................ 64
Federal Securities Law Consequences................................................. 64
Stock Exchange Listing.............................................................. 65
Rights of Dissenting Shareholders................................................... 65
No CUC International Appraisal Rights............................................... 67
THE MERGER AGREEMENT.................................................................. 68
The Merger.......................................................................... 68
Effective Time...................................................................... 68
Conversion of Shares; Exchange of Stock Certificates; No Fractional Shares.......... 68
Treatment of Stock Options.......................................................... 69
Representations and Warranties...................................................... 70
Certain Covenants................................................................... 70
Conditions.......................................................................... 75
</TABLE>
(iv)
<PAGE>
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Termination......................................................................... 76
Fees and Expenses................................................................... 77
Assignment and Assumption........................................................... 79
Modification or Amendment........................................................... 79
Waiver.............................................................................. 79
SHAREHOLDERS AGREEMENT................................................................ 80
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........................... 81
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................ 89
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 90
Authorized Capital Stock............................................................ 90
Size of the Board of Directors...................................................... 90
Classified Board of Directors....................................................... 91
Cumulative Voting................................................................... 91
Removal of Directors................................................................ 91
Indemnification of Directors and Officers........................................... 92
Amendments to the Charter........................................................... 92
Amendment of By-Laws................................................................ 93
Quorum.............................................................................. 93
Loans to Officers and Employees..................................................... 93
Power to Call Special Shareholders' Meeting; Action by Consent...................... 94
Inspection of Shareholders' List.................................................... 94
Dividends and Repurchases of Shares................................................. 94
Approval of Certain Corporate Transactions.......................................... 95
Business Combination Following a Change of Control.................................. 95
Appraisal Rights.................................................................... 95
Dissolution......................................................................... 96
SHAREHOLDER PROPOSALS................................................................. 96
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 97
PRINCIPAL HOLDERS OF CUC INTERNATIONAL COMMON STOCK................................... 98
LEGAL MATTERS......................................................................... 99
EXPERTS............................................................................... 99
OTHER MATTERS......................................................................... 100
</TABLE>
ANNEXES
<TABLE>
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Annex A Agreement and Plan of Merger dated as of February 19, 1996, among CUC
International Inc., Stealth Acquisition I Corp. and the Company............ A-1
Annex B Shareholders Agreement dated as of February 19, 1996, among CUC
International Inc. and each of the holders of Company Common Stock party
thereto.................................................................... B-1
Annex C Opinion of Smith Barney Inc................................................ C-1
Annex D Sections 1300 through 1312 of the California General Corporation Law....... D-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 ALSO
"--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 COMPANY COMMON STOCK, EFFECTED IN
DECEMBER 1992 AND ON AUGUST 23, 1995; AND (C) HAVE BEEN ADJUSTED FOR AND GIVE
EFFECT TO THE 2:1 SPLIT OF THE SIERRA COMMON STOCK EFFECTED ON MARCH 3, 1995;
(D) ASSUME THAT (I) OUTSTANDING OPTIONS TO PURCHASE SHARES OF COMPANY COMMON
STOCK WILL NOT BE EXERCISED PRIOR TO THE EFFECTIVE TIME, (II) OUTSTANDING
OPTIONS TO PURCHASE SHARES OF CUC INTERNATIONAL COMMON STOCK WILL NOT BE
EXERCISED PRIOR TO THE EFFECTIVE TIME, (III) OUTSTANDING OPTIONS TO PURCHASE
SHARES OF IDEON COMMON STOCK (OTHER THAN OPTIONS HELD BY IDEON'S DIRECTORS
WHICH, PURSUANT TO THE IDEON MERGER AGREEMENT, WILL BE CONVERTED AT THE IDEON
EFFECTIVE TIME INTO THE RIGHT TO RECEIVE SHARES OF CUC INTERNATIONAL COMMON
STOCK) WILL NOT BE EXERCISED PRIOR TO THE IDEON EFFECTIVE TIME, (IV) 0.4943
SHARES OF CUC INTERNATIONAL COMMON STOCK WILL BE ISSUED IN THE IDEON MERGER FOR
EACH SHARE OF IDEON COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE IDEON
EFFECTIVE TIME (I.E., THE MID-POINT OF THE RANGE OF THE NUMBER OF SHARES OF CUC
INTERNATIONAL COMMON STOCK TO BE ISSUED IN THE IDEON MERGER TO HOLDERS OF IDEON
COMMON STOCK PURSUANT TO THE "COLLAR" PROVIDED IN THE IDEON MERGER AGREEMENT)
AND FURTHER ASSUMES THAT THE VALUE OF THE SHARES OF CUC INTERNATIONAL COMMON
STOCK ISSUED IN THE IDEON MERGER IN RESPECT OF EACH SHARE OF IDEON COMMON STOCK
WILL BE $13.50; (V) THE SIERRA MERGER WILL BE CONSUMMATED SUBSTANTIALLY
SIMULTANEOUSLY WITH THE CONSUMMATION OF THE MERGER, (VI) OUTSTANDING OPTIONS TO
PURCHASE SHARES OF SIERRA COMMON STOCK WILL NOT BE EXERCISED PRIOR TO THE SIERRA
EFFECTIVE TIME, (VII) NO DISSENTER'S RIGHTS WILL BE EXERCISED IN RESPECT OF THE
MERGER, AND (VIII) THE SIERRA CONVERTIBLE NOTES WILL NOT BE CONVERTED INTO
SHARES OF SIERRA COMMON STOCK PRIOR TO THE SIERRA EFFECTIVE TIME.
THE MERGER, THE SIERRA MERGER AND THE IDEON MERGER ARE INDEPENDENT
TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED UPON
CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO
APPLICABLE LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S RESPECTIVE ARTICLES AND
CERTIFICATE OF INCORPORATION AND BY-LAWS CURRENTLY IN EFFECT, NEITHER HOLDERS OF
COMPANY COMMON STOCK NOR HOLDERS OF CUC INTERNATIONAL COMMON STOCK, AS SUCH, ARE
ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE SIERRA MERGER OR THE IDEON
MERGER. SIMILARLY, NEITHER HOLDERS OF SIERRA COMMON STOCK NOR HOLDERS OF IDEON
COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE
MERGER.
<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
</TABLE>
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<TABLE>
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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.
DAVIDSON &
ASSOCIATES, INC............ The Company develops, publishes, manufactures and
distributes high-quality educational and entertainment
software products for home and school use. The Company's
products are designed to be easy and fun to use and
incorporate characters, themes, sound, graphics, music and
speech in ways that the Company believes are engaging to
the user. The Company'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. The Company also develops entertainment software
through its Blizzard Entertainment division and recently
acquired Condor division (which has been renamed Blizzard
North) which is targeted to users in the age category of
young adult and older. In addition to its internally
produced software products, the Company enters into
arrangements with affiliated label software developers to
publish and distribute home and/or school versions of
their products. The Company has developed and currently
publishes 102 titles and in addition distributes 51
affiliated label titles. For a more detailed description
of the business and properties of the Company, see the
descriptions thereof set forth in the Company 10-K, which
is incorporated herein by reference. The Company's
executive offices are located at 19840 Pioneer Avenue,
Torrance, California 90503, and its telephone number is
(310) 793-0600.
SPECIAL MEETING OF SHAREHOLDERS
TIME, DATE AND PLACE......... The Meeting will be held at 10:00 a.m., local time, on
Wednesday, July 24, 1996, at the Summerfield Suites, 19901
Prairie Avenue, Torrance, California 90503.
PURPOSE OF THE MEETING....... The purpose of the Meeting is to consider and vote upon (i)
a proposal to adopt the Merger Agreement and (ii) such other
business as properly may be presented at the Meeting or
any adjournments or postponements thereof.
</TABLE>
2
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RECORD DATE, SHARES ENTITLED
TO VOTE; QUORUM.............. Only holders of record of shares of Company Common Stock at
the close of business on June 7, 1996 (the "Record Date")
are entitled to notice of and to vote at the Meeting. As
of the Record Date, there were 35,340,713 shares of
Company Common Stock outstanding, each of which is
entitled to one vote in respect of the proposal to adopt
the Merger Agreement and the other matters, if any,
properly submitted for the vote of such holders. As of the
Record Date, the directors and executive officers of the
Company held in the aggregate approximately 73% of the
outstanding Company Common Stock.
VOTE REQUIRED; SHAREHOLDERS
AGREEMENT.................. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Company Common Stock
entitled to vote at the Meeting is necessary to constitute
a quorum at the Meeting, and the affirmative vote of the
holders of a majority of the outstanding shares of Company
Common Stock is necessary to approve the Merger.
Accordingly, abstentions, failures to vote and broker
non-votes will have the practical effect of voting against
adoption of the Merger Agreement. Shares of Company Common
Stock represented by properly executed proxies received at
or prior to the Meeting that have not been revoked will be
voted at the Meeting in accordance with the instructions
contained therein. Shares of Company Common Stock
represented by properly executed proxies for which no
instruction is provided will be voted for adoption of the
Merger Agreement. 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.
Pursuant to the Shareholders Agreement, the holders of
approximately 72% of the outstanding Company Common Stock
(which consist of Robert M. Davidson, the Company's
Chairman and Chief Executive Officer, and Janice G.
Davidson, the Company's President, respectively, and
certain trusts for which such persons serve as
fiduciaries) have agreed, subject to certain conditions,
to vote all shares held of record or beneficially owned by
them for adoption of the Merger Agreement and against
certain other transactions which could impede or delay
consummation of the Merger. Accordingly, assuming that
such shareholders will vote at the Meeting for adoption of
the Merger Agreement, such adoption will be assured
irrespective of the votes cast by any other holders of
Company Common Stock.
The Shareholders Agreement terminates by its terms upon the
earlier to occur of the termination of the Merger
Agreement in accordance with its terms and the Effective
Time, and in any case may be terminated at the election of
such shareholders if the Average Stock Price is less than
$29.00 (which represents a value to the Company's
shareholders of $24.65 per share of Company Common Stock
based on the Exchange Ratio). The full text of the
Shareholders Agreement is attached hereto as Annex B and
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3
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<TABLE>
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incorporated herein by reference, and should be read
carefully and in its entirety. See "Shareholders
Agreement."
THE MERGER
EFFECTS OF THE MERGER; MERGER
CONSIDERATION; NO
FRACTIONAL SHARES.......... In the Merger: (i) Merger Sub will be merged with and into
the Company and the Company, as the surviving corporation in
the Merger, will become a wholly owned subsidiary of CUC
International; (ii) each share of Company Common Stock
outstanding immediately prior to the Effective Time (other
than shares held by CUC International, Merger Sub or any
other subsidiary of CUC International or any subsidiary of
the Company, or shares to which dissenters' rights are
granted and properly exercised under applicable California
law) will be converted into .85 of one fully paid and
non-assessable share of CUC International Common Stock;
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 and cash
payable in lieu of fractional share interests in
accordance with the Merger Agreement.
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 Sierra Merger and the Ideon Merger at or prior to the
Effective Time), the total number of shares of CUC
International Common Stock outstanding immediately
following the Effective Time will be 260,974,003, and the
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
12% 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
Ideon Merger is not), the total number of shares of CUC
International Common Stock outstanding immediately
following the Effective Time will be 247,141,925 and such
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
12% of the CUC International Common Stock outstanding
immediately after the Effective Time. If the Ideon Merger
is consummated at or prior to the Effective Time (but the
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
13% of the CUC International Common Stock outstanding
immediately after the Effective Time. If neither the
Sierra Merger nor the Ideon Merger is consummated at or
prior to the Effective Time, the total number of shares of
CUC International Common Stock outstanding immediately
following the Effective Time will be 221,576,948 and such
shareholders of the Company immediately prior to the
Effective Time will own, in the aggregate, approximately
14% of the CUC International Common Stock
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outstanding immediately after the Effective Time. See "The
Merger--Certain Consequences of the Merger."
TREATMENT OF OPTIONS......... At the Effective Time, each outstanding option to purchase
shares of Company Common Stock will be cancelled and, in
lieu thereof, CUC International will issue to each holder
of such outstanding Company option a substitute option,
which does not qualify under Section 422 of the Code, to
acquire on substantially the same terms and subject to
substantially the same conditions as were applicable under
the cancelled option, the same number of shares of CUC
International Common Stock as the holder of each such
Company option would have been entitled to receive in the
Merger had such holder exercised such cancelled option in
full immediately prior to the Effective Time. As of the
Record Date, the directors and executive officers owned
outstanding options to purchase up to 659,400 shares of
Company Common Stock, of which 138,600 currently are
exercisable. See "The Merger Agreement--Treatment of Stock
Options."
EXCHANGE OF CERTIFICATES..... After the Effective Time, holders of record of Company
Common Stock at the Effective Time will receive from The
Bank of Boston, as exchange agent (the "Exchange Agent")
or another bank or trust company designated by CUC
International and reasonably acceptable to the Company,
for the benefit of the holders of Company Common Stock,
instructions and letters of transmittal for exchanging
certificates evidencing shares of Company Common Stock for
the number of shares of CUC International Common Stock
that they are entitled to receive in the Merger based on
the Exchange Ratio. Holders of Company Common Stock should
not surrender their certificates until they receive such
instructions and letters of transmittal after the
Effective Time. See "The Merger Agreement--Conversion of
Shares; Exchange of Stock Certificates; No Fractional
Shares."
In the event that a certificate evidencing shares of Company
Common Stock has been lost, stolen, destroyed or is not
properly registered, the holder thereof is urged in order
to avoid delays and additional expense to notify the
Company's registrar and transfer agent, Wells Fargo Bank,
N.A., Stock Transfer, 707 Wilshire Boulevard, W11-2, Los
Angeles, California 90017, (213) 614-2362, of such fact to
arrange for the issuance of replacement certificates.
REASONS FOR THE MERGER....... CUC INTERNATIONAL. CUC International's Board of Directors
believes that the Merger will (i) enable CUC International
to take advantage of the rapidly expanding personal
computer ("PC") and interactive access information
technology markets and better position the Company to
diversify its services by engaging in the development of
educational and entertainment products for the global PC
and Internet markets, (ii) continue CUC International's
history of providing goods and services to consumers in
both traditional and on-line and interactive ways; and
(iii) enable CUC International to broaden its interactive
content offerings.
THE COMPANY. Among other factors, the Board of Directors of
the Company believes that: (i) the Merger would provide
the Company's shareholders with CUC International Common
Stock
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in a tax-free exchange at a premium over the market price
for shares of Company Common Stock prevailing prior to the
public announcement of the Merger; (ii) the Merger would
create a combined company with significantly greater
resources and financial stability, a more diversified
business base and greater and more diverse sales and
marketing capabilities than those of the Company alone,
and may enable the combined company to compete more
effectively with competitors having greater resources than
the Company; (iii) the Merger should afford the Company's
shareholders the opportunity to continue to participate in
the long-term growth and appreciation of the Company's
business through their continued ownership interest in CUC
International; (iv) the substantially larger public float
and trading volume of shares of CUC International Common
Stock compared to the public float and trading volume of
Company Common Stock should provide the Company's
shareholders with greater liquidity in their investment
and, based solely on historical trading prices of CUC
International Common Stock, could provide the Company's
shareholders with securities that have less price
volatility than Company Common Stock; and (v) CUC
International's substantial domestic and international
direct sales capabilities should provide an expanded
opportunity for direct distribution of the Company's
products both within the United States and in
international markets. See "The Merger--Reasons for the
Merger."
OWNERSHIP OF COMPANY COMMON
STOCK BY MANAGEMENT AND
CERTAIN OTHER PERSONS...... As of the Record Date, the executive officers and directors
of the Company (13 as a group) owned approximately 73% 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 Management."
OPINION OF THE COMPANY'S
FINANCIAL ADVISOR............ Smith Barney Inc. ("Smith Barney") has acted as financial
advisor to the Company in connection with the Merger and
delivered an oral opinion to the Company's Board of
Directors on February 19, 1996 (subsequently confirmed by
delivery of a written opinion dated such date) to the
effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the
Exchange Ratio was fair, from a financial point of view,
to the holders of Company Common Stock. The full text of
the written opinion of Smith Barney dated February 19,
1996, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is
attached as Annex C to this Proxy Statement/Prospectus and
should be read carefully and in its entirety. Smith
Barney's opinion is directed only to the fairness of the
Exchange Ratio to the holders of Company Common Stock from
a financial point of view, does not address any other
aspect of the Merger or related transactions and does not
constitute a recommendation to any shareholder as to how
such shareholder
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should vote at the Meeting. See "The Merger--Opinion of
the Company's Financial Advisor."
RECOMMENDATION OF THE
BOARD OF DIRECTORS OF THE
COMPANY.................... The Board of Directors of the Company has determined that
the Merger is fair to and in the best interests of the
Company and its shareholders, has approved the Merger
Agreement (and the transactions contemplated thereby), and
recommends adoption of the Merger Agreement by the holders
of Company Common Stock. The foregoing recommendation is
based upon a variety of factors discussed in "The
Merger-Reasons for the Merger" and "--Recommendation of
the Company's Board of Directors."
MANAGEMENT OF THE COMPANY AND
CUC INTERNATIONAL AFTER THE
MERGER..................... CUC International has indicated that it has no present
intention of replacing after the Effective Time any of the
executive officers of the Company, and, in connection with
the Merger, CUC International will enter into employment
agreements with each of Mr. Davidson and Mrs. Davidson
(the "Davidsons"), pursuant to which they will continue to
serve as Chief Executive Officer and President,
respectively, of the Company after the Effective Time. Mr.
Davidson's employment agreement also provides that he will
serve as the Chairman and Chief Executive Officer of CUC
International's educational and entertainment software
division (including CUC Software Services, Inc.) and that
Mr. Davidson will be responsible for overall management of
the Company and CUC International's educational and
entertainment software division. CUC International has
agreed, effective upon consummation of the Merger, to
increase the size of CUC International's board of
directors (the "CUC International Board") by two directors
and to cause Mr. Davidson and Mrs. Davidson to be
appointed to the CUC International Board to fill the
vacancies so created, for initial terms expiring two years
and one year, respectively, following the date of CUC
International's first annual meeting of shareholders
following February 19, 1996 and has agreed to cause Mr.
Davidson to be elected as a Vice Chairman of the CUC
International Board. See "The Merger--Management of the
Company After the Merger" and "The Merger--Interests of
Certain Persons in the Merger."
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. See "The
Merger--Interests of Certain Persons in the Merger--Stock
Options; Employment and Noncompetition Agreements;
Directorships; Registration Rights Agreement; and Real
Property Purchase Agreement."
CONDITIONS TO THE MERGER;
TERMINATION OF THE MERGER
AGREEMENT.................. The obligations of CUC International and the Company to
consummate the Merger are subject to the satisfaction of
certain conditions, including, among others, the accuracy,
in all material
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respects, of the representations and warranties and the
performance, in all material respects, of the covenants
and obligations of the respective parties to the Merger
Agreement; adoption of the Merger Agreement by the
requisite vote of the holders of Company Common Stock;
there not having occurred any events, changes or effects
having or reasonably expected to have a Material Adverse
Effect on CUC International or the Company, as the case
may be; no statute, rule, regulation, executive order,
decree, ruling or injunction having been enacted, entered,
promulgated or enforced by any United States court or
United States governmental authority which prohibits,
restrains, enjoins or restricts consummation of the
Merger; the Registration Statement (of which this Proxy
Statement/Prospectus is a part) having become effective
under the Securities Act and not being the subject of any
stop order or proceedings seeking such an order, and CUC
International having received all state securities laws or
"blue sky" permits and authorizations necessary to issue
in the Merger the shares of CUC International Common Stock
in exchange for the shares of Company Common Stock; CUC
International having received a letter from its
independent auditors, Ernst & Young LLP, to the effect
that pooling-of-interests accounting (under Accounting
Principles Board Opinion No. 16) is appropriate for the
Merger, provided that the Merger is consummated in
accordance with the terms of the Merger Agreement, and
such letter not having been withdrawn or modified in any
material respect; the receipt of all requisite consents,
approvals and authorizations of non-governmental third
parties; the receipt by the Company of an opinion from
Gibson, Dunn & Crutcher, tax counsel to the Company, as to
certain tax matters; and the aggregate number of
dissenting shares, if any, as of the Effective Time not
exceeding 5% of the then outstanding shares of Company
Common Stock. See "The Merger Agreement--Conditions."
The Company has the right (but is not required) to terminate
the Merger Agreement if the Company's Board of Directors
by a majority vote determines in its good faith judgment,
after consultation with independent legal counsel, that it
is necessary to do so to comply with its fiduciary duties
to shareholders, provided that such termination would not
be effective unless at the time of such determination the
Company has received a bona fide proposal to effect a
Third Party Acquisition that had not been withdrawn as of
the time of such termination and until payment of the
termination fee described under "The Merger
Agreement--Termination."
The Company also has the right (but is not required) to
terminate the Merger Agreement and abandon the Merger if
the Average Stock Price of CUC International Common Stock
is less than $29.00 (which represents a value to the
Company's shareholders of $24.65 per share of Company
Common Stock based on the Exchange Ratio). The Merger
Agreement also is subject to termination by CUC
International or the Company if, without fault of the
terminating party, the Merger is not consummated by
September 30, 1996 and prior to such time upon the
occurrence of certain events. See "The Merger
Agreement--Termination."
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Consummation of the Merger also is subject to the
satisfaction of certain regulatory matters, including
termination or expiration of the relevant waiting period
under the "HSR Act" (as defined below). CUC International
and the Company filed pre-merger notification and report
forms under the HSR Act with the "FTC" (as defined below)
and the "Antitrust Division" (as defined below),
respectively, on April 26, 1996. Early termination of the
waiting period under the HSR Act was granted by the FTC on
May 7, 1996 without any requests for additional
documentation or other information. See "The
Merger--Regulatory Approvals."
The Merger Agreement provides that, at any time prior to the
Effective Time, CUC International and Merger Sub, or the
Company, as the case may be, may waive (i) any
inaccuracies in the representations and warranties of the
other party contained in the Merger Agreement or in any
document, certificate or writing delivered pursuant to the
Merger Agreement and (ii) compliance by the other party
with any of the agreements or conditions contained in the
Merger Agreement.
TERMINATION FEE.............. Subject to certain conditions and exceptions described in
"The Merger Agreement--Fees and Expenses," upon termination
of the Merger Agreement under certain circumstances, the
Company may be required to pay CUC International $25.0
million as liquidated damages, together with reimbursement
for certain out-of-pocket fees and expenses incurred by
CUC International (including certain professional advisory
fees) not to exceed $2.5 million. See "The Merger
Agreement--Fees and Expenses."
RIGHTS OF DISSENTING
SHAREHOLDERS............... Holders of Company Common Stock are generally entitled to
dissenters' rights with respect to the Merger under the
"CGCL" (as defined below), if, and only if, the holders of
5% or more of the outstanding Company Common Stock elect
to exercise dissenters' rights in respect of their shares.
If the Merger is approved by the affirmative vote of the
holders of a majority of the outstanding Company Common
Stock and is not terminated in accordance with the Merger
Agreement (including termination at the election of CUC
International if the aggregate number of dissenting shares
in respect of the Merger exceeds 5%), the Company's
shareholders who vote against the Merger and who have
fully complied with all applicable provisions of the CGCL
and whose shares constitute Company Dissenting Shares (as
defined below) will have the right to require the Company
to purchase their shares of Company Common Stock held by
them for cash at the fair market value thereof as of the
date preceding the public announcement of the Merger,
excluding any appreciation or depreciation resulting from
the Merger but adjusted for any stock split, reverse stock
split or share dividend which becomes effective
thereafter. Under the CGCL, no shareholder of the Company
who is entitled to exercise dissenters' rights has any
right at law or in equity to contest the validity of the
Merger or to have the Merger set aside or rescinded,
except in an action to test whether the number of shares
required to
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authorize or approve the Merger had legally been voted in
favor of the Merger. For a more detailed description of
the procedures applicable to the exercise of dissenters'
rights, see "The Merger-- Rights of Dissenting
Shareholders." The full text of the pertinent statutory
provisions of the CGCL relating to the proper exercise of
such dissenters' rights is attached hereto as Annex D and
should be read carefully and in its entirety.
Holders of CUC International Common Stock are not entitled
to appraisal rights under the Delaware General Corporation
Law (the "DGCL") because CUC International is not a
constituent corporation to the Merger under the DGCL.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............... Gibson, Dunn & Crutcher LLP, counsel to the Company, has
delivered to the Company's Board of Directors its opinion
dated June 21, 1996, that the Merger will qualify as a tax
free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the
"Code"). See "The Merger--Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT......... The Merger is intended to qualify as a pooling-of-interests
for accounting and financial reporting purposes. It is a
condition to consummation of the Merger that CUC
International shall have received a letter from its
independent auditors, Ernst & Young LLP, to the effect
that pooling-of-interests accounting (under Accounting
Principles Board Opinion No. 16) is appropriate for the
Merger, provided that the Merger is consummated in
accordance with the terms of the Merger Agreement, and
such letter shall not have been withdrawn or modified in
any material respect. The Company has agreed to use
commercially reasonable efforts to cause its independent
auditors, KPMG Peat Marwick LLP, to cooperate fully
(including, without limitation, delivering to the Company
a letter substantially similar to the letter delivered by
Ernst & Young LLP to CUC International) with Ernst & Young
LLP in connection with the delivery to CUC International
of such letter. See "The Merger--Accounting Treatment."
COMPARISON OF COMMON
SHAREHOLDERS RIGHTS........ Upon consummation of the Merger, among other things, holders
of Company Common Stock will become shareholders of CUC
International. CUC International is a Delaware corporation
and the Company is a California corporation; accordingly,
there may be material differences between the rights of
holders of shares of CUC International Common Stock and
holders of shares of Company Common Stock under Delaware
and California law in addition to certain distinctions
between the respective Certificate and Articles of
Incorporation and By-laws of CUC International and the
Company. See "Comparison of Shareholders' Rights" for a
summary of such differences.
OTHER CUC INTERNATIONAL
BUSINESS COMBINATIONS...... THE SIERRA MERGER. Effective on February 19, 1996, CUC
International entered into the Sierra Merger Agreement
providing for the Sierra Merger. Pursuant to the Sierra
Merger
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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 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. 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. Consummation of the Merger
is not conditioned upon consummation of the Sierra Merger
and consummation of the Sierra Merger is not conditioned
upon consummation of the Merger. Although there can be no
assurance that the meetings will occur simultaneously, it
is intended by each of the Company, CUC International and
Sierra that the Meeting and the meeting of Sierra's
shareholders relating to the Sierra Merger will be
convened substantially simultaneously.
Simultaneously with 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) have agreed to vote their shares for
adoption of the Sierra Merger Agreement at the special
meeting of Sierra's shareholders presently scheduled to be
held on or about July 24, 1996. In addition, in connection
with the Sierra Merger (if consummated), CUC International
has agreed that effective at the Sierra Effective Time,
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 and serve as a
Vice Chairman of such Board. Pursuant to the Merger
Agreement, the Company has agreed, subject to certain
exceptions, to cooperate with all reasonable requests of
CUC International to coordinate the timing of the Meeting
and the meeting of the holders of Sierra Common Stock. 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 which are substantially similar to, but
independent from, the conditions to consummation of the
Merger. Sierra has the right (but is not required) to
terminate the Sierra Merger Agreement and abandon the
Merger if, among other things, the average stock price of
the CUC International Common Stock is less than $29.00
(calculated substantially in accordance with the
calculation of the Average Stock Price under the Merger
Agreement).
Sierra has the right (but is not required) to terminate the
Sierra Merger Agreement if Sierra's board of directors by
a majority vote determines in its good faith judgment,
after consultation with
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independent legal counsel, that it is necessary to do so
to comply with its fiduciary duties to shareholders,
provided that such termination would not be effective
unless at the time of such determination Sierra has
received a bona fide proposal to effect a third party
acquisition (defined substantially similarly to a Third
Party Acquisition) that is a "Superior Proposal" that has
not been withdrawn as of the time of such termination and
until payment of a termination fee described in "The
Merger--the Sierra Merger." "Superior Proposal" means any
bona fide proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more
than 50% of the shares of Sierra Common Stock then
outstanding or all or substantially all of the assets of
Sierra and otherwise on terms which the Sierra board of
directors determines in its good faith judgment (based on
the advice of a financial advisor of nationally recognized
reputation) to be more favorable to Sierra's shareholders
than the Sierra Merger.
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.
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 (ended March 31, 1996) and acquired an
additional 18 titles in the entertainment, education,
simulation and personal productivity categories. For
additional information concerning the Sierra Merger, see
"Information Concerning CUC International--Sierra Merger"
and "Unaudited Pro Forma Condensed Combined Financial
Statements."
THE IDEON MERGER. Effective on April 19, 1996, CUC
International entered into the Ideon Merger Agreement
providing for the Ideon
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Merger. Pursuant to the Ideon Merger Agreement, each share
of Ideon Common Stock outstanding immediately prior to the
Ideon Effective Time (other than shares held by Ideon as
treasury stock or by any subsidiary of Ideon or owned by
CUC International, IGA or any other subsidiary of CUC
International) will, by virtue of the Ideon Merger, be
converted into the right to receive that number of shares
of CUC International Common Stock (the "Ideon Conversion
Number") equal to the quotient obtained by dividing: (x)
$13.50 by (y) the average stock price of CUC International
Common Stock measured over a prescribed period ending on
the second calendar day immediately preceding the meeting
of Ideon's shareholders to approve the Ideon Merger (the
"Ideon Merger Average Stock Price"); provided that if the
Ideon Merger Average Stock Price is $22.00 or less the
Ideon Conversion Number will be 0.6136, and if the Ideon
Merger Average Stock Price is $36.00 or more the Ideon
Conversion Number will be 0.3750. Consummation of the
Ideon Merger, which is intended to qualify as a
reorganization within the meaning of Section 368(a) of the
Code and as a pooling-of-interests for accounting and
financial reporting purposes, is subject to the
satisfaction of certain conditions which are independent
from the conditions to consummation of the Merger and the
Sierra Merger.
According to the Ideon 10-K, Ideon is a holding company with
three principal business units: SafeCard Services,
Incorporated ("SafeCard"), Wright Express Corporation
("Wright Express") and National Leisure Group, Inc.
("National Leisure Group"). SafeCard, Ideon's largest
operating subsidiary, is a leader in providing credit card
enhancement and continuity products and services, serves
over 160 credit card issuers, has approximately 13 million
subscribers and during 1995, contributed approximately 80%
of Ideon's consolidated revenue. SafeCard is based in
Jacksonville, Florida and has an operational facility
located in Cheyenne, Wyoming. Wright Express, based in
South Portland, Maine, is the leading provider of
information processing, financial and information
management services to commercial car, van and truck
fleets throughout the United States. In addition to the
Wright Express Universal Fleet Card, now accepted at over
90,000 fueling locations, Wright Express provides label
fleet commercial credit card programs to 15 of the
nation's oil companies, and co-branded fleet fueling cards
with 15 of the top vehicle leasing companies. National
Leisure Group, acquired by Ideon effective January 1, 1995
and based in Boston, Massachussetts, is a major provider
of vacation travel packages and cruises directly to the
consumer in association with established retailers and
warehouse clubs in New England and with credit card
issuers and travel club members nationwide. Ideon's
principal executive offices are located at 7596 Centurion
Parkway, Jacksonville, Florida 32256, and its telephone
number at such offices is (904) 218-1800.
THE MERGER, THE SIERRA MERGER AND THE IDEON MERGER ARE
INDEPENDENT TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH
TRANSACTIONS IS CONDITIONED UPON CONSUMMATION OF ANY OF
THE
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OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO APPLICABLE
LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S RESPECTIVE
ARTICLES AND CERTIFICATE 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 SIERRA
MERGER OR THE IDEON MERGER. SIMILARLY, NEITHER HOLDERS OF
SIERRA COMMON STOCK NOR HOLDERS OF IDEON COMMON STOCK, AS
SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF
THE MERGER.
For additional information concerning the Sierra Merger and
the Ideon Merger, see "Information Concerning CUC
International--Other CUC International Business
Combinations;" and "Unaudited Pro Forma Condensed Combined
Financial Statements."
RISK FACTORS
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In determining how to vote shares of Company Common Stock at the Meeting,
holders of such shares should carefully consider all of the information
contained in this Proxy Statement/Prospectus and, in particular, the factors
discussed below:
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FIXED EXCHANGE RATIO......... Under the terms of the Merger Agreement, each share of
Company Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into the
right to receive .85 of a share of CUC International
Common Stock. The Merger Agreement does not contain any
provisions for adjustment of the Exchange Ratio based on
fluctuations in the price of CUC International Common
Stock. Accordingly, the value of the consideration to be
received by shareholders of the Company upon consummation
of the Merger will depend on the market price of CUC
International Common Stock at the Effective Time. CUC
International Common Stock has historically traded at a
high multiple of price to earnings, and any decline in
future earnings growth could have a material adverse
effect on the trading price of CUC International Common
Stock. Following the Merger, the trading price of CUC
International Common Stock could be subject, among other
things, to fluctuations in response to competitive factors
in the software industry, quarterly variations in
operating and financial results of the Company and/or
Sierra, if the Sierra Merger is consummated, and
announcements of technological innovations or new products
by the Company, Sierra and/or third party competitors.
Statements by financial or industry analysts regarding the
Merger, the Sierra Merger or the Ideon Merger (whether or
not substantiated) also may contribute to fluctuations in
the market price of CUC International Common Stock. On
February 16, 1996, the last trading day prior to the
public announcement of the proposed Merger, the closing
sale price of CUC International Common Stock was $37.50,
and the closing sale price of CUC International Common
Stock was $36.875 on June 19, 1996 (the latest practicable
date preceding the mailing of this Proxy
Statement/Prospectus for which such price information was
available). There can be no assurance that the market
price of CUC International Common Stock at and after the
Effective Time will approximate such prices. Although the
Company has the right (but is not required) to terminate
the Merger Agreement if the Average Stock Price is less
than $29.00 (which represents a value to the Company's
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shareholders of $24.65 per share of Company Common Stock
based on the Exchange Ratio), the Company may nonetheless
elect to consummate the Merger notwithstanding a decrease
in the trading price of CUC International Common Stock
that otherwise would entitle it to terminate the Merger
Agreement.
INTEGRATION OF CERTAIN
OPERATIONS................. The Board of Directors of CUC International believes that
the business combination with the Company will (i) enable
CUC International to take advantage of the rapidly
expanding PC and interactive access information technology
markets and better position the Company to diversify its
services by engaging in the development of educational and
entertainment products for the global PC and Internet
markets, (ii) continue CUC International's history of
providing goods and services to consumers in both
traditional on-line and interactive ways; and (iii) enable
CUC International to broaden its interactive content
offerings. The Company and CUC International also intend
that the Merger will result in beneficial synergies with
respect to the combination of the businesses of the
Company and Sierra, if the Sierra Merger is consummated.
Realization of the anticipated benefits of the Merger will
depend, in part, upon whether the integration of the
Company's business with CUC International and with Sierra,
if the Sierra Merger is consummated, is achieved in an
efficient and effective manner, and there can be no
assurance that this will occur.
RELIANCE UPON COMPANY AND
SIERRA MANAGEMENT.......... CUC International has no prior history in managing
multimedia software development, software publication or
distribution businesses, and CUC International will be
dependent, in part, upon the management and creative
personnel of the Company and Sierra, if the Sierra Merger
is consummated, to operate the software businesses of the
Company and Sierra. Although the Chief Executive Officer
and President of the Company and certain executive
officers of Sierra, if the Sierra Merger is consummated,
will enter into employment agreements with CUC
International, there can be no assurance that other
management and creative personnel will remain in the
employ of CUC International following the Merger and/or
the Sierra Merger or that such employment agreements will
be renewed. The potential loss of and failure to replace
key management or creative personnel from either the
Company or Sierra could have an adverse impact on the
results of operations of CUC International's entertainment
and educational software business. The competition for
qualified personnel in the software industry is intense,
and the Company believes that one of the reasons it has
been able to attract and retain qualified management and
creative personnel is because its employees perceive an
opportunity to participate in the growth of the Company
through their
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
ownership of Company Common Stock and/or stock options. To
the extent that employees of the Company believe that
equity ownership incentives provided by CUC International
are less favorable than those received at the Company
prior to the Merger or those offered by competing software
companies, there is a risk that CUC International may lose
valuable management and creative personnel.
EFFECT OF ANTITAKEOVER
PROVISIONS OF DELAWARE LAW
AND CUC INTERNATIONAL'S
CHARTER DOCUMENTS.......... Upon consummation of the Merger, the shareholders of the
Company will become shareholders of CUC International, a
corporation governed by the laws of Delaware. CUC
International's Certificate of Incorporation includes what
is generally referred to as a "fair price provision," and
CUC International is subject to the provisions of Section
203 of the "DGCL" (as defined below). In contrast to the
Company, the Board of Directors of CUC International is
divided into three classes, with each class standing for
election once every three years. Directors of CUC
International cannot be removed without cause, and
amendments to the Certificate of Incorporation and Bylaws
of CUC International cannot be effected, without the
affirmative vote of holders of 80% of the outstanding
shares of CUC International Common Stock. These and other
provisions of CUC International's organizational documents
and applicable provisions of the DGCL may have the effect
of delaying, deterring, or preventing changes in control
of CUC International or its management. See "Comparison of
Shareholders' Rights."
</TABLE>
CERTAIN DEFINITIONS
The following capitalized terms used in this Proxy Statement/Prospectus have
the following respective meanings:
<TABLE>
<S> <C>
"ANTITRUST DIVISION" means the Antitrust Division of the
United States Department of Justice.
"AVERAGE STOCK PRICE" means a fraction, the numerator of
which is the sum of the Closing Price (defined below) for
each trading day during the period of 15 consecutive
trading days ending on the first trading day that is at
least 10 calendar days prior to the scheduled date of the
Meeting and the denominator of which is 15.
"CGCL" means the California General Corporation Law, as
amended.
"CLOSING PRICE" with respect to any trading day, means the
per share closing price of CUC International Common Stock
on such day as reported in the NYSE Composite
Transactions.
"COMPANY DISSENTING SHARES" means those shares of Company
Common Stock with respect to which the holders have voted
against the Merger and have perfected their purchase
demand in accordance with the CGCL, except that no such
shares will
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
constitute Company Dissenting Shares unless either (i)
holders of 5% or more of the outstanding shares of Company
Common Stock file demands for payment as dissenting shares
under the CGCL or (ii) the shares in question are subject
to a restriction on transfer imposed by the Company or by
any law or regulation. Holders of Company Dissenting
Shares will be notified of the date on which the Company
Dissenting Shares will cease to be eligible for treatment
as dissenting shares under the CGCL.
"DGCL" means the Delaware General Corporation Law, as
amended.
"EXCHANGE RATIO" means the number of shares of CUC
International Common Stock to be issued in the Merger in
respect of each outstanding share of Company Common Stock
in accordance with the terms and subject to the conditions
of the Merger Agreement (i.e., .85 of one share of CUC
International Common Stock in respect of each outstanding
share of Company Common Stock).
"FTC" means the United States Federal Trade Commission.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"IDEON EFFECTIVE TIME" means the effective time of the Ideon
Merger.
"MATERIAL ADVERSE EFFECT" means any change or effect (i)
that is or is reasonably likely to be materially adverse
to the properties, business, results of operations or
condition (financial or otherwise) of the Company and its
subsidiaries, or CUC International and its subsidiaries,
as the case may be, taken as a whole, other than any
change or effect arising out of general economic
conditions unrelated to any businesses in which the
Company or CUC International, as the case may be, is
engaged or (ii) that may impair the ability of the Company
or CUC International to consummate the transactions
contemplated hereby.
"QUALIFIED HOLDER(S)" means any holder of Company Common
Stock party to the Registration Rights Agreement and those
succeeding to the interest of such holder by gift or by
virtue of the laws of descent and distribution.
"REGISTRABLE SECURITIES" means (i) any and all shares of CUC
International Common Stock received by the Qualified
Holders in the Merger in exchange for the shares of
Company Common Stock which are beneficially owned by them
and (ii) any other securities issued or issuable with
respect to any shares of CUC International Common Stock
described in clause (i) above by way of a stock dividend
or stock split or in connection with certain
recapitalization, exchange, reorganization and business
combination transactions.
"SIERRA COMMON STOCK" means the common stock, $.01 par
value, of Sierra.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
"SIERRA CONVERTIBLE NOTES" means the 6 1/2% Convertible
Subordinated Notes due 2001 of Sierra.
"SIERRA EFFECTIVE TIME" means the effective time of the
Sierra Merger.
"SIGNIFICANT ACQUISITION" means the acquisition by the
Company or any subsidiary, by merger, purchase of stock or
assets, joint venture or otherwise, of a direct or
indirect ownership interest or investment in any business
whose annual revenues, net income or assets is equal to or
greater than 40% of the annual revenues, net income or
assets of the Company.
"THIRD PARTY ACQUISITION" means the occurrence of any of the
following events (i) the acquisition of the Company by
merger or otherwise by any person (which includes a
"person" as such term is defined in Section 13(d)(3) of
the Exchange Act) or entity other than CUC International,
Merger Sub or any affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of more than 30% of
the total assets of the Company and its subsidiaries,
taken as a whole; or (iii) the acquisition by a Third
Party of 30% or more of the outstanding shares of Company
Common Stock.
</TABLE>
18
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
THE FOLLOWING SUMMARY SELECTED FINANCIAL DATA FOR CUC INTERNATIONAL FOR THE
FIVE YEARS ENDED JANUARY 31, 1996, FOR THE COMPANY FOR THE FIVE YEARS ENDED
DECEMBER 31, 1995, FOR SIERRA FOR THE FIVE YEARS ENDED MARCH 31, 1995 AND FOR
IDEON FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWO MONTHS ENDED DECEMBER 31,
1994 AND THE FOUR YEARS ENDED OCTOBER 31, 1994, ARE DERIVED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF CUC INTERNATIONAL, THE COMPANY, SIERRA AND
IDEON, RESPECTIVELY. EACH OF THE COMPANY'S AND IDEON'S SELECTED FINANCIAL DATA
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS DERIVED FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IDEON, 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 UNAUDITED AND 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 THE COMPANY AND CUC INTERNATIONAL INCLUDE,
AND THE COMPANY AND CUC INTERNATIONAL HAVE BEEN ADVISED THAT THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF SIERRA AND IDEON 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 SIERRA 10-Q, THE IDEON 10-K AND THE IDEON 10-Q.
CUC INTERNATIONAL
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,(I)
------------------------------------------------------------ --------------------
1996 1995(D) 1994 1993(E) 1992 1996 1995
---------- ---------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------- ---------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AT
AT JANUARY 31, APRIL 30,
------------------------------------------------------------ ----------
1996 1995 1994 1993 1992 1996(I)
---------- ---------- -------- -------- -------- ----------
(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>
19
<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, the 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, the CUC International 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>
20
<PAGE>
DAVIDSON & ASSOCIATES, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31,(A) MARCH 31,(A)
---------------------------------------------------- -----------------
1995 1994 1993 1992 1991 1996 1995
-------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues..................... $147,226 $93,171 $62,372 $39,755 $16,559 $29,203 $25,622
Income from continuing operations
before income taxes............... 21,802 12,090(c) 11,167 6,402 5,062 3,090 1,820
Income from continuing
operations........................ 13,577 6,478(c) 6,949 3,685(b) 3,009(b) 2,071 1,217
Income per common share from
continuing operations(d).......... $ 0.38 $ 0.19(c) $ 0.21 $ 0.12(b) (b) $ 0.06 $ 0.03
-------- ------- ------- ------- ------- ------- -------
Weighted average number of
common equivalent shares
outstanding(d).................... 35,768 34,986 33,599 31,442(b) (b) 35,712 35,116
-------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT
MARCH 31,
AT DECEMBER 31, (A) 1996
---------------------------------------------------- -----------
1995 1994 1993 1992 1991 (UNAUDITED)
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................... $85,722 $60,582 $44,595 $20,580 $14,710 $76,058
Shareholders' equity................... 59,598 45,709 37,333 5,012 10,905 62,107
Working capital (deficiencies)......... 48,067 35,988 30,452 (904)(d) 6,209 44,999
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During 1995, the Company acquired Maverick Software, Inc. ("Maverick") and the Cute Company
(subsequently renamed "FUNNYBONE Interactive") through pooling-of-interests transactions.
Accordingly, the financial statements, common share and per common share data were restated
for all periods to include Maverick and FUNNYBONE Interactive. During March 1996, the
Company 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 because its results of operations were not significant.
(b) Includes a pro forma income tax adjustment (unaudited) to reflect the tax liability of the
Company 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 the Company'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 the
Company'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>
21
<PAGE>
SIERRA ON-LINE, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,(A)
-----------------------------------------------------
1996 1995 1994 1993 1992
----------- -------- -------- ------- -------
(UNAUDITED)
<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 non-recurring 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>
22
<PAGE>
IDEON GROUP, INC.
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
TWO MONTHS MARCH 31,
YEAR ENDED ENDED YEAR ENDED OCTOBER 31, (UNAUDITED)
DECEMBER 31, DECEMBER 31, ----------------------------------------- -------------------
1995(I) 1994 1994 1993 1992 1991 1996 1995
------------ ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(H):
Subscription card service
and consumer marketing
revenue, net.............. $226,620 $ 33,290 $175,541 $156,600 $146,265 $140,557 $ 62,964 $ 56,680
Interest and other
income(a)................. 7,348 1,408 13,545 10,526 11,916 11,327 7,736 3,048
Income (loss) before
cumulative effect of
accounting
change(b)(c)(e)(f)(j)..... (49,441) (49,944) 18,021 31,477 22,498 29,713 5,869 301
Net Income
(loss)(b)(c)(d)(e)(f)(j).. (49,441) (49,944) 20,021 31,477 22,498 29,713 5,869 301
Income (loss) per
share(b)(c)(d)(e)(f)(j)... $ (1.73) $ (1.70) $ .70 $ 1.10 $ .75 $ 1.02 $ .21 $ .01
Cash dividends per
share..................... $ .20 $ .05 $ .20 $ .20 $ .15 $ .15 $ .05 $ .05
------------ ------------ -------- -------- -------- -------- -------- --------
Weighted average number
of common and common
dilutive equivalent
shares outstanding(g).... 28,500 29,297 28,411 28,572 30,158 29,325 28,097 29,870
------------ ------------ -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AT
MARCH 31,
AT DECEMBER 31, AT OCTOBER 31, 1996
------------------- ----------------------------------------- -----------
1995 1994 1994 1993 1992 1991 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(H):
Total cash and cash equivalents and
investments(g)........................ $ 72,140 $168,981 $184,533 $170,039 $187,301 $178,670 $ 32,365
Total assets.......................... 385,910 428,714 480,373 378,287 377,418 351,566 391,281
Stockholders' equity(g)............... 102,860 166,806 217,592 157,695 165,498 144,903 107,120
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During the first quarter of 1996, Ideon recognized $6.7 million of income
from the reversal of an accrual established in 1992 in connection with a
contested lease. The contested lease was the subject of litigation which
was settled in March 1996. During 1994, Ideon recognized $4.3 million of
income from the settlement of two lawsuits. During 1992, Ideon recognized
$0.6 million of income from the settlement of a lawsuit.
(b) During 1995, Ideon recorded pre-tax charges of $43.8 million (net of
recoveries of $1.2 million) related to the abandonment of certain new
product development efforts and the restructuring of SafeCard and the
corporate infrastructure.
(c) During the two months ended December 31, 1994, Ideon recorded a pre-tax
charge of $65.5 million (for a change in the amortization periods for
deferred subscriber acquisition costs). Ideon also recorded a charge to
earnings of $1.9 million for permanent impairment of the value of its
securities portfolio.
(d) During 1994, Ideon recorded a $2.0 million benefit ($.07 per share)
resulting from a change in its method of accounting for income taxes.
(e) During 1992, Ideon recorded a pre-tax charge of $17.5 million against
earnings in connection with its relocation from Ft. Lauderdale, Florida
to Cheyenne, Wyoming.
(f) In April 1994, Ideon recorded a pre-tax charge of $7.9 million in
connection with a reorganization of its operations, the naming of a new
senior management team and a payment made to Steven J. Halmos, Ideon's
co-founder, in connection with the termination of his contract to provide
services to Ideon.
(g) During 1995 and 1993, Ideon repurchased approximately 1.0 million and 3.5
million shares of Ideon Common Stock at a cost of approximately $9.8
million and $41.7 million, respectively.
(h) In September 1994, Ideon acquired the outstanding common stock of Wright
Express. In January 1995, Ideon acquired the net assets of National
Leisure Group. The results of operations of Wright Express and National
Leisure Group have been included in the consolidated results of
operations since their respective dates of acquisition.
(i) Effective January 1, 1995, Ideon changed its fiscal year end from October
31 to December 31.
(j) During the first quarter of 1996, Ideon recorded certain nonrecurring
charges, including (i) a charge for the termination of its former
Chairman and Chief Executive Officer ($2.5 million), (ii) a reserve for
the consolidation of its operations in Jacksonville, Florida and the
closing of its Jacksonville operations center ($2.9 million) and (iii)
expenses related to the Board of Directors' review of strategic
alternatives to enhance shareholder value ($0.8 million).
</TABLE>
23
<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, SIERRA AND IDEON GIVING
EFFECT TO THE MERGER, THE SIERRA MERGER AND THE IDEON MERGER UNDER THE
POOLING-OF-INTERESTS METHOD. THIS PRO FORMA INFORMATION MAY NOT BE INDICATIVE OF
THE RESULTS THAT WOULD HAVE OCCURRED HAD THE MERGER, THE SIERRA MERGER AND THE
IDEON MERGER BEEN EFFECTED ON THE DATES INDICATED OR THE RESULTS WHICH MAY BE
OBTAINED IN THE FUTURE. CUC INTERNATIONAL, THE COMPANY AND 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, SIERRA
AND IDEON CONTAINED IN THE CUC 10-K, THE CUC 10-Q, THE COMPANY 10-K, THE COMPANY
10-Q, THE SIERRA 10-Q, THE SIERRA PRESS RELEASE, THE IDEON 10-K AND THE IDEON
10-Q, RESPECTIVELY. 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 FISCAL 1995 PRO FORMA
RESULTS OF OPERATIONS. EFFECTIVE JANUARY 1, 1995, IDEON CHANGED ITS FISCAL YEAR
END FROM OCTOBER 31 TO DECEMBER 31. IDEON'S RESULTS OF OPERATIONS FOR THE TWO
MONTHS ENDED DECEMBER 31, 1994 (THE "IDEON TRANSITION PERIOD") HAVE BEEN
EXCLUDED FROM THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA. IDEON'S
REVENUES AND NET LOSS FOR THE IDEON TRANSITION PERIOD WERE $34.7 MILLION AND
$(49.9) MILLION, RESPECTIVELY. THE NET LOSS FOR THE IDEON TRANSITION PERIOD WAS
PRINCIPALLY THE RESULT OF A $65.5 MILLION ONE-TIME, NON-CASH, PRE-TAX CHARGE
RECORDED IN CONNECTION WITH A CHANGE IN ACCOUNTING FOR DEFERRED SUBSCRIBER
ACQUISITION COSTS.
PRO FORMA CUC INTERNATIONAL AND THE COMPANY
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- ------------
1996 1995 1994 1996
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $ 1,562,190 $1,276,067 $1,047,173 $ 419,229
Income from continuing operations......... 176,951 131,044 101,100 50,321
Income per common share from continuing
operations................................ $ 0.79 $ 0.60 $ 0.48 $ 0.22
------------------- ---------- ---------- ------------
Weighted average number of common and
dilutive common equivalent shares
outstanding............................. 225,069 218,957 211,672 227,091
------------------- ---------- ---------- ------------
<CAPTION>
AT APRIL 30,
BALANCE SHEET DATA: 1996
------------
<S> <C>
Total assets............................................................................. $ 1,542,729
Long-term obligations.................................................................... 5,315
Zero coupon convertible notes............................................................ 14,709
Shareholders' equity..................................................................... 867,678
Working capital.......................................................................... 661,433
</TABLE>
24
<PAGE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY AND SIERRA
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE><CAPTION>
PERIOD ENDED
FISCAL YEAR ENDED JANUARY 31, APRIL 30,
--------------------------------------------- ------------
1996 1995 1994 1996
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $ 1,706,954 $1,373,946 $1,120,274 $ 454,792
Income from continuing operations......... 194,416 144,036 93,228 49,746
Income per common share from continuing
operations................................ $ 0.78 $ 0.60 $ 0.40 $ 0.20
------------------- ---------- ---------- ------------
Weighted average number of common and
dilutive common equivalent shares
outstanding............................. 250,231 241,636 232,672 253,361
------------------- ---------- ---------- ------------
<CAPTION>
AT APRIL 30,
BALANCE SHEET DATA: 1996
------------
<S> <C>
Total assets............................................................................. $ 1,721,626
Long-term obligations.................................................................... 6,345
Zero coupon convertible notes............................................................ 14,709
Convertible debt......................................................................... 23,389
Shareholders' equity..................................................................... 986,209
Working capital.......................................................................... 780,281
</TABLE>
PRO FORMA CUC INTERNATIONAL, THE COMPANY AND IDEON
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE><CAPTION>
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
------------------- ---------- ---------- ------------
<CAPTION>
AT APRIL 30,
BALANCE SHEET DATA: 1996
------------
<S> <C>
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, SIERRA AND IDEON
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
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
------------------- ---------- ---------- ------------
<CAPTION>
AT APRIL 30,
BALANCE SHEET DATA: 1996
------------
<S> <C>
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>
25
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
CUC International. Shares of CUC International Common Stock are listed for
trading on the NYSE under the symbol "CU." The table below sets forth, for CUC
International's fiscal quarters commencing in fiscal 1995 through June 19, 1996,
the reported high and low closing prices of CUC International Common Stock as
reported on the NYSE Composite Transactions for all periods presented, based on
published financial sources. CUC International has paid no cash dividends in
respect of CUC International Common Stock during the periods presented. The
market price for CUC International Common Stock on February 16, 1996, the last
trading day immediately preceding the public announcement of the proposed
Merger, and as of the most recent practicable date, is set forth below in
"Equivalent Per Share Data."
<TABLE>
<CAPTION>
PRICE PER SHARE
OF CUC INTERNATIONAL
COMMON STOCK
-----------------
HIGH LOW
---------------- ---------------
<S> <C> <C>
Fiscal 1995 (ended January 31, 1995)
First Quarter........................................... $21 7/8 $18
Second Quarter.......................................... 20 3/8 17 1/8
Third Quarter........................................... 23 1/8 20 3/8
Fourth Quarter.......................................... 24 1/8 19 1/8
Fiscal 1996 (ended January 31, 1996)
First Quarter........................................... 27 1/8 23 1/8
Second Quarter.......................................... 31 1/8 24 1/2
Third Quarter........................................... 36 3/8 29 7/8
Fourth Quarter.......................................... 38 30
Fiscal 1997
First Quarter........................................... 39 1/4 28
Second Quarter (through June 19, 1996).................. 39 3/8 33 1/4
</TABLE>
The stock prices set forth above have been adjusted to give retroactive
effect to the 3:2 stock split effected on June 30, 1995 for shareholders of
record of CUC International Common Stock on June 19, 1995. CUC International has
not paid any dividends in respect of CUC International Common Stock since its
inception, other than the payment of a special dividend of $0.99 per common
share and $1.38 face amount ($0.62 original issuance discount amount) per common
share of the CUC International Zero Coupon Notes due June 6, 1996 issued in
connection with the recapitalization of CUC International effected in fiscal
1990. In addition, the Amended and Restated Credit Agreement dated as of June
30, 1994 and entered into with General Electric Capital Corporation (which
contained restrictions on the payment of dividends in respect of CUC
International Common Stock), was terminated effective on March 19, 1996.
26
<PAGE>
The Company. Shares of Company Common Stock are listed for trading on the
NASDAQ Stock Market under the symbol "DAVD." The table below sets forth, for the
Company's fiscal quarters commencing in fiscal 1994 through June 19, 1996, the
reported high and low closing sales prices of the Company Common Stock as
reported on the NASDAQ Stock Market, based on published financial sources. At
the Record Date, there were approximately 2,800 holders of record of the Company
Common Stock. The Company has paid no cash dividends on shares of the Company
Common Stock during the periods presented. The market price for Company Common
Stock on February 16, 1996, the last trading day preceding the public
announcement of the proposed Merger, and as of the most recent practicable date,
is set forth below in "Equivalent Per Share Data."
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMPANY
COMMON STOCK
-----------------
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1994 (ended December 31, 1994)
First Quarter........................................... $12 3/8 $10 1/4
Second Quarter.......................................... 12 9 5/8
Third Quarter........................................... 9 7 5/8
Fourth Quarter.......................................... 17 1/2 13 3/4
Fiscal 1995 (ended December 31, 1995)
First Quarter........................................... 16 7/8 12 3/8
Second Quarter.......................................... 20 1/2 12 7/8
Third Quarter........................................... 29 1/4 25 3/8
Fourth Quarter.......................................... 39 1/4 16
Fiscal 1996
First Quarter........................................... 27 1/4 16
Second Quarter (through June 19, 1996).................. 33 21 3/4
</TABLE>
The stock prices set forth above have been adjusted to give retroactive
effect to the 2:1 stock split effected on August 23, 1995.
Equivalent Per Share Data. The information presented in the table below
represents closing sale prices reported on the NYSE Composite Transactions for
shares of CUC International Common Stock and on the NASDAQ Stock Market for
shares of Company Common Stock, on February 16, 1996, the last trading day
immediately preceding the public announcement of the proposed Merger, and on
June 19, 1996 the last trading day for which closing sale prices were available
at the time of the mailing of this Proxy Statement/Prospectus, as well as the
"equivalent per share price" of shares of Company Common Stock on such dates.
The "equivalent per share price" of shares of Company Common Stock represents
the closing sale price per share reported on the NYSE Composite Transactions for
shares of CUC International Common Stock at such specified date, multiplied by
the Exchange Ratio.
<TABLE>
<CAPTION>
CUC INTERNATIONAL COMPANY COMPANY
COMMON STOCK COMMON STOCK EQUIVALENT
PRICE PRICE PER SHARE PRICE
----------------- ------------ ---------------
<S> <C> <C> <C>
February 16, 1996.............. $37 1/2 $18 1/2 $31 7/8
June 19, 1996.................. 36 7/8 31 1/2 31 3/8
</TABLE>
Following the Effective Time, shares of CUC International Common Stock are
expected to continue to be traded on the NYSE and shares of Company Common Stock
will cease to be traded on the NASDAQ Stock Market.
BECAUSE THE MARKET PRICE OF SHARES OF CUC INTERNATIONAL COMMON STOCK
INHERENTLY IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE SHARES OF CUC
INTERNATIONAL COMMON STOCK THAT HOLDERS OF SHARES OF COMPANY COMMON STOCK WILL
RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE TIME. THE
COMPANY HAS THE RIGHT (BUT IS NOT REQUIRED) TO TERMINATE THE MERGER AGREEMENT
AND ABANDON THE MERGER IF THE AVERAGE STOCK PRICE IS LESS THAN $29.00 (WHICH
REPRESENTS A VALUE TO THE COMPANY'S SHAREHOLDERS OF $24.65 PER SHARE OF COMPANY
COMMON STOCK BASED ON THE EXCHANGE RATIO). SEE "SUMMARY--RISK FACTORS--FIXED
EXCHANGE RATIO."
27
<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, Sierra and
Ideon, as applicable (see "Unaudited Pro Forma Condensed Combined Financial
Statements"), as adjusted to reflect consummation of the Merger, the Sierra
Merger and the Ideon Merger under the pooling-of-interests method. The pro forma
combined information and the Company equivalent pro forma information set forth
below are unaudited. The information set forth below should be read in
conjunction with the respective audited and unaudited consolidated financial
statements of CUC International, the Company, Sierra and Ideon including the
notes thereto, incorporated herein by reference, and the Unaudited Pro Forma
Condensed Combined Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AT APRIL 31,
1996
------------
<S> <C>
Book Value Per Common Share:
Historical:
CUC International(a).......................................................... $ 4.23
The Company................................................................... 1.76
Pro Forma Combined--CUC International and the Company............................ 3.94
Pro-Forma Combined--CUC International, the Company and Sierra.................... 4.02
Pro Forma Combined--CUC International, the Company and Ideon..................... 3.82
Pro Forma Combined--CUC International, the Company, Sierra and Ideon............. 3.91
Company Equivalent Pro Forma--CUC International and the Company(b)............... 3.35
Company Equivalent Pro Forma--CUC International, the Company and Sierra(b)....... 3.41
Company Equivalent Pro Forma--CUC International, the Company and Ideon(b)........ 3.25
Company Equivalent Pro Forma--CUC International, the Company, Sierra and
Ideon(b)......................................................................... 3.32
</TABLE>
<TABLE>
<CAPTION>
CUC INTERNATIONAL'S
---------------------------------------------
FISCAL YEAR ENDED
JANUARY 31,
----------------------- THREE MONTHS ENDED
1996 1995 1994 APRIL 30, 1996
----- ----- ----- ------------------
<S> <C> <C> <C> <C>
Cash Dividends Per Common Share(c):
Pro Forma Combined--CUC International, the Company and
Ideon.................................................. $0.02 $0.02 $0.02 $ 0.01
Pro Forma Combined--CUC International, the Company,
Sierra and Ideon...................................... 0.02 0.02 0.02 0.01
Company Equivalent Pro Forma--CUC International, the
Company and Ideon..................................... 0.02 0.02 0.02 0.01
Company Equivalent Pro Forma--CUC International, the
Company, Sierra and Ideon............................. 0.02 0.02 0.02 0.01
Income Per Common Share From Continuing Operations:
Historical:
CUC International(a)................................ 0.84 0.66 0.51 0.25
The Company(d)...................................... 0.38 0.19 0.21 0.06
Pro Forma Combined--CUC International and the
Company................................................ 0.79 0.60 0.48 0.22
Pro Forma Combined--CUC International, the Company and
Sierra................................................. 0.78 0.60 0.40 0.20
Pro Forma Combined--CUC International, the Company and
Ideon.................................................. 0.53 0.64 0.59 0.23
Pro Forma Combined--CUC International, the Company,
Sierra and Ideon...................................... 0.55 0.63 0.51 0.21
Company Equivalent Pro Forma--CUC International and the
Company(b)............................................. 0.67 0.51 0.41 0.19
Company Equivalent Pro Forma--CUC International, the
Company and Sierra(b)................................. 0.66 0.51 0.34 0.17
Company Equivalent Pro Forma--CUC International, the
Company and Ideon(b).................................. 0.45 0.54 0.50 0.20
Company Equivalent Pro Forma--CUC International, the
Company, Sierra and Ideon(b).......................... 0.47 0.54 0.43 0.18
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Adjusted to give retroactive effect to the 3:2 stock split effected on
June 30, 1995 for shareholders of record of CUC International Common
Stock on June 19, 1995.
(b) The Company equivalent pro forma information was computed by multiplying
the pro forma combined information by the Exchange Ratio.
(c) CUC International, the Company and 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.
(d) Adjusted to give retroactive effect to the 2:1 stock split in respect of
the Company Common Stock, effected on August 23, 1995.
</TABLE>
28
<PAGE>
INFORMATION CONCERNING CUC INTERNATIONAL
DESCRIPTION OF CUC INTERNATIONAL'S BUSINESS
CUC International is a membership-based consumer services company, providing
consumers with access to a variety of services. CUC International currently has
approximately 48.0 million members in its various services. CUC International
operates in one business segment, providing these services as individual,
wholesale or discount coupon program memberships. These memberships include such
components as shopping, travel, auto, dining, home improvement, vacation
exchange, credit card and checking account enhancement packages, financial
products and programs. CUC International also administers insurance package
programs which generally are combined with discount shopping and travel for
credit union members, distributes welcoming packages which provide new
homeowners with discounts for local merchants and provides travelers with
value-added tax refunds. CUC International believes it is the leading provider
of membership-based consumer services of these types in the United States. CUC
International also operates the biggest VAT refund system serving travelers
shopping in Europe. CUC International's activities are conducted principally
through its Comp-U-Card division and its wholly owned subsidiaries, FISI*Madison
Financial Corporation, Benefit Consultants, Inc., Interval International Inc.
and Entertainment Publications, Inc.
CUC International derives its revenues principally from membership fees.
Membership fees vary depending upon the particular membership program, and
annual fees to consumers generally range from $6 to $250 per year. Most of CUC
International's memberships are for one-year renewable terms, and members
generally are entitled to unlimited use during the membership period of the
service for which the member has subscribed. Members generally may cancel their
membership and obtain a full refund at any point during the membership term.
CUC International arranges with client financial institutions, retailers,
oil companies, credit unions, on-line 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 each of 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
29
<PAGE>
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.
OTHER CUC INTERNATIONAL BUSINESS COMBINATIONS
The Sierra Merger. On February 19, 1996, CUC International entered into the
Sierra Merger Agreement providing for the Sierra Merger. Pursuant to the Sierra
Merger Agreement, among other things, at the effective time of the Sierra
Merger, 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 shall 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 enter into or consummate certain
transactions relating to: capitalization, indebtedness, investments,
organizational instruments, accounting practices, tax elections, employee
compensation benefits and plans, capital expenditure programs, and extraordinary
corporate transactions and business combinations. 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 (defined substantially similar to Third Party Acquisition) of Sierra
except under certain circumstances. Sierra 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.
The 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
30
<PAGE>
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 by the affiliates of Sierra
(determined under Rule 145 under the Securities Act) of their contractual
obligations specified in letters delivered by such affiliates to CUC
International pursuant to the Sierra Merger Agreement and the performance by the
parties to the Sierra Shareholders Agreement of their respective covenants
thereunder; (iii) 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; (iv) 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 (v) certain
noncompetition, 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; (iii) 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; (iv) 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 (v) 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 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 a competing third party acquisition of Sierra that
is a Superior Proposal), (C) the average stock price (calculated on
substantially the same basis as the Average Stock Price) of the CUC
International Common Stock
31
<PAGE>
having fallen 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 such Board 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.
Simultaneously with the execution of the Sierra Merger Agreement, the
holders of approximately 10% 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 adoption of the Sierra Merger Agreement at the special
meeting of Sierra's shareholders scheduled to be held on July 24, 1996. In
addition, CUC International has agreed that effective at the Sierra Effective
Time, 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 and
a Vice Chairman of such Board.
Pursuant to applicable law and the Company's and CUC International's
respective Articles and Certificate of Incorporation and By-laws currently in
effect, neither the holders of Company Common Stock nor the holders of CUC
International Common Stock are entitled to notice of nor to vote in respect 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
the 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. 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.
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The multimedia PC consumer software market has grown dramatically in recent
years, driven by the increasing installed base of multimedia PCs in the home,
the proliferation of new software titles and new and expanding distribution
channels. These factors have led to the development of a mass market for
software products, which has been characterized by a rise in importance of
strong distribution channels, a significant increase in the number of new
software titles offered in the market, increased competition for limited retail
shelf space to accommodate the abundance of new titles, and increased price
pressure. Consumer reaction to different software titles is often unpredictable.
Certain titles may gain broad popularity while others may not be received well
in the market. Generally, entertainment and education software producers
differentiate themselves by their ability to design products that are fun and/or
educational, while at the same time exploiting the graphics, image, animation,
audio and video capabilities of various hardware platforms.
During the fiscal year ended March 31, 1996, Sierra 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
(ended March 31, 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 development of titles for the Japanese market.
For information concerning certain effects of the Sierra Merger on CUC
International, see "Unaudited Pro Forma Condensed Combined Financial
Statements."
The Ideon Merger. Effective on April 19, 1996. CUC International entered
into the Ideon Merger Agreement providing for the Ideon Merger. Pursuant to the
Ideon Merger Agreement, at the Ideon Effective Time, each share of Ideon Common
Stock outstanding immediately prior to such time (other than shares held by
Ideon as treasury stock or by any subsidiary of Ideon or owned by CUC
International, IGA, or any other subsidiary of CUC International) will be
converted into the right to receive that number of shares of CUC International
Common Stock equal to the quotient obtained by dividing (x) $13.50 by (y) the
Ideon Merger Average Stock Price; provided that if the Ideon Merger Average
Stock Price is $22.00 or less the Ideon Conversion Number will be 0.6136, and if
the Ideon Merger Average Stock Price is $36.00 or more the Ideon Conversion
Number will be 0.3750. Based on the equity capitalization of Ideon at May 31,
1996 (and assuming that 0.4943 shares of CUC International Common Stock will be
issued in the Ideon Merger in respect of each share of Ideon Common Stock), it
is expected that CUC International will issue in the Ideon Merger an aggregate
of 13,832,078 shares of CUC International Common Stock to holders of Ideon
Common Stock.
In addition, not later than the Ideon Effective Time, each outstanding
option to purchase shares of Ideon Common Stock under any stock option or
compensation plan or arrangement of Ideon (other than any "stock purchase plan"
under section 423 of the Code) immediately prior to the Ideon Effective Time,
whether vested or unvested, will become and represent a substitute option to
purchase such number of shares of CUC International Common Stock determined by
multiplying: (x) the number of shares of CUC International Common Stock subject
to such option immediately prior to the Ideon Effective Time by (y) the Ideon
Conversion Number, at an exercise price per share of CUC International Common
Stock equal to the exercise price per share of Ideon Common Stock immediately
prior to the Ideon Effective Time, divided by the Ideon Conversion Number.
Notwithstanding the foregoing, options held by Ideon's directors at the Ideon
Effective Time will automatically be converted in the Ideon Merger into the
right to receive such number of shares of CUC International Common Stock equal
to (x) the number of shares of Ideon Common Stock such director could have
purchased had such director exercised his option in full immediately prior to
the Ideon Effective Time, multiplied by: (y) a fraction, the numerator of which
is the excess, if any, of (i) the Ideon Conversion Number multiplied by
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the Ideon Merger Average Stock Price over (ii) the applicable exercise price per
share of such option, and the denominator of which is the Ideon Merger Average
Stock Price.
Ideon has agreed, until the Ideon Effective Time, to conduct and cause each
of its subsidiaries to conduct its operations in the ordinary course of business
and, with certain specified exceptions and within specified limits, Ideon has
further agreed not to take certain actions or enter into or consummate certain
transactions relating to, among other things, capitalization, indebtedness, the
creation of liens on material assets, capital contributions and investments, the
disposition or revaluation of assets, accounting matters, tax matters, employee
benefit and compensation matters, litigation matters, and extraordinary
corporate transactions and business combinations.
Ideon also has agreed, subject to certain qualifications and exceptions
specified in the Ideon Merger Agreement (including with respect to the fiduciary
duty of Ideon's Board of Directors to the holders of Ideon Common Stock) not to
engage in any discussions or negotiations with parties (other than CUC
International and IGA) interested in pursuing an acquisition of Ideon's assets
or equity securities or engaging in a strategic business combination with Ideon
or its subsidiaries. Moreover, upon termination of the Ideon Merger Agreement
under certain circumstances, Ideon has agreed to pay CUC International $7.0
million in liquidated damages, together with reimbursement of up to $1.0 million
of out-of-pocket expenses (including professional advisory fees) incurred by CUC
International.
The respective obligations of CUC International, Ideon and IGA to consummate
the Ideon Merger are subject to the following conditions, among others: (i) the
Ideon Merger Agreement having been duly adopted by the requisite vote of the
holders of Ideon Common Stock; (ii) the CUC International Common Stock to be
issued in the Ideon Merger having been approved for listing on the NYSE, subject
to official notice of issuance, (iii) there not being in effect any provision of
any applicable law, regulation or any judgment, injunction, order or decree
which prohibits consummation of the Ideon Merger or any transactions
contemplated thereby; (iv) the registration statement relating to the Ideon
Merger having become effective and no order suspending the effectiveness thereof
having been issued and remaining in effect; (v) all waiting periods under the
HSR Act relating to the Ideon Merger having expired; and (vi) CUC International
having received a letter from its independent auditors, Ernst & Young LLP, and
Ideon having received a letter, subject to customary qualifications, from its
independent accountants, Price Waterhouse LLP, each substantially to the effect
that pooling-of-interests accounting (under Accounting Principles Board Opinion
No. 16) is appropriate for the Ideon Merger, provided that the Ideon Merger is
consummated in accordance with the terms of the Ideon Merger Agreement.
The obligations of CUC International and IGA to effect the Ideon Merger are
further subject to the accuracy of the representations and the performance of
the obligations and covenants of Ideon contained in the Ideon Merger Agreement
and the performance by the affiliates of Ideon (determined pursuant to Rule 145
under the Securities Act) of their contractual obligations specified in letters
delivered by such affiliates to CUC International pursuant to the Ideon Merger
Agreement. The obligations of Ideon to effect the Ideon Merger are further
subject to the accuracy of the representations and the performance of the
obligations and covenants of CUC International and IGA contained in the Ideon
Merger Agreement and the receipt by Ideon of an opinion of its tax counsel to
the effect that, among other things, the Ideon Merger will be treated for United
States federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.
The Ideon Merger Agreement may be terminated and the Ideon Merger abandoned
at any time prior to the Ideon Effective Time by the written mutual consent of
CUC International and Ideon. In addition, subject to the exceptions and
qualifications specified therein, the Ideon Merger Agreement may be terminated
by (i) Ideon in the case of (A) the breach of the representations or the non-
performance of the covenants of CUC International or IGA contained therein or
(B) the determination by Ideon's Board of Directors to enter into an agreement
providing for a bona fide third party proposal
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to acquire more than 50% of the outstanding shares of Ideon Common Stock or
substantially all of Ideon's assets and otherwise containing terms which Ideon's
Board of Directors believes to be more favorable to holders of Ideon Common
Stock than the Ideon Merger; provided that certain termination payments are made
to CUC International; or (ii) CUC International or IGA in the case of (A) the
breach of Ideon's representations or the non-performance of Ideon's convenants
contained therein, or (B) the Board of Directors of Ideon (or any committee
thereof) having withdrawn, modified or changed in a manner adverse to CUC
International or to IGA its recommendation of the Ideon Merger or the Ideon
Merger Agreement, approved or recommended a superior acquisition proposal (of
the type referred to in clause (i)(B) above), or entered into a definitive
agreement with respect to any inquiry, offer or proposal from a third party to
acquire a substantial portion of Ideon's assets or more than 20% of Ideon's
outstanding equity securities.
The Ideon Merger Agreement may also be terminated by either Ideon or CUC
International if (i) the Ideon Merger has not been consummated by December 31,
1996 (as such date may be extended by the parties to the Ideon Merger
Agreement); provided that such right to terminate is not available to the party
whose failure to fulfill any obligation has been the cause of the failure to
meet such deadline, (ii) consummation of the Ideon Merger becomes illegal or if
any final and non-appealable judgment, injunction, order or decree is in effect
which enjoins the parties from consummating the Ideon Merger, or (iii) Ideon's
shareholders do not approve the Ideon Merger.
Certain Information Concerning Ideon's Business
According to the Ideon 10-K, Ideon is a holding company with three principal
business units: SafeCard, Wright Express and National Leisure Group. SafeCard,
Ideon's largest operating subsidiary, is a leader in providing credit card
enhancement and continuity products and services, serves over 160 credit card
issuers, has approximately 13 million subscribers and, during 1995, contributed
approximately 80% of Ideon's consolidated revenue. SafeCard is based in
Jacksonville, Florida and has an operational facility located in Cheyenne,
Wyoming. Wright Express, based in South Portland, Maine, is the leading provider
of information processing, financial and information management services to
commercial car, van and truck fleets throughout the United States. In addition
to the Wright Express Universal Fleet Card, now accepted at over 90,000 fueling
locations, Wright Express provides label fleet commercial credit card programs
to 15 of the nation's oil companies, and co-branded fleet fueling cards with 15
of the top vehicle leasing companies. National Leisure Group, based in Boston,
Massachusetts, is a major provider of vacation travel packages and cruises
directly to consumers in association with established retailers and warehouse
clubs in New England and with credit card issuers and travel club members
nationwide. Ideon's principal executive offices are located at 7596 Centurion
Parkway, Jacksonville, Florida 32256, and its telephone number at such offices
is (904) 218-1800.
THE MERGER, THE SIERRA MERGER AND THE IDEON MERGER ARE INDEPENDENT
TRANSACTIONS AND CONSUMMATION OF NONE OF SUCH TRANSACTIONS IS CONDITIONED UPON
CONSUMMATION OF ANY OF THE OTHER TRANSACTIONS. IN ADDITION, PURSUANT TO
APPLICABLE LAW AND THE COMPANY'S AND CUC INTERNATIONAL'S RESPECTIVE CERTIFICATES
OF INCORPORATION AND BY-LAWS CURRENTLY IN EFFECT, NEITHER HOLDERS OF COMPANY
COMMON STOCK NOR CUC INTERNATIONAL COMMON STOCK, AS SUCH, ARE ENTITLED TO NOTICE
OF OR TO VOTE IN RESPECT OF THE SIERRA MERGER OR THE IDEON MERGER. SIMILARLY,
NEITHER HOLDERS OF SIERRA COMMON STOCK, NOR HOLDERS OF IDEON COMMON STOCK, AS
SUCH, ARE ENTITLED TO NOTICE OF OR TO VOTE IN RESPECT OF THE MERGER. FOR
INFORMATION CONCERNING CERTAIN EFFECTS OF THE SIERRA MERGER AND THE IDEON MERGER
ON CUC INTERNATIONAL, SEE "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
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INFORMATION CONCERNING THE COMPANY
DESCRIPTION OF THE COMPANY'S BUSINESS
The Company develops, publishes, manufactures and distributes high-quality
educational and entertainment software products for home and school use. The
Company's products are designed to be easy and fun to use and incorporate
characters, themes, sound, graphics, music and speech in ways that the Company
believes are engaging to the user. The Company'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. The Company
also develops entertainment software through its Blizzard Entertainment division
and recently acquired Condor division which is targeted to users in the age
category of young adult and older. In addition to its internally produced
software products, the Company enters into arrangements with affiliated label
software developers to publish and distribute home and/or school versions of
their products. The Company has developed and currently publishes 102 titles and
in addition distributes 51 affiliated label titles.
In the consumer market, the Company is best known for the Blaster series,
the Kid series, the Cool Tools series, the Personal Trainer series, the Magic
Tales series and the Warcraft series (published under the Blizzard Entertainment
label). The Company also offers Fisher-Price multi-media software, which is
based on Fisher-Price toys, and several multimedia software titles resulting
from a joint venture with Simon & Schuster, Inc. ("Simon & Schuster"), a
subsidiary of Paramount Communications, Inc., which was subsequently acquired by
Viacom, Inc. In the school market, the Company is best known for
curriculum-based, mixed-media systems such as Vital Links, Story Club and
English Express. The Company also offers educator versions of its products,
including extensive teacher materials and customized pricing, for multiple copy
and site license purchasers. In distribution, the Company is co-owner, along
with Mattel, Inc. ("Mattel"), of NewMedia Express LLC ("NewMedia"), a
value-added distributor of consumer multimedia software to the mass-merchant
channel. Through its Educational Resources division, the Company is a reseller
of software and related products, along with teacher training services, to the
North American pre-K-12 school market.
Software Products
For the fiscal year ended December 31, 1995, approximately 78% of the
Company's revenues were derived from the sale of educational software and
related products and approximately 16% of the Company's revenues were derived
from the sale of entertainment software and related products. The Company sells
most of its software products in both the home and school markets.
Home Products. Products for the home market are designed to operate on the
most popular personal computers, including those using PC-DOS, Windows, Apple
Macintosh and, to a lesser extent, Apple II operating systems and environments.
The Company also creates CD-ROM versions of its popular titles. In the home
market, the Company sells products at several different price points to
accommodate both the needs of software-only stores, whose customers generally
are interested in the latest premium products, as well as mass-merchant stores
and warehouse club outlets whose customers generally are motivated by lower
price points.
The Company's premium educational line for the home market, marketed under
the Davidson label, is designed to target a variety of age groups and address a
variety of learning needs and includes the Blaster series, the Kid series, the
Cool Tools series, the Personal Trainer series and the Magic Tales series.
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The Company's best selling Blaster product series which now includes Math
Blaster: Episode 1-- In Search of Spot, Math Blaster: Episode 2--Secret of the
Lost City, Math Blaster Mystery: The Great Brain Robbery, Alge-Blaster 3,
Reading Blaster: Invasion of the Word Snatchers and Reading Blaster Jr. has sold
over 4.0 million units since the original version of Math Blaster was
introduced. The Blaster series experienced its best sales year in 1995 with over
740,000 units sold. The Blaster series accounted for approximately 10%, 26% and
23% of the Company's net revenues in 1995, 1994 and 1993, respectively. No other
product accounted for 10% or more of net revenues during the last three years.
Since the acquisition of Blizzard Entertainment in 1994, the development and
sale of entertainment software has become a more significant part of the
Company's business. For the fiscal year ended December 31, 1995, approximately
16% of the Company's revenues were derived from the sale of entertainment
software and related products, compared to 8% for fiscal 1994 and 1% for fiscal
1993. The Company's popular Warcraft series produced under the Blizzard
Entertainment label, which now includes Warcraft: Orcs and Humans and Warcraft
II: Tides of Darkness, has sold over 737,000 units since the first Warcraft
product was introduced in 1994. The Warcraft series accounted for approximately
8.9% of the Company's revenues for the fiscal year ended December 31, 1995. The
Company plans to develop additional entertainment software products targeting
users in the age category of 18-42.
Premium home products under the Davidson label are available in stores at
prices ranging from approximately $30.00 to $69.95. The Company's lower priced
product lines include its SmartWorks line and recently acquired Dinosoft and
Essential Software lines, as well as educational products licensed from third
party developers. Many of these titles are now available in the popular CD-ROM
Windows format. The Company's lower priced product lines are available in stores
in the range of $9.95 to $19.95.
School Products. The Company's line of school products consists of its home
software products specially packaged for schools as well as products developed
exclusively for the school market. The Company's home software products
specially packaged for schools are often sold in teachers' editions (containing
two disks plus teachers' manuals) or lab packs (containing five disks plus
teachers' manuals) or in networked or site licensed versions, at prices ranging
from $50 to $1,000. Lab packs, teachers' editions and networked and site
licensed editions generally include teacher support materials that provide
guidance on integrating the software with classroom activities and teaching
objectives. The Company has also developed three multimedia educational software
products for sale exclusively to schools: Vital Links, English Express and Story
Club which are offered in several versions and component configurations.
Collaborative Agreements. On April 12, 1994, the Company entered into two
agreements with Simon & Schuster. Under one agreement (the "Joint Development
Agreement"), the parties equally fund the development, marketing and
distribution of titles for the home market. The parties anticipate that they
will develop 20-25 titles under the Joint Development Agreement over the
five-year period of the agreement and have developed three to date, including
Money Town, Chicka Chicka Boom Boom and Maurice Ashley Teaches Chess. Under the
other agreement (the "Software Development Agreement"), the Company has agreed
to provide a minimum of $15 million of development services to Simon & Schuster
over the five-year period of the agreement for the development of Simon &
Schuster's educational software for the school market. The Company has developed
two titles for Simon & Schuster under the Software Development Agreement,
including Prentice Hall Regents ESL and Silver Bordett Ginn Science Discovery
Works.
Text-to-Speech Technology. Through its First Byte subsidiary, the Company
has developed and licenses a patented text-to-speech technology to a select OEM
customer base. The Company's software
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product business has incorporated the technology into a number of its own
educational software products.
Distribution and School Sales
The Company sells its software products and affiliated label products
utilizing multiple channels of distribution. The Company's products are sold
through distributors, specialty software stores, retail chains, computer
superstores, mass merchandisers, discount warehouse stores, educational dealers,
catalogs and directly to school districts, individual schools and end users.
On April 13, 1995, the Company announced the formation of NewMedia, a
value-added distributor of consumer multimedia software to the mass-merchant
channel with toy manufacturer Mattel. In addition to a single source supply of
software, NewMedia provides title mix management, in-store merchandising,
marketing programs and electronic order processing. NewMedia is owned 75% by the
Company and 25% by Mattel and operates independently from both companies.
NewMedia was formed to meet the needs of mass-merchant retailers who want to
capitalize on the fast growing, rapidly changing consumer multimedia market. The
new company takes advantage of the Company's knowledge of multimedia software
and Mattel's sophisticated electronic distribution interchange (EDI)
capabilities and field merchandising network. Shipments to mass-merchants began
in the latter part of the second quarter of 1995 and NewMedia currently has two
customers, Toys "R" Us and Neostar Retail Group, Inc. During the fiscal year
ended December 31, 1995, sales by NewMedia represented 17% of the Company's
revenues.
Through its Educational Resources division, the Company is a reseller of
software and related products along with teacher training services to the North
American pre-kindergarten through 12th grade market. Educational Resources sells
a wide range of educational software titles, computer peripherals and accessory
products from over 300 vendors through direct sales and catalogs distributed to
schools in both the United States and Canada.
RECENT DEVELOPMENTS
On March 7, 1996, the Company acquired by merger all of the outstanding
shares of Condor, Inc. ("Condor") for 225,409 shares of Company Common Stock.
The merger will be accounted for as a pooling-of-interests. On a pro-forma
basis, inclusion of Condor in the Company's consolidated financial statements
for the year ended December 31, 1995 would not have been significant. Condor
develops entertainment software for platforms which include PC DOS, Windows,
Apple Macintosh, Sega and Nintendo.
All of the Company's product names referred to herein are trademarks of the
Company, and some are registered trademarks or are the subject of pending
trademark applications.
For a more detailed description of the business and properties of the
Company, see the descriptions thereof set forth in the Company 10-K, which is
incorporated herein by reference.
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 on Wednesday,
July 24, 1996, at the Summerfield Suites, 19901 Prairie Avenue,
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Torrance, California 90503, 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 of CUC International
Common Stock issuable in the Merger to holders of Company Common Stock. This
Proxy Statement/Prospectus and the accompanying forms of proxy are first being
mailed to holders of Company Common Stock on or about June 24, 1996.
It is expected that representatives of KPMG Peat Marwick LLP, the Company's
independent auditors, will be present at the Meeting, to respond to appropriate
questions of holders of Company Common Stock and to make a statement if they
desire.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of Company Common Stock will be requested
to consider and vote upon a proposal to adopt the Merger Agreement and such
other business as properly may come before the Meeting or any adjournments or
postponements thereof.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER
IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS
APPROVED THE MERGER AGREEMENT (AND THE TRANSACTIONS CONTEMPLATED THEREBY), AND
RECOMMENDS THAT HOLDERS OF COMPANY COMMON STOCK VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER; REASONS FOR THE
MERGER; AND RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS."
RECORD DATE; QUORUM; VOTING AT THE MEETING
The Company's Board of Directors has fixed June 7, 1996 as the Record Date.
Accordingly, only holders of record of shares of Company Common Stock at the
Record Date are entitled to notice of and to vote at the Meeting. As of the
Record Date, there were 35,340,713 shares of Company Common Stock outstanding
and entitled to vote, and approximately 2,800 holders of record. Each holder of
record of Company Common Stock on the Record Date is entitled to cast one vote
per share in respect of the proposal to adopt the Merger Agreement and the other
matters, if any, properly submitted for the vote of such holders, either in
person or by proxy, at the Meeting. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Company Common Stock entitled
to vote at the Meeting is necessary to constitute a quorum at the Meeting.
Adoption by holders of Company Common Stock of the Merger Agreement will
require the affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon at the Meeting.
Accordingly, abstentions, failures to vote and broker non-votes will have the
practical effect of voting against adoption of the Merger Agreement. As of the
Record Date, the directors and executive officers of the Company held in the
aggregate approximately 73% of the outstanding Company Common Stock. Pursuant to
the Shareholders Agreement, the holders of approximately 72% of the outstanding
shares of Company Common Stock (which consist of Robert M. Davidson, the
Company's Chairman and Chief Executive Officer, Janice G. Davidson, the
Company's President, and certain trusts for which such persons serve as
fiduciaries) have agreed with CUC International, subject to certain conditions,
to vote all shares held of record or beneficially owned by them for adoption of
the Merger Agreement and against certain other transactions which could impede
or delay consummation of the Merger. Accordingly, assuming that such
shareholders will vote at the Meeting for adoption of the Merger Agreement, such
adoption will be assured irrespective of the votes cast by any other holders of
Company Common Stock. See "Shareholders Agreement."
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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. Shares of
Company Common Stock represented by properly executed proxies for which no
instruction is provided will be voted for adoption of the Merger Agreement.
Holders of Company Common Stock are requested to complete, sign, date and return
promptly the enclosed proxy card in the postage-prepaid envelope provided for
such purpose to ensure that their shares are voted. Any holder of Company Common
Stock who so desires may revoke his 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.
No other business may be transacted at the Meeting absent the provision of
proper notice in accordance with the Company's Bylaws. If any other matters
properly are presented at the Meeting for consideration, including among other
things, consideration of a motion to adjourn the Meeting to another time and/or
place, the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
If any beneficial owner of Company Common Stock holds such stock in "street
name" and wishes to vote his or its stock at the Meeting, such owner must obtain
from the relevant nominee holding the Company Common Stock a properly executed
"legal proxy" identifying the beneficial owner as a holder of Company Common
Stock, authorizing the beneficial owner to act on behalf of the nominee--record
owner at the Meeting and identifying the number of shares (and certificate
numbers, if applicable) in respect of which the authorization is granted.
The Company will bear the cost of soliciting proxies from the holders of
Company Common Stock, including the cost of preparing and mailing this Proxy
Statement/Prospectus. 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 specially compensated for such solicitation, but may be reimbursed
for out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of Company Common Stock held of record by them will be
reimbursed for their reasonable expenses incurred in forwarding such material.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares of
Company Common Stock held of record by such custodians, nominees and
fiduciaries, and the Company will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses incurred in connection
therewith.
IN CONNECTION WITH THE MEETING, HOLDERS OF COMPANY COMMON STOCK SHOULD NOT
RETURN TO THE COMPANY ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
The timing, terms and conditions of the Merger Agreement are the result of
arm's-length negotiations between representatives of CUC International and the
Company. Set forth below is a summary of the background of these negotiations.
Following the Company's initial public offering in April 1993, the Company
received a number of unsolicited inquiries with respect to possible mergers,
acquisitions, joint ventures and direct investments. In response to this
activity and the Company's belief that there would be a continuing consolidation
in the consumer software industry that could place the Company at a competitive
disadvantage vis-a-vis companies with greater financial resources, the Company
engaged Smith Barney as its financial advisor to assist the Company in its
evaluation of strategic alternatives. From June 1993 to June 1994, Smith Barney
was authorized to approach seven parties to determine their level of interest in
a possible acquisition of the Company. Three parties expressed an interest in
discussing a transaction, executed confidentiality agreements, received certain
confidential data and met with senior management of the Company. While there was
interest expressed by two of these parties in pursuing a transaction, both
parties had external events occur which made a transaction with the Company
unlikely, and discussions were suspended in June 1994.
In October 1994, the Company authorized Smith Barney to contact a broader
group of possible acquisition candidates. Approximately 31 additional candidates
were contacted, of which 15 indicated an interest in pursuing a transaction with
the Company, signed confidentiality agreements and received a confidential
information memorandum consisting of certain financial and other data relating
to the Company and the educational software industry generally. CUC
International had not been contacted at this time and was not included in this
group of potential candidates. From the group of 15, five parties that the
Company believed to be the most promising were provided additional information
and were asked to submit proposals. Of these parties, three parties ultimately
submitted proposals (only one of which contemplated an acquisition of the
Company in its entirety). The Company ultimately concluded that none of the
proposals merited serious consideration.
In June 1995, Smith Barney contacted Robert M. Davidson, Chairman of the
Board and Chief Executive Officer of the Company, suggesting that Mr. Davidson
meet with Walter A. Forbes, Chairman and Chief Executive Officer of CUC
International. Smith Barney informed Mr. Davidson that CUC International had
expressed a possible interest in entering the educational and entertainment
software industry. Mr. Forbes and E. Kirk Shelton, President and Chief Operating
Officer of CUC International, met with Mr. Davidson on July 30, 1995, at which
meeting, Mr. Forbes discussed generally CUC International's interest in
broadening its interactive content reach into the educational and entertainment
software markets, and Mr. Davidson discussed the Company's interest in
solidifying its position as a leading multimedia software company.
On September 17, 1995, Mr. Davidson and a representative of Smith Barney met
with Mr. Forbes, Mr. Shelton and Christopher K. McLeod, Executive Vice President
of CUC International. At that meeting, Mr. Forbes communicated CUC
International's interest in considering a possible business combination with the
Company, and Mr. Davidson indicated that the Company might consider a business
combination proposal, subject to the acceptability of the terms and conditions
that CUC International might propose and subject to a thorough due diligence
review by the Company of CUC International's operations and financial and other
data. Each company signed a confidentiality agreement and agreed to provide the
other party with access to certain confidential financial and other information.
Between September 17, 1995 and October 10, 1995, Mr. Davidson spoke with Mr.
Forbes and other CUC International senior management personnel on a number of
occasions regarding CUC International's interest in a possible acquisition of
the Company, and, beginning on September 28, 1995, the parties commenced a due
diligence review of each other's operations and financial and other data, which
review continued throughout the duration of the parties' discussions. During the
course of the due diligence, the Company and CUC International provided each
other with access to confidential product
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and product development information, marketing plans, contracts, business plans
and other corporate records. The Company made available to CUC International's
financial advisor certain non-public financial information, including estimates
of revenues, expenses, EBIT and net income for the fiscal year ending December
31, 1996. CUC International made available to the Company's financial advisors
certain non-public financial information, including estimates of revenues,
expenses and EBIT for the fiscal year ending January 31, 1997.
On October 10, 1995, Mr. Forbes and Mr. Shelton met with Mr. Davidson and
Janice G. Davidson, President and founder of the Company, to discuss the general
structure and parameters of a possible business combination transaction. At that
meeting, the parties discussed a stock-for-stock merger structure, including the
possibility of a one-for-one exchange ratio in which each share of Company
Common Stock would be converted into one share of CUC International Common
Stock. Both parties expressed an interest in proceeding with discussions, but
indicated that the exchange ratio and other principal transaction terms remained
subject to the development of a firm proposal and subsequent negotiation.
On the morning of October 17, 1995, the Davidsons, Jack Allewaert, Chief
Financial Officer and a director of the Company, Allen Adham, President of the
Company's Blizzard Entertainment division and a director of the Company, Robert
Sheh, an outside director of the Company, and representatives of Smith Barney
and Kerlin Capital Group, LLC ("Kerlin Capital"), a special financial advisor
retained by the Company to the Company, met with Mr. Forbes, Mr. Shelton and Mr.
McLeod of CUC International to discuss CUC International's software acquisition
strategy, its long-term plans for the Company in the event a business
combination were effected, CUC International's management, employee and
corporate culture, and how the Company would fit into CUC International's
consolidated operations following a possible merger. The Company delivered to
CUC International a preliminary draft merger agreement, and Mr. Forbes and the
Davidsons reaffirmed their desire to continue discussions, subject to proposals
on a number of issues, including, among other things, determination of the
appropriate exchange ratio and the possibility of an exchange ratio adjustment
mechanism, including a "collar" or other similiar provision, designed to protect
the Company's shareholders against fluctuations in CUC International's share
price.
In the afternoon of October 17, 1995, the Board of Directors of the Company,
together with representatives of Gibson, Dunn & Crutcher, outside legal counsel
to the Company, Smith Barney, and Kerlin Capital met to discuss on a preliminary
basis the possible merger with CUC International and the discussions that had
taken place between the two companies to date. During the meeting, Gibson, Dunn
& Crutcher outlined for the Board certain legal matters to be considered by the
Board in connection with its consideration of a possible merger transaction, and
representatives of Smith Barney reviewed with the Board the process undertaken
on behalf of the Company in soliciting indications of interest from possible
acquisition candidates, certain publicly available business and financial
information relating to CUC International and the financial due diligence
regarding CUC International performed to date by Smith Barney. The Board
discussed the possible benefits to the Company of proceeding with a transaction
with CUC International, including the possible premium to the Company's
shareholders (based on the closing sale prices for Company Common Stock and CUC
International Common Stock of $28.875 and $35.375, respectively, on October 16,
1995 and assuming a one-for-one exchange ratio), the greater liquidity that
would be provided to the Company's shareholders by virtue of the larger public
float for CUC International's shares, the opportunity for Davidson's
shareholders to diversify their investment by exchanging their more volatile
Company Common Stock for shares in a more diversified company with a favorable
history of earnings growth, the financial resources that CUC International would
bring to the Company, the opportunities for the Company to take advantage of CUC
International's distribution channels in selling its products, and the combined
company's opportunity to capitalize on the Company's technological expertise in
expanding its online presence. The Board also discussed particular aspects of
the proposed transaction, including the proposed tax-free nature of the merger,
qualification for pooling-of-interests treatment, CUC International's
requirement that the Davidsons agree to vote their shares of Company Common
Stock in favor
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of the transaction and that they be employed by the surviving corporation for a
specified term following the transaction and serve on CUC International's Board
of Directors, the non-solicitation (and related "fiduciary out") provisions of
any definitive merger agreement and the possibility of (and potential size of)
the termination (or "break-up") fee that likely would be required by CUC
International. Mr. Davidson described for the Board the process that would be
followed if formal negotiations commenced and the possibility that such
negotiations could be terminated as a consequence of CUC International's then
pending negotiations to acquire a major VAT refund business (which acquisition
was later publicly announced by CUC International and Advance Ross). At the
conclusion of the meeting, the Board approved the Company's continued
discussions with CUC International.
On October 27, 1995, the Davidsons, Mr. Forbes and Mr. Shelton met to
discuss the transaction in further detail and to discuss the possibility that
Davidson and/or CUC International might consider additional acquisitions in the
entertainment and/or educational software industry either simultaneously with
their ongoing consideration of a merger with the Company or in the future.
In the evening of October 27, 1995, the Board of Directors of the Company,
together with the Company's legal and financial advisors, met to discuss the
status of the Company's discussions with CUC International. At the meeting,
representatives of Gibson, Dunn & Crutcher provided a summary and overview of
the terms of a revised draft Merger Agreement received from Weil, Gotshal &
Manges LLP, outside counsel to CUC International, on October 26th, and there
followed a detailed discussion of the specific terms of the draft agreement,
including, among other things, a discussion of pricing issues, representations
and warranties and conditions to closing, the allocation of responsibility for
management of the Company's business following the transaction, the "no-shop"
and "break-up" fee provisions and certain labor and employee benefits matters.
Members of the Board expressed the desire that any definitive agreement include
some form of pricing mechanism that would ensure that the Company's shareholders
would receive a premium for their shares; and the Board discussed the fact that,
as of the close of trading on October 27, 1995, the closing sale price for
shares of Company Common Stock on the NASDAQ Stock Market had risen to $35.25,
while the closing sale price of CUC International Common Stock on the NYSE had
fallen to $33.625, indicating that a premium could not be obtained at then
current trading prices on the basis of a one-for-one exchange ratio. Members of
management provided an overview of the financial due diligence that had been
undertaken to date by the Company regarding CUC International and the proposed
schedule for completion of the Company's review of CUC International's legal
documents, and Mr. Davidson outlined the Company's plans regarding further
discussions. At the conclusion of the meeting, the Board expressed its desire
that the Company continue with discussions.
On October 28, 1995, Mr. Davidson and Mr. Forbes spoke by telephone to
discuss particular issues raised by CUC International's draft Merger Agreement,
including the concerns expressed by the Board at the previous day's meeting
regarding pricing issues (and the absence of a merger premium based on the
proposed one-for-one exchange ratio and then current prices of Company Common
Stock and CUC International Common Stock), the desire for a "collar" mechanism
or some other price protection provisions in the Merger Agreement, the "no-shop"
provisions and the size of the proposed "break-up" fee.
Before the opening of the market on October 30, 1995, Softkey International,
Inc. announced its decision to commence a hostile tender offer to acquire all of
the outstanding common stock of The Learning Company, which precipitated a
general rise in the trading prices of educational and entertainment software
companies. As of the close of market trading on October 30, 1995, Davidson's
share price on the NASDAQ Stock Market had risen to $38.625, while CUC
International's share price had increased to $34.375.
On November 1, 1995, Mr. Forbes contacted Mr. Davidson by telephone to
advise him that CUC International had decided to terminate all discussions with
the Company regarding a possible business combination.
In December, 1995, reports by software companies and computer and chip
manufacturers of disappointing earnings expectations for the fourth quarter of
fiscal 1995 preceded a general downward
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trend in software and technology stock prices, with some companies experiencing
stock price reductions of as much as 50% in comparison to the trading prices
that prevailed in the Fall of 1995. On December 8, 1995, the Company issued a
press release which addressed a change in the Company's expectations for the mix
of revenue and earnings for the fourth quarter of fiscal 1995, and, on that
date, the price of Company Common Stock on the NASDAQ Stock Market dropped from
$25 per share to a closing sale price of $18.25 per share. As of the close of
trading on December 29, 1995, the price of Company Common Stock on the NASDAQ
Stock Market was $22.00 and the price of CUC International Common Stock on the
NYSE was $34.125.
In late December 1995 and early January 1996, Mr. Forbes and Mr. Davidson
spoke to arrange a possible meeting in late January to consider reactivating the
terminated discussions of a potential business combination of the two companies.
On January 23, 1996, Mr. Forbes, Mr. Shelton, Mr. McLeod, Cosmo Corigliano,
Senior Vice President and Chief Financial Officer of CUC International, and Mr.
Davidson met to discuss a possible merger transaction. On that date, the closing
sale prices for Company Common Stock and CUC International Common Stock were
$19.00 and $34.625, respectively. At that meeting, Mr. Forbes communicated CUC
International's interest in examining the possibility of a transaction, and Mr.
Forbes indicated, and Mr. Davidson concurred, that, on the basis of changes in
the companies' respective stock prices since discussions had terminated in the
Fall of 1995, a transaction involving a merger of the two companies might be
considered at an exchange ratio of less than one share of CUC International
Common Stock for each share of Company Common Stock. Both parties acknowledged
that any agreement regarding a merger would be subject to, among other things,
(i) negotiation regarding the appropriate exchange ratio, (ii) negotiation and
agreement regarding a "collar," floor or other mechanism to ensure a merger
premium, (iii) the completion of financial and legal due diligence, (iv)
negotiation of acceptable "no-shop" and "break-up" fee provisions, (v) the
completion of negotiations with respect to the draft Merger Agreement,
Shareholders Agreement and ancillary documents, and (vi) the approval by both
the companies' Boards of Directors.
Between January 23, 1996 and February 12, 1996, Mr. Davidson, together with
the Company's financial advisors, engaged in various discussions with
representatives of CUC International regarding transaction issues, including the
proposed exchange ratio. During those discussions, CUC International proposed to
the Company that the transaction be structured on the basis of an exchange ratio
of .85 shares of CUC International Common Stock for each outstanding share of
Company Common Stock.
On February 13, 1996, the Company's Board met by telephonic conference,
together with the Company's legal and financial advisors, to discuss the
negotiations with CUC International, including the Exchange Ratio (the "February
13th Meeting"). At the February 13th Meeting, representatives of Smith Barney
described, among other things, the recent trends in the stock market, including
recent public announcements of earnings shortfalls by software and technology
companies, which had precipitated a decline in the stock prices of such
companies, the increase in CUC International's stock price to $38.875 as of the
close of trading on February 12th and the implied premium for Davidson
shareholders (assuming a .85-to-one exchange ratio and based on the closing sale
price of Company Common Stock of $17.25 per share as of February 12th),
comparable industry trading multiples and the multiples paid in recent
acquisitions in the software and technology industry, including the recently
completed acquisition of The Learning Company by Softkey International, Inc.
Representatives of Gibson, Dunn & Crutcher summarized for the Board the
principal transaction terms as proposed in the revised draft Merger Agreement
that had been received from CUC International on February 12th and discussed the
significant issues that remained outstanding. In addition to the proposed
exchange ratio, there remained significant outstanding issues, including the
absence of a "collar" mechanism, although the revised draft did include a
"floor" trading price for CUC International Common Stock below which the Company
would be entitled to terminate the Merger Agreement ("walk-away provision"), the
parameters of the proposed "no-shop" provision, the size of and circumstances
under which the "break-up fee" would be payable, conditions to closing and other
matters. Members of the Board expressed their continuing concern that the
definitive agreement include a "collar" or a walk-away provision tied to a CUC
International Common Stock price that would ensure
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the Company of the right to terminate the transaction if the premium in the
transaction were eliminated as a result of a decline in CUC International's
share price.
Representatives of Gibson, Dunn & Crutcher advised the Board with respect to
certain legal matters relating to its fiduciary duties, and the Board discussed
the possibility of alternative transactions that the Company might consider in
the nature of a sale of the Company or a merger with a third party. Mr. Davidson
described that, with the exception of a very preliminary discussion he had had
with another software company regarding a possible "merger of equals" (which
would involve no premium) and the prior expressions of interest that had been
solicited on behalf of the Company but which had not proved of interest to the
Company, the Company had not received any recent inquiries regarding the
acquisition of the Company or a similar business combination.
Mr. Davidson also described for the Board CUC International's acquisition
strategy in which it proposed to acquire both Davidson and Sierra in
substantially simultaneous transactions, if possible. Mr. Davidson provided the
Board with an overview of Sierra, and described CUC International's plans for
the integration of the businesses of the Company and Sierra. Members of the
Board expressed concern that the Company receive some form of commitment from
CUC International regarding retention of Davidson's senior management after
consummation of the Merger and the Sierra Merger, CUC International's plans with
respect to the Company's employees following the Merger and CUC International's
commitment to the education segment of the Company's business, and Mr. Davidson
indicated that he had been informed by CUC International that, among other
things, (i) the Davidsons would retain management responsibility with respect to
the Company's business following the merger, (ii) CUC International did not
anticipate material personnel downsizing following the Merger, (iii) the
benefits and opportunities for Company employees would be comparable if not
better than current benefits offered by the Company, and (iv) CUC International
had no current plans to change the Company's product development, marketing or
sales strategies. At the conclusion of the February 13 Meeting, there was a
general discussion of the proposed merger, and a consensus was reached among the
members of the Board to proceed with negotiations with CUC International on an
expedited basis.
On February 13, 1996, the Company provided a confidential notice to Simon &
Schuster indicating that it might enter into a merger transaction. Pursuant to
the Software Development Agreement, Simon & Schuster had the right, exercisable
within five days of receipt of the notice, to require the Company to cease
discussions with any third party regarding a merger or acquisition transaction
and to engage in exclusive negotiations with Simon & Schuster for a period of 10
business days (the "exclusive negotiation period") with a view toward the
acquisition of the Company by Simon & Schuster. Pursuant to the Software
Development Agreement, Simon & Schuster had earlier been given the opportunity
to perform due diligence and to review confidential information regarding the
Company; however, Simon & Schuster did not respond to the Company's February
13th notice, and its rights to commence the exclusive negotiation period expired
unexercised on February 18, 1996.
During the week following the February 13th Meeting, representatives of the
Company and CUC International engaged in numerous negotiating sessions regarding
the draft Merger Agreement and ancillary agreements. During the weekend of
February 17th through 19th, the Company reached an understanding with CUC
International that, subject to Board approval, the transaction would be effected
at a .85-to-one exchange ratio, subject to agreement between the parties as to
the average trading price per share for CUC International Common Stock below
which the Company would be entitled (but not required) to terminate the Merger
Agreement pursuant to the walk-away provision. On February 18, 1996, CUC
International proposed that the Company be entitled to terminate the agreement
under the walk-away provision if CUC International's average stock price during
a prescribed measurement period fell below $28 per share. The Company responded
that (i) the minimum trading price for CUC International Common Stock in the
walk-away provision would have to be higher than $28 per share (and proposed a
$30 per share threshold) and (ii) the minimum trading price would have to be
based upon an average of the closing prices of CUC International Common Stock
during a specified period prior to the Company's shareholders' meeting convened
for the purpose of voting on the Merger Agreement.
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On February 19, 1996, the Board of Directors of the Company met, together
with the Company's legal and financial advisors, to consider and vote upon the
proposed transaction (the "February 19th Meeting"). All members of the Board
were in attendance at the meeting in person, other than Messrs. Miller and Sheh,
who attended the meeting by telephonic conference. At the outset of the February
19th Meeting, Mr. Davidson provided the Board with an overview of the
discussions and negotiations that had occurred since the last meeting of the
Board. Mr. Davidson also provided an overview of the status of the negotiations
between CUC International and Sierra (to which the Company was not a party), and
stated that he understood that, although the Merger and the Sierra Merger were
independent transactions, CUC International would likely be in a position to
sign a merger agreement with Sierra at or about the same time as the signing of
a merger agreement with the Company.
Mr. Davidson then introduced Mr. Forbes, who joined the meeting by
telephonic conference. Mr. Forbes provided the Board with an overview of CUC
International, including an overview of CUC International's historical financial
highlights, products, customer base and growth strategies. Mr. Forbes explained
CUC International's rationale for the proposed acquisition of Davidson and
Sierra and discussed the strategic value that Sierra and Davidson would bring to
CUC International as leading interactive content providers in the interactive
and on-line industry. Members of the Board asked Mr. Forbes a series of
questions relating to the proposed transaction, CUC International's plans with
respect to management of the Company following the transaction, and the
anticipated market reaction to the announcement of the transaction, after which
Mr. Forbes left the meeting.
Gibson, Dunn & Crutcher LLP then summarized for the Board the principal
terms of the draft Merger Agreement that had been negotiated between the Company
and CUC International and the terms of the ancillary agreements, and there
followed a discussion of the provisions thereof that had been revised since the
February 13th Meeting. Mr. Davidson indicated that, with the exception of the
walk-away provision that would entitle the Company to terminate the agreement if
CUC International's share price fell below a certain specified price during a
specified period, and assuming that the Board approved the .85-to-one exchange
ratio that had been discussed between CUC International and the Company, there
were no material outstanding issues to be negotiated. Mr. Davidson explained
that CUC International had, in its most recent draft, offered a walk-away
provision at a $28 per share level. The Board agreed that the Company should
attempt to obtain a walk-away provision based upon an average trading price of
$30 per share of CUC International Common Stock, and it was resolved that Mr.
Davidson would attempt to obtain the higher average share price in further
negotiations with CUC International and would report back to the Board for
further deliberations in the event that CUC International was unwilling to agree
to the $30 share price. Smith Barney then made a financial presentation to the
Board and rendered its oral opinion (subsequently confirmed by delivery of a
written opinion dated February 19, 1996) to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the Exchange
Ratio was fair, from a financial point of view, to the holders of Company Common
Stock. See "--Opinion of Company's Financial Advisor." The Board discussed the
preliminary discussions that Mr. Davidson had engaged in with another software
company, which had been addressed at the February 13th Meeting, and the Board
concluded that the other transaction was more speculative and did not provide
the same potential benefits as the Merger and that the Merger represented the
best course of action for the Company.
Subject to the satisfactory resolution of negotiations with respect to the
walk-away provision, the Board unanimously determined that the Merger was fair
to and in the best interests of the Company and its shareholders, approved the
terms of the proposed Merger, including the Exchange Ratio, and authorized the
execution and delivery of the Merger Agreement and ancillary documents and the
performance of the transactions contemplated thereby. See "--Reasons for the
Merger--The Company."
During the evening of February 19, 1996, representatives of the Company
spoke with representatives of CUC International in an attempt to resolve their
companies' differences with respect to the
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walk-away provision. CUC International indicated that it would be willing to
accept a $29 average trading price for CUC International Common Stock (which
represents a value to the Company's shareholders of $24.65 per share of Company
Common Stock based on the Exchange Ratio) in lieu of the $28 figure it had
previously requested, and Mr. Davidson indicated that, subject to the approval
of the Company's Board, he believed that the Company could accept the $29
figure. The February 19th Meeting was thereafter reconvened by telephonic
conference, at which time members of the Board unanimously approved the
walk-away provision based on a $29 average trading price for CUC International
Common Stock, and the Board reconfirmed its unanimous approval of the terms of
the Merger Agreement on the basis previously discussed by the Board.
At a special meeting of the Board of Directors of CUC International held on
February 19, 1996, the directors, by unanimous vote of the directors present,
determined that the terms of the merger transaction, including the issuance of
shares of CUC International Common Stock pursuant thereto, were fair to and in
the best interests of CUC International and the holders of CUC International
Common Stock and approved the Merger Agreement and authorized the execution and
delivery thereof and the performance of the transaction contemplated thereby.
The Merger Agreement was executed by the parties as of February 19, 1996,
and the Company and CUC International each issued a press release on February
20, 1996 announcing the proposed Merger.
Other than the discussions and negotiations relating to, and the execution
of, the Merger Agreement discussed above, the negotiation of the Shareholders
Agreement and the Registration Rights Agreement, the Real Property Purchase
Agreement, and the employment and noncompetition agreements discussed below in
"--Interests of Certain Persons in the Merger--Employment and Noncompetition
Agreements," neither CUC International nor the Company knows of any past,
present or proposed material contracts, arrangements, understandings,
relationships, negotiations or transactions in the last five years between the
Company or its affiliates and CUC International or its affiliates.
REASONS FOR THE MERGER
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 PC and interactive
information technology markets were expanding rapidly; (ii) educational and
entertainment technology products are two of the fastest growing areas of
consumer spending, and that the Company is strongly positioned in these sectors
with products suited for the rapid penetration of the PC and Internet into
consumers' homes; and (iii) the acquisition will enable CUC International to
broaden its interactive content offerings. Although the shares of CUC
International Common Stock to be issued in the Merger (and in the Sierra Merger
and Ideon Merger if both are consummated) will dilute (by an aggregate of
approximately 27%) the voting power of current holders of CUC International
Common Stock, the Board of Directors of CUC International believes that this
dilution is offset by the benefits to be attained by CUC International as a
result of the Merger, the Sierra Merger and the Ideon Merger.
The Company. The Board of Directors of the Company believes that the terms
of the Merger are fair to and in the best interests of the Company and its
shareholders, and the Board unanimously has approved the Merger Agreement (and
the transactions contemplated thereby). In its evaluation, the directors
considered a number of factors, including the following:
. The Merger would provide the Company's shareholders with CUC
International Common Stock in a tax-free exchange at a premium over the
market price for shares of Company Common Stock prevailing prior to the
public announcement of the Merger;
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. The Merger would create a combined company with significantly greater
resources and financial stability, a more diversified business base and
greater and more diverse sales and marketing capabilities than those of
the Company alone, and may enable the combined company to compete more
effectively with competitors having greater resources than the Company;
. The Merger should afford the Company's shareholders the opportunity to
continue to participate in the long-term growth and appreciation of the
Company's business through their continued ownership interest in CUC
International;
. The substantially larger public float and trading volume of shares of
CUC International Common Stock compared to the public float and trading
volume of Company Common Stock should provide the Company's
shareholders with greater liquidity in their investment and, based
solely on historical trading prices of CUC International Common Stock,
could provide the Company's shareholders with securities that have less
price volality than Company Common Stock;
. CUC International's substantial domestic and international direct sales
capabilities should provide an expanded opportunity for direct
distribution of the Company's products both within the United States
and in international markets;
. Information with respect to the financial condition and businesses of
CUC International including, among other things, CUC International's
recent and historical stock and earnings performance, the demonstrated
ability of CUC International to successfully implement its growth
strategy, the ability of CUC International to access the capital
markets and its stated commitment to expanding the Company's
educational and entertainment software business;
. The financial presentation and opinion of Smith Barney to the effect
that, as of February 19, 1996 and based upon and subject to certain
matters stated in such opinion, the Exchange Ratio was fair from a
financial point of view to the holders of Company Common Stock;
. The Merger Agreement would permit the Company to terminate the
agreement if the Average Stock Price is less than $29 for the 15
consecutive trading days ending on the first trading day that is at
least 10 calendar days prior to the scheduled date of the Meeting; and
. The Merger Agreement would permit the Company's Board of Directors to
terminate the agreement under certain circumstances if the Board, by a
majority vote, determined in its good faith judgment, after
consultation with independent legal counsel, that it was necessary to
do so to comply with its fiduciary duties to its shareholders under
applicable law, subject to a one-time payment of a "break-up fee" plus
the reimbursement of certain expenses of CUC International (up to a
specified limit) under certain circumstances.
In the course of its deliberations, the Board of Directors of the Company
reviewed a number of additional factors relevant to the Merger, including
principally: (i) the capital structure of CUC International; (ii) reports from
management and legal advisors on specific terms of the Merger Agreement, the
Shareholders Agreement, the employment and non-competition agreements and the
ancillary transaction agreements described in the Merger Agreement to be entered
into in connection with the Merger; (iii) public information concerning the
financial performance, business operations and prospects of CUC International
presented at meetings of the Board of Directors of the Company, (iv) CUC
International's statements to the Company to the effect that the Company's
senior management team would continue to have management responsibility for CUC
International's entertainment and educational software business following the
Merger, CUC International would not alter the Company's commitment to education,
CUC International did not anticipate material personnel downsizing following the
Merger and the benefits for the Company's employees would be comparable to, if
not better
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than, existing Company benefits, (v) the strength and continuity of the CUC
International management team and the Company's belief that the management
styles and corporate cultures of the two companies would be complementary, (vi)
the potential benefits to be derived from a combination of CUC International,
Davidson and Sierra, including potential cost savings through production
efficiencies and selling, general and administrative cost savings and the
enhanced ability to compete in what the Company believes will be a consolidating
and increasingly competitive software industry, (vii) the favorable results of
the due diligence investigation regarding CUC International performed on behalf
of the Company, (viii) the process that had been undertaken by the Company in
soliciting indications of interest to acquire or merge with the Company prior to
the commencement of discussions with CUC International, and (ix) the proposed
terms, timing and structure of the Merger.
The Board of Directors of the Company also considered a number of
potentially negative factors in its deliberations concerning the Merger,
including, among other things: (i) the fact that CUC International has not
previously engaged in management of educational or entertainment software
businesses, and that it might experience difficulties in integrating the
Company's business into its business or in realizing the strategic benefits of
combining Davidson's and Sierra's businesses; (ii) the fact that CUC
International Common Stock has historically traded at a high multiple of price
to earnings and any decline in future earnings growth could have a material
adverse effect on the trading price of CUC International Common Stock; (iii) the
possibility that creative software personnel might not continue their employment
with the combined company if not satisfied with the working environment,
opportunities and/or compensation at the combined company following the
transaction; and (iv) the loss of independence which would result from being a
wholly-owned subsidiary of CUC International. The Board of Directors concluded,
however, that the benefits of the transaction to the Company and its
shareholders outweighed the risks associated with the foregoing factors.
The foregoing discussion of the information and factors considered by the
Company's Board of Directors is not intended to be exhaustive but is intended to
include the material factors considered by the directors. In view of the wide
variety of factors considered by the Company's Board of Directors, the directors
did not find it practical to, and did not, quantify or otherwise assign relative
weight to the specific factors considered and individual directors may have
ascribed differing weights to different factors.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
At a special meeting of the Company's Board of Directors held on February
19, 1996, the directors unanimously determined that the Merger is fair to and in
the best interests of the Company and its shareholders, approved the Merger
Agreement (and the transactions contemplated thereby), and recommended adoption
of the Merger Agreement by the holders of Company Common Stock.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Smith Barney Inc. Smith Barney was retained by the Company to act as its
financial advisor in connection with the Merger. In connection with such
engagement, the Company requested that Smith Barney evaluate the fairness, from
a financial point of view, to the holders of Company Common Stock of the
consideration to be received by such holders in the Merger. On February 19,
1996, at a meeting of the Board of Directors of the Company held to evaluate the
proposed Merger, Smith Barney delivered an oral opinion (subsequently confirmed
by delivery of a written opinion dated such date) to the Board of Directors of
the Company to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Exchange Ratio was fair, from
a financial point of view, to the holders of Company Common Stock.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of the Company and certain
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senior officers and other representatives of CUC International concerning the
businesses, operations and prospects of the Company and CUC International.
Smith Barney examined certain publicly available business and financial
information relating to the Company and CUC International as well as certain
financial forecasts and other data for the Company and CUC International which
were provided to Smith Barney by the respective managements of the Company and
CUC International. See "Certain Forward Looking Information." Smith Barney
reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of Company Common Stock and CUC International Common
Stock; the respective companies' historical and projected earnings and operating
data; and the capitalization and financial condition of the Company and CUC
International. Smith Barney also considered, to the extent publicly available,
the financial terms of certain other similar transactions recently effected
which Smith Barney considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Smith Barney
considered relevant in evaluating those of the Company and CUC International.
Smith Barney also evaluated the potential pro forma financial impact of the
Merger on CUC International. In connection with its engagement, Smith Barney
was requested to approach, and held discussions with, certain third parties to
solicit indications of interest in a possible acquisition of the Company. In
addition to the foregoing, Smith Barney conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as Smith Barney deemed appropriate in arriving at its opinion. Smith Barney
noted that its opinion was necessarily based upon information available, and
financial, stock market and other conditions and circumstances existing and
disclosed, to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial forecasts
and other information provided to or otherwise reviewed by or discussed with
Smith Barney, the respective managements of the Company and CUC International
advised Smith Barney that such forecasts and other information were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of the Company and CUC International as to the
future financial performance of the Company and CUC International. Smith Barney
assumed, with the consent of the Board of Directors of the Company, that the
Merger will be treated as a "pooling-of-interests" in accordance with generally
accepted accounting principles and as a tax-free reorganization for federal
income tax purposes. Smith Barney's opinion relates to the relative values of
the Company and CUC International. Smith Barney did not express any opinion as
to what the value of the CUC International Common Stock actually will be when
issued to the Company shareholders pursuant to the Merger or the price at which
the CUC International Common Stock will trade subsequent to the Merger. Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or CUC International, nor did Smith Barney make any physical inspection of the
properties or assets of the Company or CUC International. Smith Barney noted in
its opinion that the Company and Smith Barney had minimal access to financial
and other business information relating to Sierra and the potential transaction
involving Sierra that CUC International was evaluating at the time of Smith
Barney's opinion, and, consequently, Smith Barney's review for purposes of its
opinion had been, with the consent of the Board of Directors of the Company,
more limited than the financial analyses and investigations customarily
undertaken in similar transactions. Smith Barney's analysis was undertaken, and
its opinion was rendered, prior to the execution of the Ideon Merger Agreement
and, therefore, did not take into consideration the Ideon Merger. Although Smith
Barney evaluated the Exchange Ratio from a financial point of view, Smith Barney
was not asked to and did not recommend the specific consideration payable in the
Merger. No other limitations were imposed by the Company on Smith Barney with
respect to the investigations made or procedures followed by Smith Barney in
rendering its opinion.
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THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED FEBRUARY 19,
1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF COMPANY COMMON STOCK ARE URGED TO READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF
COMPANY COMMON STOCK, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED
TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MEETING. THE SUMMARY OF THE OPINION OF
SMITH BARNEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Smith Barney performed a variety of financial and
comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Smith Barney
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney made
numerous assumptions with respect to the Company, CUC International, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the Company and CUC
International. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Smith Barney's opinion and financial analyses were only
one of many factors considered by the Board of Directors of the Company in its
evaluation of the Merger and should not be viewed as determinative of the views
of the Company's Board of Directors or management with respect to the Exchange
Ratio or the proposed Merger.
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
the Company, CUC International and the following selected companies in the
educational software, entertainment software and large consumer software
segments of the software industry and compared these multiples against the
multiples implied for the Company by the Exchange Ratio: (i) Education Software:
Edmark Corporation; Maxis Inc.; and Softkey International, Inc. (the
"Educational Software Companies"); (ii) Entertainment Software: 7th Level, Inc.;
Acclaim Entertainment, Inc.; Activision, Inc.; Atari Corporation; Broderbund
Software Inc.; Electronic Arts, Inc.; GT Interactive Software Corporation;
Sierra On-Line, Inc.; and Spectrum Holobyte, Inc. (the "Entertainment Software
Companies"); and (iii) Large Consumer Software: Adobe Systems Incorporated;
Intuit Inc.; and Microsoft Corporation (the "Large Consumer Software Companies"
and, together with the Education Software Companies and Entertainment Software
Companies, the "Selected Companies"). The Selected Companies were selected based
on companies which possessed general business, operating and financial
characteristics representative of companies in industries in which the Company
and CUC International operate. Smith Barney compared market values as multiples
of latest 12 months net income and estimated calendar 1995 and 1996 net income,
and adjusted market values (equity market value, plus total debt and preferred
stock, less cash, and cash equivalents) as multiples of latest 12 months net
revenue and earnings before interest and taxes ("EBIT"). Net income projections
for the Selected Companies were based on published estimates of selected
investment banking firms and net income projections for the Company and CUC
International were based on published estimates of selected investment banking
firms and internal estimates of the managements of the Company and CUC
International. All multiples were based on
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closing stock prices on February 16, 1996 (the last trading day prior to public
announcement of the execution of the Merger Agreement).
The ranges of multiples of latest 12 months net income, estimated 1995 and
1996 net income and latest 12 months net revenue and EBIT of the Educational
Software Companies were as follows: (i) latest 12 months net income: 28.8x to
51.1x (with a median of 39.9x); (ii) estimated 1995 and 1996 net income: 40.8x
to 76.1x (with a median of 58.5x) and 14.4x to 51.0x (with a median of 27.2x),
respectively; (iii) latest 12 months revenue: 4.9x to 8.9x (with a median of
5.3x); and (iv) EBIT: 29.6x to 37.7x (with a median of 33.7x). The ranges of
multiples of latest 12 months net income, estimated 1995 and 1996 net income and
latest 12 months net revenue and EBIT of the Entertainment Software Companies
were as follows: (i) latest 12 months net income: 20.6x to 95.9x (with a median
of 33.0x); (ii) estimated 1995 and 1996 net income: 20.6x to 45.2x (with a
median of 28.9x) and 18.4x to 31.1x (with a median of 22.8x), respectively;
(iii) latest 12 months net revenue: 1.0x to 8.9x (with a median of 3.7x); and
(iv) EBIT: 12.5x to 44.4x (with a median of 23.6x). The ranges of multiples of
latest 12 months net income, estimated calendar 1995 and 1996 net income and
latest 12 months net revenue and EBIT of the Large Consumer Software Companies
were: (i) latest 12 months net income: 22.4x to 34.8x (with a median of 28.6x);
(ii) estimated 1995 and 1996 net income: 18.7x to 33.6x (with a median of 26.1x)
and 16.2x to 55.4x (with a median of 27.6x), respectively; (iii) latest 12
months revenue: 2.7x to 7.9x (with a median of 5.5x); and (iv) latest 12 months
EBIT: 10.4x to 23.0x (with a median of 16.7x). The multiples of latest 12 months
net income, estimated 1995 and 1996 net income and latest 12 months net revenue
and EBIT of the Company were 62.9x, 51.4x, 32.5x, 4.9x and 38.7x, respectively.
Based on the closing stock price of CUC International Common Stock on February
16, 1996, the Exchange Ratio equated to implied multiples of latest 12 months
net income, estimated 1995 and 1996 net income and latest 12 months revenue and
EBIT for the Company of 108.4x, 88.5x, 55.9x, 8.5x and 67.8x, respectively.
Component Analysis. Using certain publicly available information and
internal estimates of management of the Company, Smith Barney derived an equity
reference range for the Company based on the two primary components of the
Company's operations: software publishing and software distribution. Smith
Barney utilized internal estimates of the management of the Company as to the
projected 1996 operating performance of each business line and the allocation of
certain corporate items to derive estimates of the net income contribution of
such business lines to the Company. In order to calculate an equity reference
range for the Company's software publishing business, Smith Barney applied a
range of multiples of estimated 1996 net income for the Education Software
Companies of 14.4x to 51.0x to the estimated 1996 net income contribution of the
Company's software publishing business, which resulted in an equity reference
range for the Company's software publishing business of approximately $7.16 to
$25.37 per share. In order to calculate an equity reference range for the
Company's software distribution business, Smith Barney analyzed, among other
things, the market values and trading multiples of the following selected
companies in the software distribution industry: Neostar Retail Group; Merisel
Inc.; Micro Warehouse, Inc.; and Software Spectrum, Inc. (the "Software
Distribution Companies"). Smith Barney then applied a range of multiples of
estimated 1996 net income for the Software Distribution Companies of 8.1x to
22.4x to the estimated 1996 net income contribution of the Company's software
distribution business, which resulted in an equity reference range for the
Company's software distribution business of approximately $1.18 to $3.28 per
share. Based on the foregoing, the aggregate equity reference range of the
software publishing and software distribution components of the Company was
estimated to be approximately $8.35 to $28.64 per share, as compared to the
equity value for the Company implied by the Exchange Ratio, based on a closing
stock price of CUC International Common Stock on February 16, 1996, of
approximately $31.88 per share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed, among other things, the implied
purchase price and transaction value multiples paid or proposed to be paid in
the following selected merger and acquisition transactions in the software
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industry (acquiror/target) and compared these multiples with the multiples
implied by the Exchange Ratio: Softkey International, Inc./The Learning Company;
Softkey International, Inc./Tribune Company's Compton's NewMedia, Inc. and
Compton's Learning Co.; Softkey International, Inc./Minnesota Educational
Computing Corporation; Symantec Corporation/Delrina; Adobe Systems
Incorporated/Frame Technology Corporation; International Business Machines
Corporation/Lotus Development Corporation; Parametric Technology
Corporation/Rasna Corporation; Computer Associates International/Legent
Corporation; Investor Group/Jostens Learning Corporation; PLATINUM Technology,
Inc./Trinzic Corporation; Silicon Graphics, Inc./Wavefront Technologies, Inc.;
Silicon Graphics, Inc./Alias Research Inc.; Sybase Inc./Powersoft Corporation;
Avid Technology, Inc./Digidesign Inc.; Microsoft Corporation/Intuit Inc.;
Pearson PLC/The Software Toolworks Inc.; Novell Inc./WordPerfect Corporation;
CompuWare Corporation/Uniface Holding, B.V.; Adobe Systems Incorporated/Aldus
Corporation; Microsoft Corporation/SOFTIMAGE; Electronic Arts Inc./Broderbund
Software Inc.; H & R Block, Inc./MECA Software, Inc.; Intuit Inc./ChipSoft Inc.;
MicroProse, Inc./Spectrum Holobyte, Inc.; Symantec Corporation/Contact Software
International, Inc.; Sterling Software, Inc./Systems Center, Inc.; Electronic
Arts Inc./Origin Systems, Inc.; Jostens, Inc./Wicat Systems, Inc.; Legent
Corporation/Goal Systems International, Inc.; and Borland International,
Inc./Ashton-Tate Corporation. Smith Barney compared equity purchase prices as
multiples of, among other things, latest 12 months and estimated fiscal year net
income and transaction values as multiples of, among other things, latest 12
months revenue and EBIT. All multiples for the Selected Transactions were based
on information available at the time of announcement of such transaction. The
mean and median multiples of latest 12 months and estimated fiscal year net
income and latest 12 months revenue and EBIT of the Selected Transactions were
as follows: (i) latest 12 months net income: a mean of 47.6x and a median of
36.7x; (ii) estimated fiscal year net income: a mean of 42.2x and a median of
39.5x; (iii) latest 12 months revenue: a mean of 3.9x and a median of 3.3x; and
(iv) latest 12 months EBIT: a mean of 43.7x and a median of 30.5x. Based on a
closing stock price of CUC International Common Stock on February 16, 1996, the
Exchange Ratio equated to implied multiples of latest 12 months and estimated
calendar 1996 net income and latest 12 months revenue and EBIT for the Company
of 108.4x, 55.9x, 8.5x and 67.8x, respectively.
No company, transaction or business used in the "Selected Company Analysis,"
"Component Analysis" or "Selected Merger and Acquisition Transactions Analysis"
as a comparison is identical to the Company, CUC International or the Merger.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of the
Selected Companies, Selected Software Distribution Companies, Selected
Transactions or the business segment, company or transaction to which they are
being compared.
Contribution Analysis. Smith Barney analyzed, among other things, the
respective contributions of the Company and CUC International to the pro forma
revenue, EBIT and net income of the combined company for fiscal year 1996
(without giving effect to the Sierra Merger). This analysis indicated that in
fiscal year 1996 the Company would contribute approximately 11.7% of revenue,
10.3% of EBIT and 8.7% to 9.8% of net income, and CUC International would
contribute approximately 88.3% of revenue, 89.7% of EBIT and 91.3% to 90.2% of
net income, to the pro forma combined company. Immediately following
consummation of the Merger, shareholders of the Company and CUC International
would own approximately 13.6% and 86.4%, respectively, of the pro forma combined
company.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger (without giving effect to the Sierra Merger),
including, among other things, the impact of the Merger on the projected
earnings per share ("EPS") of CUC International and the Company for fiscal years
1996, 1997 and 1998 based on, in the case of CUC International, published
estimates of selected investment banking firms for fiscal year 1996 and, in the
case of the Company, internal estimates of the
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management of the Company for fiscal year 1996, in each case extrapolated by
Smith Barney for fiscal years 1997 and 1998 based on estimates of selected
investment banking firms as to the five-year earnings growth rate potential for
CUC International and the Company (a median of approximately 27.5% in the case
of estimates relating to CUC International and 40% in the case of estimates
relating to the Company). The results of the pro forma merger analysis suggested
that the Merger could be dilutive to CUC International's EPS relative to CUC
International on a stand-alone basis in fiscal years 1996, 1997 and 1998 by
approximately (5.2%), (4.4%) and (3.5%), respectively (based on published
estimates of selected investment banking firms), and (4.2%), (3.3%) and (2.2%),
respectively (based on internal estimates of the management of the Company), and
accretive to the Company's EPS relative to the Company on a stand-alone basis in
fiscal years 1996, 1997 and 1998 by approximately 52.6%, 40.2% and 28.9%,
respectively (based on published estimates of selected investment banking
firms), and 37.3%, 26.4% and 16.3%, respectively (based on internal estimates of
the management of the Company). Smith Barney noted that the actual results
achieved by the combined company may vary from projected results and the
variations may be material.
Historical Exchange Ratio Analysis. Smith Barney compared the historical
ratio of the daily per share market closing stock prices of Company Common Stock
with corresponding market prices of CUC International Common Stock over the
12-month, six-month, three-month, two-month and one-month periods ending
February 16, 1996. The average exchange ratios during such periods were 0.6913,
0.7228, 0.5715, 0.5382 and 0.4915, respectively, as compared to the Exchange
Ratio of 0.85.
Premium Analysis. Smith Barney analyzed the implied premium payable in the
Merger and the premiums paid in 19 selected stock-for-stock transactions having
transaction values in excess of $500 million involving companies of
disproportionate size based, among other things, on closing stock prices one
day, one week and one month, respectively, prior to the announcement date of
such transactions. The results of the premium analysis indicated a range of
premiums payable in such transactions of approximately (9.3%) to 57.7% (with a
mean of 21.9% and a median of 23.7%) as of one day prior to the announcement
date of such transactions, approximately (6.1%) to 71.4% (with a mean of 27.2%
and a median of 23.9%) as of one week prior to the announcement date of such
transactions and approximately (0.6%) to 66.1% (with a mean of 29.2% and a
median of 26.3%) as of one month prior to the announcement date of such
transactions. The implied premium payable in the Merger as of one day, one week
and one month prior to the announcement date of the Merger, based on a closing
stock price of CUC International Common Stock on February 16, 1996, was
approximately 79.6%, 67.8% and 79.6%, respectively.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things: (i) the indications of interest
received by the Company from third parties other than CUC International; (ii) a
review of historical and projected financial results of the Company and CUC
International; (iii) the history of trading prices and volume for Company Common
Stock and CUC International Common Stock and the relationship between movements
of such Common Stock, movements of the common stock of the Selected Companies
and movements in the NASDAQ Composite Index; (iv) selected published analysts'
reports on the Company and CUC International, including analysts' estimates as
to the earnings growth potential of the Company and CUC International; (v) a
review of certain business and financial information relating to Sierra,
including a review of publicly available historical financial results of Sierra,
the history of trading prices and volume of Sierra Common Stock and the
relationship between movements of such Common Stock and movements in the NASDAQ
Composite Index, selected published analysts' reports on Sierra, including
analysts' estimates as to the earnings growth potential of Sierra, the estimated
pro forma impact of the acquisition of Sierra on CUC International's EPS and
estimated net income contribution of Sierra to the combined company; and (vi)
the pro forma ownership of the combined company.
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Pursuant to the terms of Smith Barney's engagement, the Company has agreed
to pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee equal to 0.5% of the total consideration (including
liabilities assumed) payable in connection with the Merger. It is currently
estimated that such financial advisory fee will be approximately $5.7 million.
The Company has also agreed to reimburse Smith Barney for out-of-pocket expenses
incurred by Smith Barney in performing its services, including the reasonable
fees and expenses of its legal counsel, and to indemnify Smith Barney and
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's engagement.
Smith Barney has advised the Company that, in the ordinary course of
business, Smith Barney and its affiliates may actively trade the securities of
the Company and CUC International for their own account or for the account of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Smith Barney has in the past provided certain financial
advisory and investment banking services to the Company unrelated to the
proposed Merger, for which services Smith Barney has received compensation. In
addition, Smith Barney and its affiliates (including Travelers Group Inc. and
its affiliates) may maintain relationships with the Company and CUC
International.
Smith Barney is a nationally recognized investment banking firm and was
selected by the Company based on Smith Barney's experience, expertise and
familiarity with the Company and its business. Smith Barney regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Kerlin Capital Group, LLC. Kerlin Capital was engaged by the Company to act
as a special financial advisor to the Company and its Board of Directors in
connection with possible mergers and acquisitions involving the Company. Kerlin
Capital is a private investment bank based in Los Angeles. Kerlin Capital's
principal shareholder had advised the Company on various matters over the past
ten years and has professional experience and knowledge with respect to the
Company's strategic objectives and business. Prior to forming Kerlin Capital in
December 1994, its principal shareholder was a managing director of Smith Barney
and had senior responsibility for Smith Barney's engagement with the Company.
The Company engaged Kerlin Capital effective December 1994 in order to maintain
continuity in the advice and counsel provided to the Company. Kerlin Capital's
role in the Merger was to provide advice related to the long-term strategic
objectives of the Company and to act as an independent advisor with respect to
the negotiations. Kerlin Capital did not provide valuation recommendations or a
fairness opinion with respect to the Merger.
Pursuant to the terms of Kerlin Capital's engagement with the Company,
Kerlin Capital received an initial advisory fee of $75,000 upon execution of a
definitive agreement and will receive at the closing a contingent fee equal to
0.08% of the merger consideration, less the $75,000 initial advisory fee. Based
on the market values of the stock of the Company and CUC International on the
day prior to the public announcement of the Merger, Kerlin Capital's contingent
fee would be equal to $892,600. The Company has also agreed to reimburse Kerlin
Capital for its reasonable out-of-pocket expenses incurred in performing its
services and to indemnify Kerlin Capital and related persons against certain
liabilities.
CERTAIN FORWARD LOOKING INFORMATION
In connection with discussions between the Company and CUC International
concerning the proposed Merger, the Company, CUC International and their
financial advisors or other representatives reviewed certain non-public business
and financial information concerning the Company and CUC International, which is
summarized below:
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
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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 BELOW 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 BELOW HAS BEEN INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS
SOLELY BECAUSE SUCH INFORMATION WAS FURNISHED TO CUC INTERNATIONAL AND THE
COMPANY AND THEIR FINANCIAL ADVISORS OR OTHER REPRESENTATIVES. SUCH INFORMATION
WAS NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR IN COMPLIANCE WITH THE
PUBLISHED GUIDELINES OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS OR FINANCIAL FORECASTS. SUCH INFORMATION WAS PRELIMINARY
IN NATURE AND PREPARED SOLELY FOR INTERNAL PURPOSES AND IS SUBJECTIVE IN MANY
RESPECTS AND, THEREFORE, SUSCEPTIBLE TO INTERPRETATIONS AND PERIODIC REVISIONS
BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENTS. ALTHOUGH EACH OF CUC
INTERNATIONAL AND THE COMPANY BELIEVE THAT THE ASSUMPTIONS UPON WHICH ITS
FORWARD-LOOKING INFORMATION WAS BASED WERE REASONABLE WHEN MADE, BECAUSE SUCH
ASSUMPTIONS ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT AND
ARE BEYOND THE COMPANY'S AND CUC INTERNATIONAL'S CONTROL, THERE CAN BE NO
ASSURANCE, AND NO REPRESENTATION OR WARRANTY IS MADE, THAT THE FINANCIAL
ESTIMATES CONTAINED IN SUCH FORWARD-LOOKING INFORMATION WILL BE OR ARE CAPABLE
OF BEING REALIZED. ACTUAL FINANCIAL RESULTS OF CUC INTERNATIONAL 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 FOR THE FISCAL YEAR ENDING JANUARY 31, 1997 WAS PREPARED
AND FURNISHED TO THE COMPANY AND ITS FINANCIAL ADVISORS. NEITHER CUC
INTERNATIONAL'S FINANCIAL ESTIMATES NOR THE COMPANY'S FINANCIAL ESTIMATES GIVE
EFFECT TO CONSUMMATION OF THE MERGER, THE SIERRA MERGER OR THE IDEON MERGER (OR
ANY OF THE PROPOSED TRANSACTIONS CONTEMPLATED THEREBY). ACCORDINGLY, IT IS
EXPECTED THAT THERE COULD BE DIFFERENCES WHICH MAY BE MATERIAL BETWEEN ACTUAL
FINANCIAL RESULTS AND ESTIMATED FINANCIAL RESULTS, AND ACTUAL RESULTS MAY BE
HIGHER OR LOWER THAN THOSE ESTIMATED.
NONE OF CUC INTERNATIONAL, THE COMPANY, OR 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 THE COMPANY'S
NOR CUC INTERNATIONAL'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. WHILE THE COMPANY, CUC
INTERNATIONAL AND THEIR FINANCIAL ADVISORS OR OTHER REPRESENTATIVES CONSIDERED
SUCH FORWARD-LOOKING INFORMATION IN CONNECTION WITH THE PROPOSED
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MERGER, SUCH INFORMATION CONSTITUTED ONLY ONE OF THE MANY FACTORS CONSIDERED BY
SUCH PARTIES.
Certain non-public business and financial information relating to the
Company reviewed by the Company, CUC International and their financial advisors
or other representatives in connection with the proposed Merger included, among
other things, estimated total revenues of approximately $204 million, estimated
gross profit of approximately $113 million, estimated total expenses of
approximately $75 million, estimated pre-tax net profits of approximately $39
million and estimated net income after tax of approximately $23 million each for
the fiscal year ended December 31, 1996. In preparing such financial estimates
for the fiscal year ended December 31, 1996, the Company assumed that (i) there
would be growth in unit sales of certain of the Company's existing educational
and entertainment software products at anticipated prices, (ii) the Company
would be able to release on schedule certain educational and entertainment
software products now in development, (iii) the Company would be able to
successfully position such new products in the marketplace, (iv) estimated unit
sales of such new products at anticipated product prices would meet certain
levels, (v) there would be growth in revenues derived from the Company's
Educational Resources division and NewsMedia Express, (vi) selling, general,
administrative and research and development expenses as a percentage of net
revenues would approximate the same percentage of net revenues as in recent
years, (vii) research and development expenses would increase in accordance with
historic trends, (viii) statutory income tax rates would remain at the rates in
effect during 1995, and (ix) no significant technological, competitive or other
market developments would occur, of either a favorable or unfavorable nature,
that would affect the Company's operations.
Certain non-public business and financial information relating to CUC
International reviewed by the Company, CUC International and their financial
advisors or other representatives in connection with the proposed Merger
included, among other things, estimated total revenue of approximately $1.6
billion, estimated operating income of approximately $341 million, estimated net
income of approximately $211 million, and estimated earnings per share of
approximately $1.08, each for the fiscal year ended January 31, 1997. The
foregoing information assumed that memberships would increase by approximately
10-13% during the fiscal year ending January 31, 1997, resulting in increased
margins of approximately one percentage point over such period.
MANAGEMENT OF THE COMPANY AND CUC INTERNATIONAL AFTER THE MERGER
CUC International has indicated that it has no present intention of
replacing after the Effective Time any of the executive officers of the Company,
and, in connection with the Merger, CUC International will enter into employment
agreements with each of Mr. Davidson and Mrs. Davidson, pursuant to which they
will continue to serve as Chief Executive Officer, and President, respectively,
of the Company after the Effective Time. Mr. Davidson's employment agreement
also provides that he will serve as the Chairman and Chief Executive Officer of
CUC International's educational and entertainment software division (including
CUC Software Services, Inc.) and that Mr. Davidson shall be responsible for
overall management of the Company and CUC International's educational and
entertainment software division. CUC International has agreed, effective upon
consummation of the Merger, to increase the size of the CUC International Board
by two directors and to cause Mr. Davidson and Mrs. Davidson to be appointed to
the CUC International Board to fill the vacancies so created, for initial terms
expiring two years and one year, respectively, following the date of CUC
International's first annual meeting of shareholders following February 19,
1996, and has agreed to cause Mr. Davidson to be elected as a Vice Chairman of
the CUC International Board. In addition, in connection with the Sierra Merger
(if consummated), CUC International has agreed that effective at the Sierra
Effective Time, 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 and serve as a Vice Chairman of such Board. Additional information
about Mr. Davidson and Mrs. Davidson is contained in the Company 10-K, which is
incorporated by reference in this Proxy Statement/Prospectus, and
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additional information about the present directors and executive officers of CUC
International is contained in the CUC 10-K, which is incorporated in this Proxy
Statement/Prospectus by reference.
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 business and
operations of the Company will continue to be conducted substantially as they
currently are being conducted.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors with
respect to the Merger Agreement, holders of shares of Company Common Stock
should be aware that certain executive officers and directors of the Company
have certain interests in the Merger that are in addition to and not necessarily
aligned with the interests of holders of Company Common Stock generally. The
Board of Directors of the Company has considered these interests, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Stock Options. At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each an "Option" and collectively, "Options")
issued pursuant to the 1992 Incentive Stock Option Plan of the Company and the
1992 Non-Statutory Stock Option Plan of the Company (collectively, the "Company
Plans"), whether vested or unvested, will be cancelled and, in lieu thereof, CUC
International will issue to each holder of an Option a substitute option (each,
a "CUC International Option"), which does not qualify under section 422 of the
Code, to acquire, on substantially the same terms and subject to substantially
the same conditions as were applicable under the cancelled Option, the same
number of shares of CUC International Common Stock as the holder of the
cancelled Option would have been entitled to receive pursuant to the Merger had
such holder exercised the cancelled Option in full immediately prior to the
Effective Time, at a price per share equal to (i) the aggregate exercise price
for the shares of Company Common Stock otherwise purchasable pursuant to the
Option divided by (ii) the number of full shares of CUC International Common
Stock deemed purchasable pursuant to the Option; provided, however, that the
number of shares of CUC International Common Stock that may be purchased upon
exercise of any such CUC International Option will not include any fractional
shares and, upon exercise of the CUC International Option, a cash payment will
be made for any fractional shares based upon the Closing Price (as hereinafter
defined) of a share of CUC International Common Stock on the trading day
immediately preceding the date of exercise. The Company has agreed to use all
reasonable efforts to cause all Options issued to non-employee directors of the
Company pursuant to the Company Plans that are outstanding prior to the
Effective Time and that are vested to be exercised by the holders thereof prior
to the Effective Time.
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As of the Record Date, certain executive directors and executive officers of
the Company owned outstanding Options to purchase up to an aggregate of 659,400
shares of Company Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMPANY COMMON STOCK EXERCISE
NAME POSITION SUBJECT TO OPTIONS PRICE
- ----------------------------- ------------------------------- -------------------- --------
<S> <C> <C> <C>
Jacques R. Allewaert......... Vice President, Chief Financial 48,000 11.75
Officer and Director 32,000 14.38
25,000 17.00
John Y. Patrick.............. Vice President, Marketing 15,000 4.75
10,000 10.75
10,000 17.75
John C. Goodman.............. Senior Vice President, 60,000 4.75
Operations 20,000 14.38
20,000 17.75
Russell H. Nishida........... President, NewMedia Express 40,000 4.75
Todd W. Coyle................ Vice President, Consumer Sales 5,000 25.50
60,000 13.88
40,000 14.38
25,000 17.75
John R. Sosoka............... Vice President, Chief Technical 32,000 4.75
Officer 20,000 10.75
10,000 14.38
20,000 17.75
Martha Connellan............. Vice President, School Products 50,000 17.75
Paula V. Duffy............... Vice President, General Counsel 20,000 14.00
and Secretary 10,000 17.00
5,000 17.75
Allen Adham.................. President, Blizzard 22,400 10.75
Entertainment Division, 20,000 14.38
Director 20,000 17.75
Charles D. Miller............ Director 10,000 27.25
Robert B. Sheh............... Director 10,000 5.50
</TABLE>
Employment and Noncompetition Agreements. At the request of CUC
International, upon consummation of the Merger, each of Robert M. Davidson,
Chairman of the Board and Chief Executive Officer of the Company, and Janice G.
Davidson, President of the Company, has agreed to enter into an employment
agreement and a noncompetition agreement with CUC International.
The employment agreement with Mr. Davidson will provide that (i) he will
serve as a Vice Chairman (upon election to the Board of Directors) of CUC
International; (ii) he will continue as the Company's Chief Executive Officer
and as a director; (iii) he will serve as the Chairman and Chief Executive
Officer and as a director of CUC International's educational and entertainment
software division and that he will be responsible for overall management of the
Company and CUC International's educational and entertainment software division;
(iv) the term of his employment will continue for a period of 36 full calendar
months, subject to extension or termination as provided in the agreement; (v) he
will receive a base salary in an amount to be determined by the parties; (vi) he
will be eligible for discretionary annual incentive compensation awards; and
(vii) he will be entitled to participate in all compensation or employee benefit
plans or programs and receive all benefits and
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perquisites for which salaried employees of CUC International are eligible under
any plan or program now in effect or later established by CUC International for
salaried employees generally.
The employment agreement with Mrs. Davidson will provide that (i) she will
continue as the Company's President and as a director; (ii) her employment will
continue for a period of 36 full calendar months, subject to extension or
termination as provided in the agreement; (iii) she will receive a base salary
in an amount to be determined by the parties; (iv) she will be eligible for
discretionary annual incentive compensation awards; and (v) she will be entitled
to participate in all compensation or employee benefit plans or programs and
receive all benefits and perquisites for which salaried employees of CUC
International are eligible under any plan or program now in effect or
established later by CUC International for salaried employees generally.
The non-competition agreements with the Davidsons (i) will provide that,
until the fifth anniversary of the closing of the Merger (the "Closing"),
without the prior express written approval by the Board of Directors of CUC
International, they will abstain from (i) engaging in competition, or directly
or indirectly owning or holding a proprietary interest in or being employed by,
or consulting with or receiving compensation from, any party which competes, in
any way or manner with the business of the Company or any of its subsidiaries,
as such business or businesses may be conducted from time to time; (ii)
soliciting any clients of the Company or any of its subsidiaries for any
business of the Company or any of its subsidiaries or discussing with any
employee of CUC International or any of its affiliates information or operations
of any business intended to compete with CUC International or any of its
affiliates; and (iii) soliciting or inducing any person who is an employee of
the Company or any of its subsidiaries to terminate any relationship such person
may have with the Company or any of its subsidiaries, nor shall they during such
period directly or indirectly engage, employ or compensate, or cause or permit
any person with which they may be affiliated, to engage, employ or compensate,
any employee of CUC International or any of its affiliates.
Directorships. CUC International has agreed, effective upon consummation of
the Merger, to increase the size of the CUC International Board by two directors
and to cause Robert M. Davidson, Chairman of the Board and Chief Executive
Officer of the Company, and Janice G. Davidson, President of the Company, to be
appointed to the CUC International Board to fill the vacancies so created, for
initial terms expiring two years and one year, respectively, following the date
of CUC International's first annual meeting of shareholders following February
19, 1996, and has agreed to cause Robert M. Davidson to be elected as a Vice
Chairman of the CUC International Board. From and after the Closing, and for so
long as the parties to the Shareholders Agreement (other than CUC International
and the Company) collectively beneficially own (as such term is defined in
Section 13 of the Exchange Act and the rules and regulations thereunder) 25% of
the shares of CUC International Common Stock received by them in the Merger, CUC
International has agreed to cause at least one of the Davidsons to be included
in the slate of nominees for election to the CUC International Board at each
annual meeting of holders of CUC International Common Stock and at any special
meeting of such holders at which directors are to be elected (unless one of such
persons is then a member of a director class whose term does not expire at such
meeting). The Davidsons serve on the Company's Board of Directors and voted for
the approval of the Merger Agreement.
Registration Rights Agreement. Pursuant to the Merger Agreement, CUC
International has agreed to enter into a registration rights agreement (the
"Registration Rights Agreement") with the holders of approximately 72% of the
outstanding Company Common Stock (which consist of the Davidsons and each of the
entities for which they serve as fiduciaries).
Demand Registration. Pursuant to the Registration Rights Agreement, CUC
International has agreed, among other things, that at any time, and from time to
time, commencing with the Effective Date and ending six years thereafter (the
"Effective Period"), upon the written request of any Qualified Holders
requesting that CUC International effect the registration under the Securities
Act of Registrable Securities which, in the aggregate, constitute at least
2,000,000 shares of CUC International Common Stock, CUC International will use
its best efforts to register under the Securities Act (a
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"Demand Registration"), as expeditiously as may be practicable (but not until
there are publicly available financial statements reflecting at least 30 days of
combined operations of CUC International and the Company), the Registrable
Securities which CUC International has been requested to register, all to the
extent requisite to permit the disposition of such Registrable Securities in
accordance with the methods intended by the sellers thereof; provided that (A)
no Qualified Holder(s) will be entitled to exercise a Demand Registration within
three months of the effective date of any registration statement covering equity
securities of CUC International (other than on Form S-4 or Form S-8 or any
successor or similar form) and (B) CUC International will not be required to
effect any registration if CUC International reasonably determines that the sale
of the Registrable Securities reasonably would be likely to cause the Merger not
to be accounted for as a "pooling of interests." Moreover, if CUC International
has previously effected a Demand Registration, it will not be required to effect
a subsequent Demand Registration until a period of at least 120 days has elapsed
from the effective date of the registration statement used in connection with
such previous Demand Registration and CUC International will not be required to
effect more than three Demand Registrations during any 36-month period during
the Effective Period.
CUC International also may defer the filing or effectiveness of any
registration statement related to a Demand Registration for a reasonable period
of time not to exceed 90 days after such request if (A) CUC International is, at
such time, working on an underwritten public offering of CUC International
Common Stock ("CUC International Common Stock Offering") and is advised by its
managing underwriter(s) that such offering would in its or their opinion be
adversely affected by such filing or (B) CUC International determines, in its
good faith and reasonable judgment, that any such filing or the offering of any
Registrable Securities would materially impede, delay or interfere with any
material proposed financing, offer or sale of securities, acquisition, corporate
reorganization or other significant transaction involving CUC International;
provided that, with respect to clause (B), CUC International gives the Qualified
Holders written notice of such determination; and provided further, however,
with respect to both clauses (A) and (B), CUC International will not be entitled
to postpone such filing or effectiveness if, within the preceding 12 months, it
had effected two postponements, and following such postponements the Registrable
Securities to be sold pursuant to the postponed registration statements were not
sold (for any reason); provided further, however, that during the period
commencing on the Closing Date and ending 120 days thereafter, CUC International
shall not defer the filing or effectiveness of the first Demand Registration
requested for more than 30 days.
Incidental ("Piggyback") Registration. CUC International has further agreed
that if at any time it proposes to register shares of CUC International Common
Stock under the Securities Act for its own account (other than a registration on
Form S-4 or Form S-8, or any successor or similar forms), in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time promptly give written notice to all
Qualified Holders of its intention to do so and will use its best efforts to
include in the proposed registration all Registrable Securities that CUC
International is requested in writing to register by the Qualified Holders
thereof.
In connection with the foregoing rights of demand and incidental
registration, CUC International has agreed to pay certain registration, printing
and NYSE listing fees and expenses incident thereto and to indemnify the holders
of Registrable Securities against certain liabilities, including liabilities
under the federal securities laws.
Real Property Purchase Agreement. On February 19, 1996, at the request of
CUC International, the Davidsons entered into a real property purchase agreement
(the "Real Property Purchase Agreement") with CUC International pursuant to
which the Davidsons agreed to sell to CUC International simultaneously with the
closing of the Merger certain real property presently owned by the Davidsons and
leased to the Company. The purchase price will be equal to the fair market value
of the premises and will be paid by delivery of the number of shares of CUC
International Common Stock equal to (x) the purchase price, divided by (y)
$37.50, the closing sale price of CUC International Common Stock on February 16,
1996, as reported on the NYSE Composite Transactions. If the parties to the Real
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Property Purchase Agreement cannot agree upon the fair market value of the
property, the fair market value will be determined by an independent real estate
appraisal.
The Merger Agreement preserves certain indemnification rights of the
executive officers and directors of the Company which currently are in effect.
See "The Merger Agreement--Certain Covenants--Indemnification of Directors and
Officers."
ACCOUNTING TREATMENT
The Company and CUC International each has agreed that it will not take any
action which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and the Company has agreed to
bring to the attention of CUC International, and CUC International has agreed to
bring to the attention of the Company, any actions, or agreements or
understandings, whether written or oral, that could be reasonably likely to
prevent CUC International from accounting for the Merger as a
"pooling-of-interests." CUC International has agreed to use commercially
reasonable efforts to cause its independent auditors, Ernst & Young LLP, to
deliver to CUC International a letter to the effect that "pooling-of-interests"
accounting (under Accounting Principles Board Opinion No. 16) is appropriate for
the Merger, provided that the Merger is consummated in accordance with the terms
of the Merger Agreement, and the Company has agreed to use commercially
reasonable efforts to cause KPMG Peat Marwick LLP to cooperate fully with Ernst
& Young LLP, including delivering to the Company a letter substantially similar
to the letter to be delivered to CUC International by Ernst & Young LLP. The
Company has agreed to cause KPMG Peat Marwick LLP to inform all such Affiliates
(as defined below) and other relevant employees as to those actions that should
or should not be taken by such persons to ensure that the Merger will be
accounted for as a "pooling-of-interests."
Pursuant to the Merger Agreement, each person who is an "Affiliate" of the
Company for purposes of Rule 145 of the Securities Act has delivered to CUC
International a written agreement that such "Affiliate" will not sell or in any
other way reduce such "Affiliate's" risk relative to any shares of CUC
International Common Stock received in the Merger (within the meaning of the
Commission's Financial Reporting Release No. 1, "Codification of Financing
Reporting Policies," Sec. 201.01 47 F.R. 21028 (May 17, 1982)), until such time
as financial results (including combined sales and net income) covering at least
30 days of post-Effective Time operations have been published, except as
permitted by Staff Accounting Bulletin No. 76 issued by the Commission. See
"--Federal Securities Law Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to holders of Company Common Stock. This discussion
is based on the current provisions of the Code applicable Treasury Regulations,
judicial decisions, and administrative rulings and practice. Changes in any of
the foregoing could alter the conclusions reached herein, and such changes may
have retroactive effect. The tax treatment of a shareholder may vary depending
upon his or her particular situation, and certain shareholders (including
individuals who hold restricted stock or stock options or who otherwise received
compensation for services in the form of stock, options or other interests in
the Company, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers and foreign persons or entities) may be subject to
special rules not discussed below.
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EACH SHAREHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN APPLICABLE
TAX LAWS.
In the opinion of Gibson, Dunn & Crutcher LLP, counsel to the Company:
(i) The Merger will qualify as a tax-free reorganization under Section
368 of the Code;
(ii) Except for any cash received in lieu of fractional shares, a
shareholder of the Company will not recognize any gain or loss as a result
of the exchange of Company Common Stock for CUC International Common Stock
pursuant to the Merger;
(iii) A shareholder's tax basis in the shares of CUC International
Common Stock received in the Merger, including any fractional share interest
for which cash is received, will equal the tax basis of the shares of
Company Common Stock exchanged therefor pursuant to the Merger; and
(iv) A shareholder's holding period for shares of CUC International
Common Stock received in the Merger, including any fractional share interest
for which cash is received, will include the holding period of the shares of
Company Common Stock exchanged therefor pursuant to the Merger, provided
such shares were held by such shareholder as capital assets.
In rendering its opinion, Gibson, Dunn & Crutcher LLP has relied upon and
assumed as correct on the date thereof and as of the Effective Time, the
information contained in this Proxy Statement, and certain representations as to
factual matters made by the Company, CUC International, and certain shareholders
(the "Major Shareholders") of the Company, which are attached to and made a part
of Exhibit 8 to the Registration Statement. The principal representations and
assumptions relied upon by counsel in rendering this opinion are: (i) the
historic shareholders of the Company have not disposed of shares of Company
Common Stock in contemplation of the Merger and do not have any plan or
intention, existing at or prior to the Effective Time, to dispose of the shares
of CUC International Common Stock to be received in the Merger such that they
would not, in the aggregate, possess a significant continuing equity interest in
CUC International, (ii) for a two year period, the Major Shareholders will
retain a portion of the shares of CUC International Common Stock to be received
by them in the Merger such that they will, together with the remaining
shareholders of the Company, possess a significant continuing equity interest in
CUC International, (iii) the Merger will be consummated in accordance with the
Merger Agreement, (iv) shares of stock of the Company representing control of
the Company will be exchanged solely for voting stock of CUC International, (v)
the Company will continue to hold after the Merger substantially all its
pre-Merger assets, and (vi) after the Effective Time the Company will continue
its current business. Any inaccuracy or change with respect to the information
or representations supporting such assumptions, or any past or future actions by
the Company, CUC International or the Major Shareholders contrary to such
representations, could adversely affect the conclusions reached herein.
The opinion of Gibson, Dunn & Crutcher LLP is based on the federal income
tax laws in effect as of the date hereof, including the Code, applicable
Treasury Regulations, published rulings and administrative practices of the
Internal Revenue Service and court decisions, which are subject to change with
possible retroactive effect. The opinion represents counsel's best legal
judgment as to the matters addressed herein, but is not binding on the Internal
Revenue Service or the courts. Any change in such authorities might affect the
conclusions stated herein. The parties have not and will not request a ruling
from the Internal Revenue Service in connection with the federal income tax
consequences of the Merger. If the Internal Revenue Service successfully
challenges the status of the Merger as a tax-free reorganization, holders of the
Company's Common Stock will be treated as if they sold their Company Common
Stock in a taxable transaction. In such event, each holder of Company Common
Stock would
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recognize gain or loss equal to the difference between the holder's tax basis in
the shares of Company Common Stock surrendered in the Merger and the fair market
value, at the Effective Time, of the CUC International Common Stock received in
exchange therefor (plus any cash received for fractional shares).
REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
FTC, the Merger cannot be consummated until requisite pre-merger notifications
have been filed and certain information has been furnished to the FTC and the
Antitrust Division and specified waiting period requirements have been
satisfied. CUC International and the Company filed pre-merger notification and
report forms under the HSR Act with the FTC and the Antitrust Division,
respectively, on April 26, 1996. Early termination of the required waiting
period under the HSR Act was granted by the FTC on May 7, 1996, without any
request for additional documentary or other information. At any time before or
after the Effective Time, and notwithstanding that the HSR Act waiting period
has expired, the Antitrust Division could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin consummation of the Merger or seeking divestiture of
substantial assets of CUC International or the Company. At any time before or
after the Effective Time, and notwithstanding that the HSR Act waiting period
has expired, any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin consummation of the Merger or seeking divestiture of
businesses of CUC International or the Company. Private parties also may seek to
take legal action under the antitrust laws under certain circumstances.
CUC International and the Company believe that the Merger can be effected in
compliance with federal and state antitrust laws. However, there can be no
assurance that a challenge to consummation of the Merger on antitrust grounds
will not be made or that, if such a challenge were made, CUC International and
the Company would prevail or would not be required to accept certain conditions,
including certain divestitures, in order to consummate the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
The issuance in the Merger of shares of CUC International Common Stock has
been registered under the Securities Act and, therefore, such shares will be
freely transferable, except that any shares of CUC International Common Stock
received by persons who are deemed to be "Affiliates" (as such term is defined
under the Securities Act) of the Company prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145 under
the Securities Act (or Rule 144 under the Securities Act if such persons are or
become Affiliates of CUC International) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be Affiliates of the Company or CUC
International generally include individuals or entities that directly, or
indirectly through one or more intermediaries, control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal shareholders of such party. Prior
to execution of the Merger Agreement, certain persons identified by the Company
as an Affiliate of the Company have executed a written agreement to the effect,
among other things, that such Affiliate will not sell, pledge, transfer or
otherwise dispose of any shares of CUC International Common Stock issued to such
Affiliate pursuant to the Merger, except 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.
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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. 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.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Company Common Stock are generally entitled to dissenters' rights
with respect to the Merger under the CGCL if, and only if, the holders of 5% or
more of the outstanding Company Common Stock elect to exercise dissenters'
rights in respect of their shares. A person having a beneficial interest in
shares of Company Common Stock held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps summarized below properly and in a timely manner to perfect
whatever dissenters' rights the beneficial owner may have.
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the CGCL and is qualified in its entirety by
reference to the full text of Chapter 13 of the CGCL, sections of which are
reprinted in their entirety as Annex D to this Proxy Statement/Prospectus and
should be read carefully and in their entirety.
If the Merger is approved by the affirmative vote of the holders of a
majority of the outstanding Company Common Stock and is not terminated in
accordance with the Merger Agreement (including termination at the election of
CUC International if the aggregate number of dissenting shares in respect of the
Merger exceeds 5%), the Company's shareholders who vote against the Merger and
who have fully complied with all applicable provisions of Chapter 13 of the CGCL
and whose shares constitute Company Dissenting Shares, will, provided generally
that the Company Dissenting Shares aggregate 5% or more of the outstanding
shares of Company Common Stock, have the right to require the Company to
purchase the shares of Company Common Stock held by them for cash at the fair
market value thereof determined as of the date preceding the public announcement
of the Merger, excluding any appreciation or depreciation because of the Merger
but adjusted for any stock split, reverse stock split or share dividend which
becomes effective thereafter. Under the CGCL, no shareholder of the Company who
is entitled to exercise dissenters' rights has any right at law or in equity to
contest the validity of the Merger or to have the Merger set aside or rescinded,
except in an action to test whether the number of shares required to authorize
or approve the Merger had legally been voted in favor of the Merger. "Company
Dissenting Shares" means those shares of Company Common Stock with respect to
which the holders have voted against the Merger and have perfected their
purchase demand in accordance with the CGCL, except that no such shares will
constitute Company Dissenting Shares unless either (i) holders of 5% or more of
the outstanding shares of Company Common Stock file demands for payment as
dissenting shares under the CGCL or (ii) the shares in question are subject to a
restriction on transfer imposed by the Company or by any law or regulation.
Holders of Company Dissenting Shares will be notified of the date on which the
Company Dissenting Shares will cease to be eligible for treatment as dissenting
shares under the CGCL.
The Company is not aware of any restriction on transfer of any shares of the
Company Common Stock except restrictions that may be imposed upon shareholders
who are "affiliates" of the Company for purposes of Rule 145 under the
Securities Act, shareholders who received shares in private transactions exempt
from the registration requirements of the Securities Act and restrictions on
transfer imposed on certain affiliates of the Company in connection with the
Merger. Those shareholders who
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believe there is some such restriction affecting their shares should consult
with their own legal counsel as to the nature and extent of any dissenters'
rights they may have.
For a holder of Company Common Stock to exercise dissenters' rights, the
procedures to be followed under Chapter 13 of the CGCL include the following
requirements:
(1) The shareholder of record must have voted the shares against the
Merger. It is not sufficient to abstain from voting. However, the
shareholder may abstain as to part of his or her shares or vote part of
those shares for the Merger without losing the right to exercise dissenters'
rights as to other shares which were voted against the Merger.
(2) Any such shareholder who votes against the Merger, and who wishes to
have the shares that are being voted against the Merger purchased, must make
a written demand to have the Company purchase those shares for cash at their
fair market value. The demand must include the information specified below
and must be received by the Company not later than the date of the Meeting.
Merely voting or delivering a proxy directing a vote against the approval of
the Merger does not constitute a demand for purchase. A written demand is
essential.
The written demand that the dissenting shareholder must deliver to the
Company must:
(1) Be made by the person who was the shareholder of record on the
Record Date (or such shareholder's duly authorized representative) and not
by someone who is merely a beneficial owner of the shares and not by a
shareholder who acquired the shares subsequent to the Record Date;
(2) State the number and class of dissenting shares held of record by
the dissenting shareholders; and
(3) Include a demand that the Company purchase the shares at the dollar
amount that the shareholder claims to be the fair market value of such
shares on the day before the terms of the Merger were first announced,
excluding any appreciation or depreciation because of the proposed Merger
but adjusted for any stock split, reverse stock split or share dividend
which becomes effective thereafter. The Company believes that this day is
February 16, 1996. A shareholder may take the position in the written demand
that a different date is applicable. The shareholder's statement of fair
market value constitutes an offer by such dissenting shareholder to sell the
shares to the Company at such price.
The written demand should be delivered to the Company at its principal
executive offices, 19840 Pioneer Avenue, Torrance, CA 90503, Attention
Secretary.
A shareholder may not withdraw a demand for payment without the consent of
the Company. Under the terms of the CGCL, a demand by a shareholder is not
effective for any purpose unless it is received by the Company (or any transfer
agent thereof).
Within 10 days after the approval of the Merger by the Company's
shareholders, the Company must notify all holders of Company Dissenting Shares
of the approval and must offer all of such shareholders a cash price for their
shares which the Company considers to be the fair market value of the shares.
The notice also must contain a brief description of the procedures to be
followed under Chapter 13 of the CGCL to dispute the price offered and attach a
copy of the relevant provisions of the CGCL in order for a shareholder to
exercise the right to have the Company purchase his or her shares.
Within 30 days after the date on which the notice of the approval of the
Merger is mailed by the Company to holders of Company Dissenting Shares, the
shareholder's certificates, representing any shares which the shareholder
demands be purchased, must be submitted to the Company, at its principal office,
or at the office of any transfer agent, to be stamped or endorsed with a
statement that
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the shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed. Upon subsequent transfer of
those shares, the new certificates will be similarly stamped, together with the
name of the original dissenting shareholder.
If the Company and a holder of Company Dissenting Shares agree that the
shares held by such shareholder are eligible for dissenters' rights and agree
upon the price of such shares, such holder of Company Dissenting Shares is
entitled to receive from the Company the agreed price with interest thereon at
the legal rate on judgments from the date of such agreement. Any agreement
fixing the fair market value of dissenting shares as between the Company and the
holders thereof must be filed with the Secretary of the Company at the address
set forth below. Subject to certain provisions of Section 1306 and Chapter 5 of
the CGCL, payment of the fair market value of the Company Dissenting Shares
shall be made within 30 days after the amount has been agreed upon or within 30
days after any statutory or contractual conditions to the Merger are satisfied,
whichever is later, subject to the surrender of the certificate therefor, unless
provided otherwise by agreement.
If the Company and a holder of Company Dissenting Shares fail to agree on
either the fair market value of the shares or on the eligibility of the shares
to be purchased, then either such holder of Company Dissenting Shares or the
Company may file a complaint for judicial resolution of the dispute in the
superior court of the proper county. The complaint must be filed within six
months after the date on which the respective notice of approval is mailed to
the shareholders. If a complaint is not filed within six months, the shares will
lose their status as Company Dissenting Shares. Two or more holders of Company
Dissenting Shares may join as plaintiffs or be joined as defendants in such an
action. If the eligibility of the shares is at issue, the court must first
decide that issue. If the fair market value of the shares is in dispute, the
court must determine, or shall appoint one or more impartial appraisers to
assist in its determination of, the fair market value. The cost of the action
will be assessed or apportioned as the court considers equitable. If, however,
the appraised value of the dissenting shares exceeds the price offered by the
Company, the Company must pay the costs.
Any demands, notices, certificates or other documents required to be
delivered to the Company may be sent to 19840 Pioneer Avenue, Torrance, CA
90503, Attention Secretary.
NO CUC INTERNATIONAL APPRAISAL RIGHTS
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.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT,
WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT WHICH IS INCORPORATED HEREIN
BY REFERENCE. CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE
MEANINGS ASSIGNED TO THEM IN THE MERGER AGREEMENT. ALL HOLDERS OF COMPANY COMMON
STOCK ARE ENCOURAGED TO READ THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
THE MERGER
The Merger Agreement provides that, subject to the satisfaction or waiver of
the terms and conditions contained therein, including the requisite adoption
thereof by the holders of a majority of the outstanding shares of Company Common
Stock, Merger Sub will be merged with and into the Company, and the Company will
be the surviving corporation in the Merger and become a wholly owned subsidiary
of CUC International. At the Effective Time, the Articles of Incorporation of
the Company in effect immediately prior to such time will become the Articles 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 (SECTIONS 1.1,
1.2 AND 1.5).
EFFECTIVE TIME
The Merger Agreement provides that, subject to the satisfaction or waiver of
the terms and conditions contained therein, including the requisite adoption
thereof by the holders of a majority of the outstanding shares of Company Common
Stock, the Merger will become effective on the date on which an Agreement of
Merger is filed with the Secretary of State of the State of California or at
such time thereafter as provided in the Agreement of Merger. The Merger
Agreement may be terminated by either the Company or CUC International if, among
other reasons, the Merger has not been consummated on or before September 30,
1996. See "--Conditions to the Merger" (SECTION 1.2).
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES
At the Effective Time, pursuant to the Merger Agreement, each share of
Company Common Stock outstanding immediately prior to the Effective Time (other
than shares held by CUC International, Merger Sub or any other subsidiary of CUC
International or any subsidiary of the Company, or shares to which dissenters'
rights are granted and properly exercised under applicable California law) will,
by virtue of the Merger and without any action on the part of any holder
thereof, be converted into .85 of one fully paid and nonassessable share of CUC
International Common Stock. At the Effective Time, each share of Company Common
Stock owned by CUC International, Merger Sub or any wholly owned subsidiary of
CUC International or of the Company immediately prior to the Effective Time will
be cancelled, retired and cease to exist and no payment will be made with
respect thereto, and each outstanding share of common stock of Merger Sub at the
Effective Time will be converted into one share of common stock, $.00025 par
value, of the surviving corporation. Based on the number of shares of Company
Common Stock outstanding as of the Record Date, approximately 30,039,606 shares
of CUC International Common Stock will be issued in the Merger. No fractional
shares of CUC International Common Stock will be issued in the Merger to the
holders of Company Common Stock, but in lieu thereof, each holder of shares of
Company Common Stock otherwise entitled to receive a fractional share of CUC
International Common Stock, upon surrender of his or its certificates evidencing
shares of Company Common Stock, will be entitled to receive an amount of cash
(without interest) determined by multiplying (x) the closing price of CUC
International Common Stock as reported on the NYSE Composite Transactions on the
second business day preceding the Effective Time by (y) the fractional share
interest to which such holder otherwise would be entitled. The shares of CUC
International Common Stock to be issued in the Merger and the cash consideration
to be issued in lieu of fractional share interests are hereinafter referred to
collectively as the "Merger Consideration."
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At the Effective Time, CUC International will make available to the Exchange
Agent or another bank or trust company designated by CUC International and
reasonably acceptable to the Company, for the benefit of the holders of shares
of Company Common Stock (i) certificates representing the appropriate number of
shares of CUC International Common Stock to be issued in the Merger and (ii)
cash to be paid in lieu of fractional shares of CUC International Common Stock.
As soon as reasonably practicable after the Effective Time, the Exchange Agent
will mail to each record holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted in the Merger into the right to
receive shares of CUC International Common Stock and whose shares will not be
subject to dissenters' rights: (i) a letter of transmittal (specifying that
delivery will be effected, and risk of loss and title to the certificates will
pass, only upon delivery of the certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the certificates in exchange
for certificates representing shares of CUC International Common Stock. Upon
surrender of a certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such certificate will
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of CUC International Common Stock (and, if applicable, a
check representing the cash consideration to which such holder may be entitled
on account of a fractional share of CUC International Common Stock) and the
certificate so surrendered will be cancelled (SECTIONS 1.8 AND 1.10).
SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND INSTRUCTIONS TO EFFECT THE
PROPER DELIVERY THEREOF.
Until surrendered, each certificate will be deemed after the Effective Time
to represent only the right to receive upon such surrender of the certificate a
certificate representing shares of CUC International Common Stock and cash in
lieu of any fractional shares of CUC International Common Stock (SECTION 1.10).
All shares of CUC International Common Stock issued and cash in lieu of
fractional share interests paid upon surrender of certificates will be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock (SECTION 1.10).
TREATMENT OF STOCK OPTIONS
At the Effective Time, each outstanding Option to purchase shares of Company
Common Stock issued pursuant to the Company Plans, whether vested or unvested,
will be cancelled and, in lieu thereof, CUC International will issue to each
holder of an Option a CUC International Option, which does not qualify under
section 422 of the Code, to acquire, on substantially the same terms and subject
to substantially the same conditions as were applicable under the cancelled
Option, the same number of shares of CUC International Common Stock as the
holder of the cancelled Option would have been entitled to receive in the Merger
had such holder exercised the cancelled Option in full immediately prior to the
Effective Time, at a price per share equal to (i) the aggregate exercise price
for the shares of Company Common Stock otherwise purchasable pursuant to the
Option divided by (ii) the number of full shares of CUC International Common
Stock deemed purchasable pursuant to such Option; provided, however, that the
number of shares of CUC International Common Stock that may be purchased upon
exercise of any such CUC International Option will not include any fractional
share and, upon exercise of the CUC International Option, a cash payment will be
made for any fractional share based upon the Closing Price of a share of CUC
International Common Stock on the trading day immediately preceding the date of
exercise. The Company has agreed to use all reasonable efforts to cause all
Options issued to non-employee directors of the Company pursuant to the Company
Plans that are outstanding prior to the Effective Time and that are vested to be
exercised by the holders thereof prior to the Effective Time (SECTION 1.11).
As soon as practicable after the Effective Time, CUC International will
deliver to the holders of Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Plans
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and stating that the holders will receive CUC International Options exercisable
for shares of CUC International Common Stock on substantially the same terms and
conditions as their Options (subject to certain adjustments required by the
Merger Agreement after giving effect to the Merger) (SECTION 1.1).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by the Company
with respect to it and its subsidiaries as to, among other things: corporate
organization and qualification, capitalization, authority relative to the Merger
Agreement, consents and approvals, opinion of the Company's financial advisor,
no default, litigation, filings by the Company with the Commission, financial
statements, no undisclosed liabilities and absence of changes, compliance with
applicable law, employee plans, brokers, information included in this Proxy
Statement/Prospectus and the Registration Statement, tax matters, intangible
property, material contracts, accounting matters, environmental laws and
regulations, disclosure, and other matters (ARTICLE II).
CUC International and Merger Sub also have made certain representations and
warranties with respect to: organization, capitalization, authority relative to
the Merger Agreement, consents and approvals, financial statements, compliance
with applicable law, litigation, absence of undisclosed liabilities, absence of
defaults, information supplied, tax matters, brokers, employee plans,
environmental laws and regulations, accounting matters, disclosure, and other
matters (ARTICLE III).
CERTAIN COVENANTS
The Merger Agreement contains certain covenants and agreements, certain of
which are summarized below.
Conduct of Business of the Company. Pursuant to the Merger Agreement, the
Company has agreed that, during the period from the date of the Merger Agreement
until the Effective Time, except as permitted by the Merger Agreement or as
otherwise consented to in writing by CUC International, the Company will, and
will cause each of its respective subsidiaries to, conduct its operations in the
ordinary course of business consistent with past practice and, to the extent
consistent therewith, with no less diligence and effort than would be applied in
the absence of the Merger Agreement, seek to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
will be unimpaired at the Effective Time (SECTION 4.1).
Without limiting the generality of the foregoing, and except as provided in
the Merger Agreement, prior to the Effective Time, neither the Company nor any
of its subsidiaries will, without the prior written consent of CUC
International: (i) amend its certificate or articles of incorporation or bylaws
(or other similar governing instruments); (ii) authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights), except for (A) the issuance of shares of Company Common
Stock having a market value of up to $5.5 million in connection with the
agreement by the Company with Condor, Inc. ("Condor") to acquire Condor (the
"Condor Transaction"), (B) the grant of options to acquire up to 200,000 shares
of Company Common Stock to employees of Condor who become employees of the
Company in connection with the Condor Transaction and (C) the grant of options
to purchase up to 100,000 shares of Company Common Stock to employees under the
Company Plans and the issuance or sale of shares of Company Common Stock
pursuant to options granted to employees under the Company Plans (in each case,
in the ordinary course of business and consistent with past practice); (iii)
split, combine or reclassify any shares of its capital stock, declare, set aside
or pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, make any other actual,
constructive or deemed
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distribution in respect of any shares of its capital stock or otherwise make any
payments to shareholders in their capacity as such, or redeem or otherwise
acquire any of its securities or any securities of any of its subsidiaries; (iv)
adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger); (v) alter through
merger, liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of any subsidiary; (vi)(A) incur or assume any
long-term or short-term debt or issue any debt securities except for borrowings
under existing lines of credit in the ordinary course of business and in amounts
not material to the Company and its subsidiaries taken as a whole; (B) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in
connection with the Condor Transaction, except in the ordinary course of
business consistent with past practice and in amounts not material to the
Company and its subsidiaries, taken as a whole, except for obligations of the
wholly owned subsidiaries of the Company and except for guarantees by the
Company of the payment of certain obligations of NewMedia, pursuant to the
provisions of the Amended and Restated Limited Liability Company Agreement of
NewMedia (the "NewMedia Agreement"); (C) except for the Condor Transaction, make
any loans, advances or capital contributions to, or investments in, any other
person (other than to the wholly owned subsidiaries of the Company or customary
loans or advances to employees in the ordinary course of business consistent
with past practice and in amounts not material to the maker of such loan or
advance); (D) pledge or otherwise encumber shares of capital stock of the
Company or its subsidiaries; or (E) mortgage or pledge any of its material
assets, tangible or intangible, or create or suffer to exist any material lien
thereupon; (vii) except as may be required by law or as contemplated by the
Merger Agreement, enter into, adopt or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, severance or
other employee benefit agreement, trust, plan, fund, award or other arrangement
for the benefit or welfare of any director, officer or employee in any manner,
or (except for the grant of options in connection with the Condor Transaction
and except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material increase
in benefits or compensation expense to the Company, and as required under
existing agreements or in the ordinary course of business generally consistent
with past practice) increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of February 19, 1996 (including, without
limitation, the granting of stock appreciation rights or performance units);
(viii) except in connection with the Condor Transaction (which will be effected,
in all material respects, only on the terms disclosed to CUC International),
acquire, sell, lease or dispose of any assets outside the ordinary course of
business or any assets which in the aggregate are material to the Company and
its subsidiaries taken as a whole, or enter into any commitment or transaction
outside the ordinary course of business consistent with past practice; (ix)
except as may be required as a result of a change in law or in GAAP, change any
of the accounting principles or practices used by it; (x) revalue in any
material respect any of its assets, including, without limitation, writing down
the value of inventory or writing-off notes or accounts receivable other than in
the ordinary course of business; (xi) except in connection with the Condor
Transaction, (A) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (B) enter into any contract or
agreement, other than in the ordinary course of business consistent with past
practice, or amend any of the contracts or the agreements referred to in the
Merger Agreement; (C) authorize any new capital expenditure or expenditures
which, individually, is in excess of $500,000 or, in the aggregate, are in
excess of $5 million; provided, that none of the foregoing will limit any
capital expenditure already included in the Company's 1996 capital expenditure
budget provided to CUC International; or (D) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action that
would be prohibited under the Merger Agreement; (xii) make or revoke any tax
election or settle or compromise any tax liability material to the Company and
its subsidiaries taken as a whole or change (or make a request to any taxing
authority to change) any
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material aspect of its method of accounting for tax purposes; (xiii) pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company and its subsidiaries or
incurred in the ordinary course of business consistent with past practice; (xiv)
settle or compromise any pending or threatened suit, action or claim relating to
the transactions contemplated by the Merger Agreement; or (xv) take, propose to
any third party to take or agree in writing or otherwise to take, any of the
actions described above or any action which would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect (SECTION 4.1).
Conduct of Business of CUC International. Except as contemplated by the
Merger Agreement, during the period from February 19, 1996 to the Effective
Time, CUC International has agreed that it will, and will cause each of its
subsidiaries to, conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of the Merger
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that goodwill and ongoing businesses will be unimpaired at the
Effective Time (SECTION 4.2).
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in the Merger Agreement, prior to the Effective Time, CUC
International has agreed that it will not, without the prior written consent of
the Company, which consent will not be unreasonably withheld: (i) amend its
certificate of incorporation (other than to increase the number of authorized
shares of CUC International Common Stock) or bylaws; (ii) split, combine or
reclassify any shares of its capital stock; declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock; make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to shareholders in their capacity as such;
or redeem or otherwise acquire any of its securities; (iii) adopt a plan of
complete or partial liquidation, dissolution, restructuring, recapitalization or
other reorganization of CUC International; (iv) authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any CUC International Common Stock or any preferred stock
or any other securities or equity equivalents (including, without limitation,
any stock options or stock appreciation rights) totaling, or exercisable for or
convertible into shares of CUC International Common Stock totaling, in the
aggregate, more than 30% of the total number of shares of CUC International
Common Stock outstanding on February 19, 1996, except for the grant of options
to purchase shares of CUC International Common Stock to employees under CUC
International's employee stock option plans and the issuance or sale of shares
of CUC International Common Stock pursuant to options granted to employees under
CUC International's employee stock option plans (in each case, in the ordinary
course of business and consistent with past practice) and except for the
issuance of shares of CUC International Common Stock and options pursuant to the
Sierra Merger Agreement or as contemplated in the Merger Agreement; (v) grant
options to purchase, or make restricted stock grants with respect to, in excess
of 1,000,000 shares of CUC International Common Stock under CUC International's
employee stock option plans or stock purchase plans, except in connection with
any acquisition (by merger, consolidation, or acquisition of stock or assets) of
any corporation, partnership or other business organization or division thereof
or any equity interest therein (including, without limitation, in connection
with the transactions contemplated by the Sierra Merger Agreement); (vi) except
as disclosed to the Company, incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of credit
in the ordinary course of business and in amounts not material to CUC
International and its subsidiaries taken as a whole and except for other
indebtedness not exceeding $100,000,000 in the aggregate; or (vii) take, or
agree in writing or otherwise to take, any of the actions described above.
(SECTION 4.2)
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Proxy Statement; the Meeting. The Company has agreed to call a meeting of
the holders of Company Common Stock to be held as promptly as practicable for
the purpose of voting upon the Merger Agreement and related matters. In
addition, the Company and Merger Sub have agreed through their respective Boards
of Directors to recommend to their respective shareholders adoption of the
Merger Agreement; provided, however, CUC International has agreed that the
Company's Board of Directors may withdraw its recommendation if it determines by
a majority vote, in its good faith judgment, after consultation with independent
legal counsel, that it is necessary to do so to comply with its fiduciary duties
to shareholders under applicable law. Notwithstanding the foregoing (and without
limiting the Company's right to terminate the Merger Agreement if the Average
Stock Price is less than $29.00) the Company's Board of Directors may not
withdraw its recommendation because of fluctuations in the trading price of CUC
International Common Stock between the date of the Merger Agreement (i.e.,
February 19, 1996) and the date of the Meeting. The Company and CUC
International have agreed to coordinate and cooperate with respect to the timing
of the Meeting and to use their best efforts to hold the Meeting as soon as
practicable after the date of the Merger Agreement (SECTIONS 4.3 AND 4.6).
Employee Matters. In addition, CUC International has agreed that: (i)
employees of the Company and its subsidiaries will be treated after the Merger
no less favorably under the "employee benefits plans" as defined in Section 3(3)
of the Employee Retirement and Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by CUC International and its
subsidiaries (the "CUC International ERISA Plans"), than other similarly
situated employees of CUC International and its subsidiaries; (ii) for a period
of one year following the Merger, CUC International will maintain and will cause
its subsidiaries to maintain with respect to their employees who had been
employed by the Company or any of its subsidiaries (A) base salary or regular
hourly wage rates for each such employee at not less than the rate applicable to
such employee immediately prior to the Merger, and (B) employee benefits (as
defined for purposes of Section 3(3) of ERISA, other than stock option plans)
which are substantially comparable in the aggregate to such employee benefits
provided by the Company and its subsidiaries immediately prior to the Merger;
and (iii) CUC International and its subsidiaries have agreed to credit employees
of the Company and its subsidiaries for purposes of determining eligibility to
participate or vesting under the CUC International ERISA Plans with their
service prior to the Merger with the Company and its subsidiaries to the same
extent such service was counted under similar benefit plans of the Company prior
to the Merger (SECTION 4.18).
Other Potential Acquirors. The Company, its affiliates and their respective
officers, directors, employees, representatives and agents have agreed to cease
any existing discussions or negotiations, if any, with any parties conducted
prior to February 19, 1996 with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its subsidiaries.
However, the Company may, directly or indirectly, furnish information and
access, in each case only in response to unsolicited requests therefor, to any
corporation, partnership, person or other entity or group pursuant to
confidentiality agreements, and may participate in discussions and negotiate
with such entity or group concerning any merger, sale of assets, sale of shares
of capital stock or similar transaction involving the Company or any subsidiary
or division of the Company, if such entity or group has submitted a proposal to
the Company's Board of Directors relating to any such transaction and the
Company's Board of Directors by a majority vote determines in its good faith
judgment, after consultation with independent legal counsel, that it is
necessary to do so to comply with its fiduciary duties to shareholders under
applicable law. The Company's Board of Directors has agreed to (i) provide a
copy of any such written proposal and a summary of any oral proposal to CUC
International or Merger Sub immediately after receipt thereof (and to specify
the material terms and conditions of such proposal and identify the person
making such proposal), (ii) afford CUC International a reasonable opportunity to
respond to such proposal, and (iii) keep CUC International and Merger Sub
promptly advised of any development with respect thereto. Except as set forth
above, the Company has agreed that neither it nor any of its affiliates will,
nor will
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the Company authorize or permit any of its or their respective officers,
directors, employees, representatives or agents, to directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with,
or provide any information to, any corporation, partnership, person or other
entity or group (other than CUC International and Merger Sub, any affiliate or
associate of CUC International and Merger Sub or any designees of CUC
International and Merger Sub) concerning any merger, sale of assets, sale of
shares of capital stock or similar transaction involving the Company or any
subsidiary or division of the Company; provided, however, that the Company's
Board of Directors is permitted to take and disclose to the Company's
shareholders a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer and the Company's Board of
Directors may make such disclosure as in the good faith judgment of the
Company's Board of Directors, after consultation with independent legal counsel,
is necessary to comply with its fiduciary duties to shareholders under
applicable law (SECTION 4.4).
Indemnification of Directors and Officers. CUC International and Merger Sub
have agreed that all rights to indemnification or exculpation now existing in
favor of the directors, officers, employees and agents of the Company and its
subsidiaries as provided in their respective charters or bylaws (or other
similar governing instruments) or otherwise in effect with respect to matters
occurring prior to the Effective Time will survive the Merger and will continue
in full force and effect for a period of six years from the Effective Time;
provided, however, that all rights to indemnification in respect of a Claim
asserted or made within such period will continue until the disposition of such
Claim. To the maximum extent permitted by the CGCL, such indemnification will be
mandatory rather than permissive and the surviving corporation has agreed to
advance expenses in connection with such indemnification to the fullest extent
permitted under applicable law, provided that the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification); provided,
however, the indemnification provided under the Merger Agreement will not be
greater than the indemnification permissible pursuant to the Company's or its
subsidiaries' respective charters and bylaws (or other similar governing
instruments) (SECTION 4.12).
CUC International will cause the surviving corporation to maintain in effect
for not less than three years from the Effective Time the policies of directors'
and officers' liability and fiduciary insurance maintained by the Company with
respect to matters occurring prior to the Effective Time to cover the types of
actions and omissions currently covered by such policies (provided that (i) the
surviving corporation may substitute therefor policies of substantially the same
coverage containing terms and conditions which are no less advantageous, in any
material respect, to the beneficiaries thereof so long as such substitution does
not result in gaps or lapses in coverage and (ii) the surviving corporation will
not be required to pay an annual premium for such insurance in excess of
$250,000, but in such case will be required to purchase as much coverage as
possible for such amount). See "The Merger--Interests of Certain Persons in the
Merger--Indemnification" (SECTION 4.12).
Pooling. The Company and CUC International each has agreed that it will not
take any action which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and the Company has agreed to
bring to the attention of CUC International, and CUC International has agreed to
bring to the attention of the Company, any actions, or agreements or
understandings, whether written or oral, that could be reasonably likely to
prevent CUC International from accounting for the Merger as a
"pooling-of-interests." CUC International has agreed to use commercially
reasonable efforts to cause Ernst & Young LLP to deliver to CUC International 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 subject to the
conditions of the Merger Agreement, and the Company has agreed to use
commercially reasonable efforts to cause KPMG Peat Marwick to cooperate fully
with Ernst & Young LLP, including, without limitation, delivering to the Company
a letter substantially similar to the letter to be delivered to CUC
International by Ernst & Young LLP. The Company has also agreed to cause KPMG
Peat Marwick to inform all such Affiliates (as defined below) and other relevant
employees as to those
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actions that should or should not be taken by such persons to ensure that the
Merger will be accounted for as a "pooling-of-interests" (SECTION 4.14).
Other Covenants. Each of CUC International, Merger Sub and the Company, with
respect to the Merger, has agreed to use its best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation: (i) cooperation in the preparation and filing of
the Proxy Statement and the Registration Statement, any filings that may be
required under the HSR Act, and any amendments to any thereof; (ii) the taking
of all action reasonably necessary, proper or advisable to secure any necessary
consents under existing debt obligations of the Company and its subsidiaries or
amend the notes, indentures or agreements relating thereto to the extent
required by such notes, indentures or agreements or redeem or repurchase such
debt obligations; (iii) contesting any legal proceeding relating to the Merger;
and (iv) the execution of any additional instruments, including the Agreement of
Merger, necessary to consummate the transactions contemplated by the Merger
Agreement (SECTION 4.9).
The Company also has agreed to use its best efforts to cause to be delivered
and addressed to CUC International a letter of KPMG Peat Marwick LLP dated a
date within two business days before the date on which the Registration
Statement (of which this Proxy Statement/Prospectus is a part) is declared
effective by the Commission, in form and substance reasonably satisfactory to
CUC International and customary in scope and substance for letters delivered by
independent auditors in connection with registration statements similar to the
Registration Statement (SECTION 4.5).
CONDITIONS
The respective obligations of each of CUC International, the Company and
Merger Sub to consummate the Merger are subject to the following conditions,
among others: (i) the representations and warranties of the parties, set forth
in the Merger Agreement (i.e., the representations and warranties of CUC
International and Merger Sub, in the case of the assertion by the Company of a
breach, and the representations and warranties of Company, in the case of the
assertion by CUC International or Merger Sub of a breach) being true and correct
in all material respects on and as of the Effective Time, and such parties
having performed in all material respects all of their obligations under the
Merger Agreement and the other parties having received at the Effective Time an
officer's certificate to such effect dated the Effective Time; (ii) the Merger
Agreement shall have been adopted by the requisite vote of the holders of
Company Common Stock; (iii) no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
enforced by any United States court or United States governmental authority
which prohibits, restrains, enjoins or restricts consummation of the Merger;
(iv) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired; (v) the Registration Statement (of which this Proxy
Statement/Prospectus is a part) shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop
order, and CUC International shall have received all state securities laws or
"blue sky" permits and authorizations necessary to issue in the Merger shares of
CUC International Common Stock in exchange for the shares of Company Common
Stock; (vi) CUC International shall have received a letter from its independent
auditors, Ernst & Young LLP, to the effect that pooling-of-interests accounting
(under Accounting Principles Board Opinion No. 16) is appropriate for the
Merger, provided that the Merger is consummated in accordance with the terms and
subject to the conditions of the Merger Agreement, and such letter shall not
have been withdrawn or modified in any material respect; and (vii) CUC
International or an affiliate having purchased certain real property currently
owned by the Company's Chairman and Chief Executive Officer and President,
respectively, and leased by such persons to the Company (SECTION 5.1).
The obligations of CUC International and Merger Sub to effect the Merger are
further subject to the following additional conditions that: (i) each Company
Affiliate and each shareholder which is a
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party to the Shareholders Agreement having performed in all material respects
his or its obligations under the applicable affiliate letter and/or shareholders
agreement (if applicable), and CUC International shall have received a
certificate signed by each of them to such effect; (ii) the Company shall have
obtained the consent or approval of each person whose consent or approval will
be required in order to permit the succession by the surviving corporation
pursuant to the Merger to any obligation, right or interest of the Company or
any of its subsidiaries under certain specified agreements, except for those for
which the failure to obtain such consents and approvals would not, individually
or in the aggregate, have a Material Adverse Effect on the Company; (iii) the
number of dissenting shares in respect of the Merger as of the Effective Time
has not exceeded 5% of the then outstanding shares of Company Common Stock; (iv)
there shall not have occurred any events, changes or effects with respect to the
Company or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on the Company; (v) each of the employment agreements
between CUC International and the Davidsons shall be in full force and effect;
and (vi) each of the non-competition agreements between CUC International and
the Davidsons shall be in full force and effect (SECTION 5.3).
The obligation of the Company to effect the Merger is subject to the
additional conditions that (i) the shares of CUC International Common Stock
issuable in the Merger to the holders of Company Common Stock and such other
shares required to be reserved for issuance in connection with the Merger have
been authorized for listing on the NYSE upon official notice of issuance; (ii)
the Company shall have received the opinion of Gibson, Dunn & Crutcher, its tax
counsel, to the effect that the Merger will be treated for U.S. federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code and such opinion will not have been withdrawn or modified in any material
respect; (iii) CUC International shall have obtained the consent or approval of
each person whose consent or approval is required in connection with the
transactions contemplated by the Merger Agreement 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; and (iv) there shall not have occurred any events,
changes or effects with respect to CUC International or its subsidiaries having
or which could reasonably be expected to have a Material Adverse Effect on CUC
International (SECTION 5.2).
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time by the mutual
written consent of CUC International, Merger Sub and the Company (SECTION 6.1).
Termination by Either CUC International and Merger Sub or by the
Company. The Merger Agreement may be terminated and the Merger abandoned by
action of the Board of Directors of either CUC International and Merger Sub or
by the Company if: (i) the Merger has not been consummated by September 30, 1996
(provided that such right to terminate will not be available to a party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date) or
(ii) any court of competent jurisdiction in the United States or another United
States governmental authority issues a final order, decree or ruling or taken
any other final action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action has become nonappealable
(SECTION 6.1).
Termination by CUC International and Merger Sub. The Merger Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time by
action of the Board of Directors of CUC International and Merger Sub if: (i)
there shall have occurred a breach of any representation or warranty of the
Company in the Merger Agreement or if any representation or warranty of the
Company shall have become untrue, in either case such that the conditions to the
obligations of CUC International and Merger Sub to effect the Merger set forth
in the Merger Agreement would be incapable of being satisfied by September 30,
1996 (or any permissible extension of such date); (ii)
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there shall have occurred a breach by the Company of its covenants or agreements
under the Merger Agreement having a Material Adverse Effect on the Company or
materially adversely affecting (or materially delaying) the consummation of the
Merger, and the Company shall not have cured such breach within 20 business days
after notice by CUC International and Merger Sub thereof; (iii) the Company
shall have engaged in negotiations with any entity or group (other than CUC
International or Merger Sub) that has proposed a Third Party Acquisition and
such negotiations continued for more than 15 business days after the Company has
first furnished information to such entity or group or commenced negotiations
with such party (whichever is earlier); (iv) the Company's Board of Directors
shall have withdrawn, modified or changed its approval or recommendation of the
Merger Agreement or the Merger, shall have recommended to the holders of Company
Common Stock a Third Party Acquisition or shall have failed to call, give notice
of, convene or hold a shareholders' meeting to vote upon the Merger, or shall
have adopted any resolution to effect any of the foregoing; or (v) the Company
shall have convened a meeting of its shareholders to vote upon the Merger and
failed to obtain the requisite vote of its shareholders in respect of the Merger
Agreement (SECTION 6.1).
Termination by the Company. The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time by action of the Board
of Directors of the Company if: (i) there shall have occurred a breach of any
representation or warranty on the part of CUC International or Merger Sub set
forth in the Merger Agreement, or any representation or warranty of CUC
International or Merger Sub otherwise shall have become untrue, in either case
such that the conditions to the Company's obligation to effect the Merger as set
forth in the Merger Agreement would be incapable of being satisfied by September
30, 1996 (or any permissible extension of such date); (ii) there shall have
occurred a breach by CUC International or Merger Sub of any of their respective
covenants or agreements hereunder having a Material Adverse Effect on CUC
International or materially adversely affecting (or materially delaying) the
consummation of the Merger, and CUC International or Acquisition, as the case
may be, shall not have cured such breach within 20 business days after notice by
the Company thereof, provided that the Company has not breached any of its
obligation under the Merger Agreement; (iii) the Company's Board of Directors by
a majority vote shall have determined in its good faith judgment, after
consultation with independent legal counsel, that it is necessary to terminate
the Merger Agreement to comply with its fiduciary duties to shareholders,
provided that such termination will not be effective unless at the time of such
determination the Company has received a bona fide proposal to effect a Third
Party Acquisition that had not been withdrawn as of the time of such termination
and until payment of the termination fee; or (iv) the Average Stock Price is
less than $29.00 (which represents a value to the Company's shareholders of
$24.65 per share of Company Common Stock, based on the Exchange Rate 10)
(SECTION 6.1).
Effect of Termination. Generally, if the Merger Agreement is terminated by
CUC International or the Company as described above, the Merger Agreement will
become void without any liability to CUC International, Merger Sub or the
Company (or any of their respective affiliates, directors, officers or
shareholders), except for the termination and other fees payable under the
circumstances described in those provisions of the Merger Agreement relating to
termination of the Merger Agreement, access to information, fees and expenses,
arbitration, governing law, equitable remedies and brokers (SECTION 6.2).
FEES AND EXPENSES
Except as set forth below, each of CUC International, Merger Sub and the
Company has agreed to bear its own expenses in connection with the Merger, and
the cost of printing this Proxy Statement/Prospectus will be borne equally by
CUC International and the Company (SECTION 6.3).
If the Merger Agreement is terminated (i) by the Company in the case of a
good faith determination of the Company's Board of Directors (by a majority
vote, after consultation with independent legal counsel), that it is necessary
to terminate the Merger Agreement in order to comply with the Board's
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fiduciary duties to the Company's shareholders, (ii) by CUC International and
Merger Sub in the case of: (a) the willful breach by the Company of any of its
representations or warranties under the Merger Agreement such that the
conditions to the obligations of CUC International and Merger Sub under the
Merger Agreement to effect the Merger would not be capable of being satisfied by
September 30, 1996 (or any permissible extension of such date), (b) the willful
breach by the Company of any of its covenants or agreements under the Merger
Agreement which has a Material Adverse Effect on the Company or which materially
adversely affects (or materially delays) consummation of the Merger (which such
breach has not been cured within 20 business days after the assertion thereof by
CUC International or Merger Sub), or (c) the Company having previously entered
into negotiations with any entity or group (other than CUC International or
Merger Sub) that has proposed a Third Party Acquisition and such negotiations
have continued for more than 15 business days after the earlier to occur of the
date on which the Company first furnished information to such entity or group or
commenced such negotiations, and, within 12 months after the occurrence of any
of the events described in (a), (b) or (c) of this clause (ii), the Company
enters into an agreement providing for a Third Party Acquisition or a
Significant Acquisition or a Third Party Acquisition or Significant Acquisition
occurs involving any party (or any affiliate thereof) (x) with whom the Company
(or its agents) had negotiations with a view to a Third Party Acquisition or a
Significant Acquisition, (y) to whom the Company (or its agents) furnished
information with a view to a Third Party Acquisition or a Significant
Acquisition or (z) who had submitted a proposal or expressed an interest in
pursuing a Third Party Acquisition or Significant Acquisition, in the case of
each of clauses (x), (y) and (z) after February 19, 1996 and prior to such
termination, (iii) by CUC International and Merger Sub in the case of the
Company's Board of Directors having (a) withdrawn, modified or changed its
approval or recommendation of the Merger Agreement or the Merger, (b)
recommended to the Company's shareholders a Third Party Acquisition, (c) failed
to call, give notice of, convene or hold a meeting of the holders of Company
Common Stock to vote upon the Merger, or (d) adopted a resolution to effect any
of the matters described in (a), (b) or (c) of this clause (iii); provided that
in the case of the events described in this clause (iii) there shall have been
no events, changes or effects with respect to CUC International or its
subsidiaries having or which could reasonably be expected to have a Material
Adverse Effect on CUC International; or (iv) by CUC International and Merger Sub
in case the Company shall have convened a meeting of its shareholders to vote
upon the Merger and shall not obtained have the requisite approval of the
Merger: then, the Company will be required to pay to CUC International
liquidated damages in the amount of $25.0 million, payable (A) immediately upon
termination of the Merger Agreement under the circumstances described in clauses
(i), (iii) and (iv) above and (B) simultaneously with the earlier to occur of
the Company having entered into or consummated the Third Party Acquisition or
Significant Acquisition under the circumstances described in clause (ii) above,
together, in all cases, with reimbursement of up to $2.5 million of certain
out-of-pocket fees and expenses (including certain professional advisory fees)
incurred by CUC International and Merger Sub. If CUC International terminates
the Merger Agreement for any events other than those set forth in clauses (ii),
(iii) or (iv) above, the Company shall reimburse CUC International, Merger Sub
and their affiliates for all actual documented out-of-pocket fees and expenses
actually and reasonably incurred by any of them or on their behalf in connection
with the Merger (including certain professional advisory fees) (SECTION 6.3).
If the Company terminates the Merger Agreement as a result of (i) the breach
by CUC International or Merger Sub of any of their representations or warranties
set forth in the Merger Agreement or the inaccuracy thereof such that the
conditions to the Company's obligation under the Merger Agreement to effect the
Merger would not be capable of being satisfied by September 30, 1996 (or any
permissible extension of such date) or (ii) the breach by CUC International or
Merger Sub of any of their respective covenants or agreements under the Merger
Agreement having a Material Adverse Effect on CUC International or materially
adversely affecting (or materially delaying) consummation of the Merger and CUC
International or Merger Sub, as the case may be, has not cured such breach
within 20 business days after the assertion thereof by the Company, CUC
International has
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agreed to reimburse the Company for all out-of-pocket fees and expenses actually
and reasonably incurred by it in connection with the Merger (including certain
professional advisory fees) (SECTION 6.3).
ASSIGNMENT AND ASSUMPTION
Effective on February 20, 1996, Stealth Acquisition II Corp., a Delaware
corporation and wholly owned subsidiary of CUC International (and an original
contracting party to the Merger Agreement) ("Stealth II"), and Merger Sub
entered into an Assignment and Assumption Agreement pursuant to which Stealth II
assigned all of its rights and obligations under the Merger Agreement to Merger
Sub. Accordingly, Merger Sub has been substituted for Stealth II as a party to
the Merger Agreement and all references in the Merger Agreement and this Proxy
Statement/Prospectus to Stealth II are references to Merger Sub.
MODIFICATION OR AMENDMENT
The Merger Agreement may be amended by action taken by the Company, CUC
International and Merger Sub at any time before or after approval of the Merger
by the holders of a majority of the outstanding shares of Company Common Stock
but, after any such approval, no amendment may be made which requires the
approval of such shareholder under applicable law without such approval. The
Merger Agreement may not be amended except by an instrument in writing signed on
behalf of the parties to the Merger Agreement (SECTION 6.4).
WAIVER
At any time prior to the Effective Time, CUC International, the Company or
Merger Sub may, in writing (i) extend the time for the performance of any of the
obligations or other acts of the other party to the Merger Agreement; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Merger Agreement or in any document, certificate or writing
delivered pursuant to the Merger Agreement; or (iii) waive compliance by the
other party with any of the agreements or conditions contained in the Merger
Agreement (SECTION 6.5).
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SHAREHOLDERS AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE SHAREHOLDERS
AGREEMENT, WHICH IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
SHAREHOLDERS AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE. ALL
CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM IN THE SHAREHOLDERS AGREEMENT. ALL HOLDERS OF THE COMPANY
COMMON STOCK ARE ENCOURAGED TO READ THE SHAREHOLDERS AGREEMENT CAREFULLY AND IN
ITS ENTIRETY.
Concurrently with the execution and delivery of the Merger Agreement, CUC
International entered into an agreement with the holders of approximately 73% of
the outstanding Company Common Stock (consisting of Robert M. Davidson, the
Company's Chairman and Chief Executive Officer, and Janice G. Davidson, the
President, respectively, and certain trusts for which such persons serve as
fiduciaries).
Voting. Pursuant to the Shareholders Agreement, each party thereto has
agreed that until the earlier to occur of the Effective Time and the termination
of the Merger Agreement in accordance with its terms, at any meeting of the
holders of Company Common Stock, however called, or in connection with any
written consent of the Company's shareholders, such shareholder will vote (or
cause to be voted) the shares of Company Common Stock held of record or
beneficially owned by such shareholder: (i) in favor of approval of the Merger
Agreement and any actions required in furtherance thereof; (ii) against any
action or agreement that would result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement (after giving effect to any materiality or
similar qualifications contained therein); and (iii) except as otherwise agreed
to in writing in advance by CUC International, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company, (B) a sale,
lease, transfer or disposition of any assets outside the ordinary course of
business or any assets which in the aggregate are material to the Company and
its subsidiaries taken as a whole, or a reorganization, recapitalization,
dissolution or liquidation of the Company, and (C)(1) any change in a majority
of the persons who constitute the Board of Directors of the Company, (2) any
change in the present capitalization of the Company or any amendment of the
Company's Articles of Incorporation or By-laws, (3) any other material change in
the Company's corporate structure or business, or (4) any other action which in
the case of each of the matters referred to in clauses (C)(1), (2), (3) or (4),
is intended, or reasonably could be expected to, impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by the Merger Agreement and the Shareholders Agreement. Each party
to the Shareholders Agreement further has agreed not to enter into any agreement
or understanding with any person or entity the effect of which would be
inconsistent with or violative of the provisions and agreements described above
(SECTION 1).
Representations, Warranties, Covenants and Other Agreements. The parties to
the Shareholders Agreement have made certain customary representations,
warranties and covenants, including with respect to (i) their ownership of the
shares of Company Common Stock, (ii) their capacity and authority to enter into
and perform their obligations under the Shareholders Agreement, (iii) no
conflicts, (iv) restrictions on the transfer of their shares of Company Common
Stock, and (v) no finder's fees (SECTION 2).
Termination. Other than as provided therein, the Shareholders Agreement will
terminate by its terms upon the earlier to occur of the termination of the
Merger Agreement or the Effective Time, and may be terminated at the election of
the parties to the Shareholders Agreement if the Average Stock Price is less
than $29.00 (SECTION 5).
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet at April
30, 1996 and the unaudited pro forma condensed combined statements of income for
the three-month period ended April 30,1996 and for the years ended January 31,
1996, 1995 and 1994 give effect to the proposed Merger pursuant to which each
outstanding share of Company Common Stock (other than shares held by CUC
International, Merger Sub or by any other subsidiary of CUC International or
subsidiary of the Company, or shares to which dissenters' rights are granted and
properly exercised under applicable California law) will be converted at the
Effective Time into .85 of one share of CUC International Common Stock, 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 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 "Certain Information Concerning CUC International--The Sierra
Merger"), and the proposed Ideon Merger pursuant to which each outstanding share
of Ideon Common Stock (other than shares held by Ideon as treasury stock or by
any Subsidiary of Ideon or owned by CUC International, Ideon Merger Sub or by
any other Subsidiary of CUC International) will be converted at the Ideon
Effective Time into the right to receive the number of shares of CUC
International Common Stock determined in accordance with the Ideon Conversion
Number. (See "Certain Information Concerning CUC International Inc.--Other CUC
International Business Combinations"). The pro forma information gives effect to
the Merger, the Sierra Merger and the Ideon Merger under the
pooling-of-interests method and to the adjustments described in the accompanying
notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that would have occurred if the Merger, the Sierra
Merger and the Ideon Merger had been consummated as of the dates indicated or
the operating results which may be obtained by CUC International in the future.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the consolidated financial statements, related notes thereto
and other financial information included in the CUC 10-K, the CUC 10-Q, the
Company 10-K, the Company 10-Q, Sierra's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1995, the Ideon 10-K and the Ideon 10-Q.
The Merger, the Sierra Merger and the Ideon Merger are independent
transactions and consummation of none of such transactions is conditioned upon
consummation of the other transactions. Although there can be no assurance, it
is intended by each of CUC International, the Company and Sierra that the
Meeting and the meeting of Sierra's shareholders relating to the Sierra Merger
will be convened substantially simultaneously.
Sierra's revenues of $22.2 million and net income of $.07 million for the
three months ended March 31, 1995 are included in Sierra's historical financial
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.
81
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
CUC PRO FORMA CUC
INTERNATIONAL DAVIDSON CUC SIERRA INTERNATIONAL,
APRIL 30, MARCH 31, PRO FORMA INTERNATIONAL MARCH 31, PRO FORMA DAVIDSON
1996 1996 ADJUSTMENTS AND DAVIDSON 1996 ADJUSTMENTS AND SIERRA
------------- --------- ----------- ------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..... $ 286,344 $ 3,082 $ 289,426 $ 40,220 $ 329,646
Marketable securities......... 15,702 (9,300) (h) 6,402 48,741 55,143
Receivables................... 305,380 29,171 334,551 43,677 378,228
Deferred subscriber
acquisition costs..............
Other current assets.......... 148,004 10,066 158,070 22,157 180,227
------------- --------- ----- ------------- --------- --------------
Total current assets........ 739,728 58,021 (9,300) 788,449 154,795 943,244
Deferred membership acquisition
costs.......................... 278,001 278,001 278,001
Contract renewal rights and
intangible assets............. 281,545 1,662 283,207 9,785 292,992
Other non-current assets....... 167,397 16,375 9,300(h) 193,072 14,317 207,389
------------- --------- ------------- --------- --------------
Total assets................... $ 1,466,671 $76,058 $ 1,542,729 $178,897 $1,721,626
------------- --------- ------------- --------- --------------
------------- --------- ------------- --------- --------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable and accrued
expenses, federal and state
income taxes payable and
other current liabilities...... $ 113,994 $13,022 $ 127,016 $ 35,947 $ 162,963
Deferred membership income....
------------- --------- ------------- --------- --------------
Total Current liabilities... 113,994 13,022 127,016 35,947 162,963
Deferred membership income..... 523,233 523,233 523,233
Other non-current
liabilities.................... 23,873 929 24,802 24,419 49,221
------------- --------- ------------- --------- --------------
Total liabilities.............. 661,100 13,951 675,051 60,366 735,417
Shareholders' equity
Common stock.................. 1,944 9 290(a) 2,243 205 45(b) 2,493
Additional paid in capital.... 370,389 35,886 (290)(a) 405,985 92,423 (394)(b) 498,014
Retained earnings............. 482,657 26,212 508,869 27,024 535,893
Treasury stock................ (48,161) (48,161) (349) 349(b) (48,161)
Unrealized gain on securities
available for sale.......... (67) (67)
Foreign currency translation
adjustment..................... (1,258) (1,258) (705) (1,963)
------------- --------- ------------- --------- --------------
Total shareholders' equity..... 805,571 62,107 867,678 118,531 986,209
------------- --------- ------------- --------- --------------
Total liabilities and
shareholders' equity........... $ 1,466,671 $76,058 $ 1,542,729 $178,897 $1,721,626
------------- --------- ------------- --------- --------------
------------- --------- ------------- --------- --------------
<CAPTION>
PRO FORMA
IDEON PRO FORMA CUC INTERNATIONAL,
MARCH 31, PRO FORMA CUC INTERNATIONAL, DAVIDSON, SIERRA
1996 ADJUSTMENTS DAVIDSON AND IDEON AND IDEON
--------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..... $ 19,449 $ 308,875 $ 349,095
Marketable securities......... 12,916 19,318 68,059
Receivables................... 84,290 418,841 462,518
Deferred subscriber
acquisition costs.............. 87,268 (87,268)(g)
Other current assets.......... 22,453 180,523 202,680
--------- ----------- -------- --------
Total current assets........ 226,376 (87,268) 927,557 1,082,352
Deferred membership acquisition
costs.......................... 42,382 87,268(g) 407,651 407,651
Contract renewal rights and
intangible assets............. 63,465 346,672 356,457
Other non-current assets....... 59,058 252,130 266,447
--------- -------- --------
Total assets................... $391,281 $1,934,010 $2,112,907
--------- -------- --------
--------- -------- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable and accrued
expenses, federal and state
income taxes payable and
other current liabilities...... $111,477 80,000(f) $ 318,493 $ 354,440
Deferred membership income.... 118,586 (118,586)(g)
--------- ----------- -------- --------
Total Current liabilities... 230,063 (38,586) 318,493 354,440
Deferred membership income..... 54,098 118,586(g) 695,917 695,917
Other non-current
liabilities.................... 24,802 49,221
--------- ----------- -------- --------
Total liabilities.............. 284,161 80,000 1,039,212 1,099,578
Shareholders' equity
Common stock.................. 349 (211)(c) 2,381 2,631
Additional paid in capital.... 41,230 (57,852)(c) 389,363 481,392
Retained earnings............. 123,469 (80,000)(f) 552,338 579,362
Treasury stock................ (58,063 ) 58,063(c) (48,161) (48,161)
Unrealized gain on securities
available for sale.......... 135 135 68
Foreign currency translation
adjustment..................... (1,258) (1,963)
--------- ----------- -------- --------
Total shareholders' equity..... 107,120 (80,000) 894,798 1,013,329
--------- -------- --------
Total liabilities and
shareholders' equity........... $391,281 $1,934,010 $2,112,907
--------- -------- --------
--------- -------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
82
<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 DAVIDSON AND DAVIDSON SIERRA DAVIDSON AND SIERRA
----------------- -------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues......... $ 390,026 $ 29,203 $ 419,229 $ 35,563 $ 454,792
EXPENSE (INCOME)
Operating.................. 105,801 11,192 116,993 10,296 127,289
Marketing.................. 151,962 4,481 156,443 9,613 166,056
General and
administrative.............. 54,408 4,532 58,940 7,950 66,890
Software research and
development................. 6,087 6,087 9,084 15,171
Interest income, net....... (805) (179) (984) (560) (1,544)
------- ------ ------- ------ -------
Total expenses.............. 311,366 26,113 337,479 36,383 373,862
------- ------ ------- ------ -------
Income (loss) before income
taxes....................... 78,660 3,090 81,750 (820) 80,930
Provision (benefit) for
income taxes................ 30,410 1,019 31,429 (245) 31,184
------- ------ ------- ------ -------
Net income (loss)........... $ 48,250 $ 2,071 $ 50,321 $ (575) $ 49,746
------- ------ ------- ------ -------
------- ------ ------- ------ -------
Net income (loss) per common
share....................... $ 0.25 $ 0.06 $ 0.22 $ (0.03) $ 0.20
------- ------ ------- ------ -------
------- ------ ------- ------ -------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................. 196,736 35,712 227,091 21,445 253,361
------- ------ ------- ------ -------
------- ------ ------- ------ -------
<CAPTION>
PRO FORMA
THREE MONTHS ENDED PRO FORMA CUC INTERNATIONAL,
MARCH 31, 1996 CUC INTERNATIONAL, DAVIDSON, SIERRA
IDEON DAVIDSON AND IDEON AND IDEON
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Membership and service fees
and other revenues......... $ 70,023 $489,252 $524,815
EXPENSE (INCOME)
Operating.................. 11,925 128,918 139,214
Marketing.................. 38,296 194,739 204,352
General and
administrative.............. 11,450 70,390 78,340
Software research and
development................. 6,087 15,171
Interest income, net....... (677) (1,661) (2,221)
------ ------- -------
Total expenses.............. 60,994 398,473 434,856
------ ------- -------
Income (loss) before income
taxes....................... 9,029 90,779 89,959
Provision (benefit) for
income taxes................ 3,160 34,589 34,344
------ ------- -------
Net income (loss)........... $ 5,869 $ 56,190 $ 55,615
------ ------- -------
------ ------- -------
Net income (loss) per common
share....................... $ 0.21 $ 0.23 $ 0.21
------ ------- -------
------ ------- -------
Weighted average number of
common and dilutive common
equivalent shares
outstanding................. 28,097 240,979 267,249
------ ------- -------
------ ------- -------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
83
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE><CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA YEAR ENDED CUC
------------------------------------- CUC DECEMBER 31, INTERNATIONAL, YEAR ENDED
JANUARY 31, 1996 DECEMBER 31, 1995 INTERNATIONAL 1995 DAVIDSON DECEMBER 31, 1995
CUC INTERNATIONAL DAVIDSON AND DAVIDSON SIERRA AND SIERRA IDEON
----------------- ----------------- ------------- ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership and
service fees and
other revenues....... $ 1,414,964 $ 147,226 $ 1,562,190 $144,764 $1,706,954 $ 228,278
EXPENSE (INCOME)
Operating........... 379,919 72,527 452,446 42,765 495,211 45,394
Marketing........... 556,920 17,158 574,078 27,893 601,971 135,469
General and
administrative.... 212,648 16,813 229,461 18,849 248,310 33,318
Software research
and development... 19,745 19,745 33,158 52,903
Costs related to
products abandoned
and restructuring. 97,029
Interest income, net.. (866) (819) (1,685) (2,310) (3,995) (5,690)
-------- ------- ------------- ------------ -------------- -------
Total expenses....... 1,148,621 125,424 1,274,045 120,355 1,394,400 305,520
-------- ------- ------------- ------------ -------------- -------
Income (loss) before
income taxes......... 266,343 21,802 288,145 24,409 312,554 (77,242)
Provision (benefit)
for income taxes.... 102,969 8,225 111,194 6,944 118,138 (27,801)
-------- ------- ------------- ------------ -------------- -------
Net income (loss).... $ 163,374 $ 13,577 $ 176,951 $ 17,465 $ 194,416 $ (49,441)
-------- ------- ------------- ------------ -------------- -------
-------- ------- ------------- ------------ -------------- -------
Net income (loss) per
common share......... $ 0.84 $ 0.38 $ 0.79 $ 0.85 $ 0.78 $ (1.73)
-------- ------- ------------- ------------ -------------- -------
-------- ------- ------------- ------------ -------------- -------
Weighted average
number of common and
dilutive common
equivalent shares
outstanding.......... 194,666 35,768 225,069 20,540 250,231 28,500
-------- ------- ------------- ------------ -------------- -------
-------- ------- ------------- ------------ -------------- -------
<CAPTION>
PRO FORMA
PRO FORMA CUC INTERNATIONAL,
CUC INTERNATIONAL, DAVIDSON, SIERRA
DAVIDSON AND IDEON AND IDEON
------------------ ------------------
<S> <C> <C>
REVENUES
Membership and
service fees and
other revenues....... $1,790,468 $1,935,232
EXPENSE (INCOME)
Operating........... 497,840 540,605
Marketing........... 709,547 737,440
General and
administrative.... 262,779 281,628
Software research
and development... 19,745 52,903
Costs related to
products abandoned
and restructuring.. 97,029 97,029
Interest income, net. (7,375) (9,685)
-------- --------
Total expenses....... 1,579,565 1,699,920
-------- --------
Income (loss) before
income taxes......... 210,903 235,312
Provision (benefit)
for income taxes.... 83,393 90,337
-------- --------
Net income (loss).... $ 127,510 $ 144,975
-------- --------
-------- --------
Net income (loss) per
common share......... $ 0.53 $ 0.55
-------- --------
-------- --------
Weighted average
number of common and
dilutive common
equivalent shares
outstanding.......... 239,156 264,318
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
84
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED CUC YEAR ENDED CUC
------------------------------------- INTERNATIONAL MARCH 31, INTERNATINAL, YEAR ENDED
JANUARY 31, 1995 DECEMBER 31, 1994 AND 1995 DAVIDSON OCTOBER 31, 1994
CUC INTERNATIONAL DAVIDSON DAVIDSON SIERRA AND SIERRA IDEON
----------------- ----------------- ------------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership and service
fees and other
revenues................. $ 1,182,896 $93,171 $ 1,276,067 $ 97,879 $1,373,946 $180,665
EXPENSE (INCOME)
Operating............... 320,773 44,262 365,035 38,722 403,757 34,033
Marketing............... 479,590 12,375 491,965 19,862 511,827 106,503
General and
administrative........ 180,166 10,766 190,932 15,627 206,559 16,451
Software research and
development........... 14,369 14,369 21,967 36,336
Gain on sale of
ImagiNation Network,
net...................... (17,749) (17,749)
Cost related to products
abandoned and
restructuring............ 7,900
Interest expense
(income), net............ 582 (691) (109) 593 484 (8,421)
-------- ------ ------------- ----------- -------------- -------
Total expenses........... 981,111 81,081 1,062,192 79,022 1,141,214 156,466
-------- ------ ------------- ----------- -------------- -------
Income before income
taxes.................... 201,785 12,090 213,875 18,857 232,732 24,199
Provision for income
taxes.................... 77,219 5,612 82,831 5,865 88,696 6,178
-------- ------ ------------- ----------- -------------- -------
Income before cumulative
effect of accounting
change for income
taxes.................... 124,566 6,478 131,044 12,992 144,036 18,021
Cumulative effect of
accounting change for
income taxes............. 2,000
-------- ------ ------------- ----------- -------------- -------
Net income............... $ 124,566 $ 6,478 $ 131,044 $ 12,992 $ 144,036 $ 20,021
-------- ------ ------------- ----------- -------------- -------
-------- ------ ------------- ----------- -------------- -------
Income before cumulative
effect of accounting
change................... $ 0.66 $ 0.19 $ 0.60 $ 0.70 $ 0.60 $ 0.63
Cumulative effect of
accounting change....... 0.07
-------- ------ ------------- ----------- -------------- -------
Net income per common
share.................... $ 0.66 $ 0.19 $ 0.60 $ 0.70 $ 0.60 $ 0.70
-------- ------ ------------- ----------- -------------- -------
-------- ------ ------------- ----------- -------------- -------
Weighted average number
of common and dilutive
common equivalent shares
outstanding............. 189,219 34,986 218,957 18,513 241,636 28,411
-------- ------ ------------- ----------- -------------- -------
-------- ------ ------------- ----------- -------------- -------
<CAPTION>
PRO FORMA
PRO FORMA CUC INTERNATIONAL,
CUC INTERNATIONAL, DAVIDSON, SIERRA
DAVIDSON AND IDEON AND IDEON
------------------ ------------------
<S> <C> <C>
REVENUES
Membership and service
fees and other
revenues................. $1,456,732 $1,554,611
EXPENSE (INCOME)
Operating............... 399,068 437,790
Marketing............... 598,468 618,330
General and
administrative........ 207,383 223,010
Software research and
development........... 14,369 36,336
Gain on sale of
ImagiNation Network,
net...................... (17,749)
Cost related to products
abandoned and
restructuring............ 7,900 7,900
Interest expense
(income), net............ (8,530) (7,937)
-------- --------
Total expenses........... 1,218,658 1,297,680
-------- --------
Income before income
taxes.................... 238,074 256,931
Provision for income
taxes.................... 89,009 94,874
-------- --------
Income before cumulative
effect of accounting
change for income
taxes.................... 149,065 162,057
Cumulative effect of
accounting change for
income taxes............. 2,000 2,000
-------- --------
Net income............... $ 151,065 $ 164,057
-------- --------
-------- --------
Income before cumulative
effect of accounting
change................... $ 0.64 $ 0.63
Cumulative effect of
accounting change....... 0.01 0.01
-------- --------
Net income per common
share.................... $ 0.65 $ 0.64
-------- --------
-------- --------
Weighted average number
of common and dilutive
common equivalent shares
outstanding............. 233,001 255,679
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
85
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED PRO FORMA YEAR ENDED CUC
------------------------------------- CUC MARCH 31, INTERNATIONAL, YEAR ENDED
JANUARY 31, 1994 DECEMBER 31, 1993 INTERNATINAL 1994 DAVIDSON OCTOBER 31, 1993
CUC INTERNATIONAL DAVIDSON AND DAVIDSON SIERRA AND SIERRA IDEON
----------------- ----------------- ------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership and
service fees and
other revenues...... $ 984,801 $62,372 $ 1,047,173 $ 73,101 $1,120,274 $158,390
EXPENSE (INCOME)
Operating.......... 267,772 29,385 297,157 32,442 329,599 16,891
Marketing.......... 394,505 8,443 402,948 16,438 419,386 95,248
General and
administrative... 162,231 10,299 172,530 9,969 182,499 12,542
Software research
and
development...... 3,547 3,547 18,788 22,335
Interest expense
(income), net....... 7,035 (469) 6,566 (1,051) 5,515 (8,736)
Equity in loss from
ImagiNation
Network............. 5,066 5,066
------- ------ ------------- ------ -------------- -------
Total expenses...... 831,543 51,205 882,748 81,652 964,400 115,945
------- ------ ------------- ------ -------------- -------
Income (loss) before
income taxes........ 153,258 11,167 164,425 (8,551) 155,874 42,445
Provision (benefit)
for income taxes... 59,107 4,218 63,325 (679) 62,646 10,968
------- ------ ------------- ------ -------------- -------
Net income (loss)... $ 94,151 $ 6,949 $ 101,100 $ (7,872) $ 93,228 $ 31,477
------- ------ ------------- ------ -------------- -------
------- ------ ------------- ------ -------------- -------
Net income (loss)
per
common share....... $ 0.51 $ 0.21 $ 0.48 $ (0.46) $ 0.40 $ 1.10
------- ------ ------------- ------ -------------- -------
------- ------ ------------- ------ -------------- -------
Weighted average
number of common
and dilutive
common equivalent
shares
outstanding........ 183,113 33,599 211,672 17,143 232,672 28,572
------- ------ ------------- ------ -------------- -------
------- ------ ------------- ------ -------------- -------
<CAPTION>
PRO FORMA
PRO FORMA CUC INTERNATIONAL,
CUC INTERNATIONAL, DAVIDSON, SIERRA
DAVIDSON AND IDEON AND IDEON
------------------ ------------------
<S> <<C> <C>
REVENUES
Membership and
service fees and
other revenues...... $1,205,563 $1,278,664
EXPENSE (INCOME)
Operating.......... 314,048 346,490
Marketing.......... 498,196 514,634
General and
administrative... 185,072 195,041
Software research
and
development...... 3,547 22,335
Interest expense
(income), net....... (2,170) (3,221)
Equity in loss from
ImagiNation
Network............. 5,066
-------- --------
Total expenses...... 998,693 1,080,345
-------- --------
Income (loss) before
income taxes........ 206,870 198,319
Provision (benefit)
for income taxes... 74,293 73,614
-------- --------
Net income (loss)... $ 132,577 $ 124,705
-------- --------
-------- --------
Net income (loss)
per
common share....... $ 0.59 $ 0.51
-------- --------
-------- --------
Weighted average
number of common
and dilutive
common equivalent
shares
outstanding........ 225,795 246,795
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
86
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(a) In the Merger, each outstanding share of Company Common Stock (other than
shares held by CUC International, SAC or any other subsidiary of CUC
International or by any subsidiary of the Company, or shares to which
dissenters' rights are granted and properly exercised under applicable
California law) will be converted into the right to receive .85 of one share of
CUC International Common Stock. The unaudited pro forma condensed combined
financial statements assume that all 35,233,463 shares of Company Common Stock
outstanding at March 31, 1996 will be converted at the Effective Time in the
Merger into approximately 29.9 million shares of CUC International Common Stock
based on the Exchange Ratio. The effect of this transaction, accounted for in
accordance with the pooling-of-interests method, was to increase stated capital
in respect of CUC International Common Stock by approximately $299,000 and to
increase CUC International's additional paid-in capital by approximately $35.6
million, and to eliminate the Company Common Stock.
(b) 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.
(c) In the Ideon Merger, each outstanding share of Ideon Common Stock (other
than shares held by Ideon as treasury stock or by any Subsidiary of Ideon or
owned by CUC International, Ideon Merger Sub or by any other Subsidiary of CUC
International) will be converted into the right to receive such number of shares
of CUC International Common Stock equal to the quotient obtained by dividing (x)
$13.50 by (y) the Ideon Average Stock Price, provided however, that if the Ideon
Average Stock Price is $22.00 or less the Ideon Conversion Number will be 0.6136
and if the Ideon Average Stock Price is $36.00 or more the Ideon Conversion
Number will be 0.375. The unaudited pro forma condensed combined financial
statements assume that all 27,981,831 shares of Ideon Common Stock outstanding
at March 31, 1996 will be converted in the Ideon Merger into approximately 13.8
million shares of CUC International Common Stock based on the Ideon Conversion
Number (assumed to be 0.4943). The effect of this transaction, accounted for in
accordance with the pooling-of-interests method, was to increase stated capital
in respect of CUC International Common Stock by approximately $138,000 and to
decrease CUC International's additional paid-in capital by approximately $16.6
million and to eliminate Ideon Common Stock and Ideon treasury stock.
(d) The pro forma information is based on the historical financial statements of
CUC International, the Company, Sierra and Ideon contained in the CUC 10-K, the
CUC 10-Q, the Company 10-K, the Company 10-Q, the Sierra 10-Q, the Sierra Press
Release, the Ideon 10-K and the Ideon 10-Q. Sierra's total revenues of $22.2
million and net income of $0.7 million for the three months ended March 31, 1995
are included in Sierra's historical statements of income for the years ended
December 31, 1995 and March 31, 1995. Effective January 1, 1995, Ideon changed
its year end from October 31 to December 31. Ideon's results of operations for
the two months ended December 31, 1994 have been excluded from the unaudited pro
forma condensed combined statements of income. Ideon's revenues and net loss for
the two months ended December 31, 1994 were $34.7 million and $(49.9) million,
respectively.
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(e) Income per common share from continuing operations has been computed based
upon the combined weighted average number of common and dilutive common
equivalent outstanding shares of CUC International Common Stock, Company Common
Stock, Sierra Common Stock and Ideon Common Stock for each period. Historical
weighted average common and dilutive common equivalent outstanding shares of
Company Common Stock, Sierra Common Stock and Ideon Common Stock for each period
have been adjusted to reflect the Exchange Ratio in respect of the Merger (i.e.,
.85), the exchange ratio in respect of the Sierra Merger (i.e., 1.225), and the
Ideon Conversion Number in respect of the Ideon Merger (determined in accordance
with the calculation set forth in note (c) above). In addition, the weighted
average number of common and dilutive common equivalent outstanding shares have
been adjusted for, and give effect to, in the case of CUC International, the 3:2
split of the CUC International Common Stock effected on June 30, 1995, in the
case of the Company, the 2:1 split of the Company Common Stock effected on
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 Ideon Merger as well as
costs relating to certain outstanding litigation matters, previously discussed
in Ideon's public filings, giving consideration to CUC International's intended
approach to these matters subsequent to the Ideon Merger, which are estimated by
CUC International's management to approximate $125.0 million ($80.0 million
after tax effect). Most of the reserve is related to these outstanding
litigation matters. In determining such portion, CUC International estimated the
cost of settling these litigation matters. In estimating such cost, CUC
International considered potential liabilities 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 cash
outflows with respect to this accrued liability. Although CUC International has
attempted to estimate the amounts that will be required to settle these
litigation matters, there can be no assurance that the actual aggregate amount
of such settlements will not exceed the amount of the reserve accrued. The
reserve for these matters will be expensed in the combined income statement
subsequent to the closing of the Ideon Merger, and any subsequent payments
related to these matters will reduce the amount of the reserve. CUC
International considered all of these litigation-related costs and liabilities,
as well as integration and transaction costs, in determining the agreed upon
exchange ratio in respect of the Ideon Merger.
In determining the amount of the reserve related to CUC's proposed
integration and consolidation efforts, CUC International estimated the
significant severance costs to be accrued upon the consummation of the Ideon
Merger and costs relating to the expected obligations for certain third-party
contracts (e.g., existing leases and vendor agreements) to which Ideon is a
party and which are neither terminable at will nor automatically terminated upon
a change-in-control of Ideon. CUC International expects to incur significant
integration costs because Ideon's credit card registration and enhancement
services are substantially similar to CUC International's credit card
registration and enhancement services. All of the business activities related to
these operations currently performed by Ideon's Jacksonville, Florida office
will be transferred to CUC International's Comp-U-Card Division in Stamford,
Connecticut promptly after the consummation of the Ideon Merger. CUC also
expects that there will be additional consolidation affecting other parts of
Ideon's business that are substantially the same as CUC International's existing
businesses. CUC International does not expect any loss in revenue as a result of
these integration and consolidation efforts.
The unaudited pro forma condensed combined statements of income do not
include (i) integration and transaction costs associated with the Ideon Merger
as well as costs relating to certain outstanding litigation matters previously
discussed in Ideon's public filings, giving consideration to CUC International's
intended approach to these matters, subsequent to the completion of the Ideon
Merger and
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(ii) costs and expenses associated with the 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 the Company's proposed acquisition of a warehouse facility,
excluding any costs of improvement of the facility, which have not yet been
determined. The pro forma effect on the results of operations has been excluded
as the amounts involved are not significant to the Company's and the pro forma
combined results of operations.
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PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pro forma combined operating revenues for the three months ended April 30,
1996 are $419.2 million, which includes the Company's operations for the
three-month period ended March 31, 1996. The largest contributing factor to
revenue growth is the continual rapid growth of CUC International's membership
base. CUC International will utilize its existing membership base and
distribution channels to market the Company's products. In addition, with CUC
International's plans for the electronic marketplace, the Company will enable
CUC International to broaden its content much beyond its current offerings to
establish content areas in the interactive world. Pro forma earnings per common
share for the three months ended April 30, 1996 are $0.22, 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 and acquisitions 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 and that CUC International's liquidity will not be adversely affected by
the Merger.
In addition, the acquisitions of the Company and Sierra will enable CUC
International to offer educational and entertainment software to various
portions of CUC International's 48.0 million member database. Both the Company
and Sierra have extensive distribution channels (including computer and
electronic superstores, software specialty shops, mass merchants and, in the
case of the Company, schools). These companies also have recurring revenue
streams because of their widely known software titles. CUC International's
acquisition of Ideon will strengthen CUC International's core membership
services business, primarily by adding over 13 million credit card enhancement
members.
CUC International's management believes that the risks associated with its
acquisition of the Company and Sierra will not be material primarily because no
individual software title revenue represents more than 1% of the combined
consolidated pro forma revenues of CUC International, the Company and Sierra.
Both the Company's revenues and Sierra's revenues are subject to a degree of
seasonality, however CUC International believes that such seasonality will not
have any material impact on its future combined results of operations.
CUC International's management also believes that the risks associated with
its acquisition of Ideon will not be material, since Ideon's core business
generates a recurring revenue stream and CUC International believes that it will
be able to reduce costs by consolidating certain administrative, back-end and
marketing functions. Ideon is also involved in prosecuting or defending several
complex lawsuits. The majority of these involve a former Chairman of the Board
and Executive Management to SafeCard. SafeCard is Ideon's largest operating
subsidiary and, prior to Ideon's 1995 reorganization, was the public company
through which (directly or indirectly) Ideon's credit card registration and
other businesses were conducted. CUC International intends to reserve for the
outstanding litigation matters which have been previously discussed in Ideon's
public filings, after giving consideration to CUC International's intended
approach to these matters as well as certain integration and transaction costs
associated with the Ideon Merger.
The most recent "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for CUC International, the Company, Sierra and Ideon
appear in the CUC 10-Q; the Company 10-Q; the Sierra 10-Q and the Ideon 10-Q.
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COMPARISON OF SHAREHOLDERS' RIGHTS
In connection with the Merger, the Company shareholders will be converting
their shares of Company Common Stock into shares of CUC International Common
Stock. CUC International is a Delaware corporation and the Company is a
California corporation and the charter and bylaws of CUC International differ
from those of the Company in several significant respects. Because of the
differences between the DGCL and the CGCL and the differences in the charter and
bylaws of CUC International and the Company, the rights of a holder of CUC
International Common Stock differ from the rights of a holder of Company Common
Stock.
Below is a summary of some of the important differences between the DGCL and
the CGCL and the charter and bylaws of CUC International and the Company. It is
not practical to summarize all of such differences in this Proxy
Statement/Prospectus, but some of the principal differences which could
materially affect the rights of shareholders include the following:
AUTHORIZED CAPITAL STOCK.
CUC International's amended and restated certificate of incorporation (the
"CUC International Charter") currently provides that CUC International is
authorized to issue up to 601,000,000 shares of capital stock, including
600,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
Company's Restated Articles of Incorporation (the "Company Charter") currently
provides that the Company is authorized to issue up to 100,000,000 shares of
common stock and 1,000,000 shares of preferred stock.
SIZE OF THE BOARD OF DIRECTORS.
Under the DGCL, the number of directors shall be fixed by, or in the manner
provided in, the bylaws, unless the number of directors is fixed in the
certificate of incorporation, in which case a change in the number of directors
may be made only by amendment to the certificate of incorporation. The CUC
International Charter does not fix the number of directors and, as a result, the
board of directors acting without shareholder approval may change such number in
the manner provided in CUC International's Bylaws. CUC International's By-Laws
currently provide that the CUC International Board cannot be fixed at less than
three directors. Effective as of the Closing Date, CUC International has agreed
to increase the size of the CUC International Board by two directors and cause
Robert M. Davidson and Janice G. Davidson to be appointed to the CUC
International Board to fill the vacancies so created, for initial terms expiring
two years and one year, respectively, following the date of CUC International's
first annual meeting of shareholders following February 19, 1996.
Under the CGCL, although changes in the number of directors must in general
be approved by the shareholders, the board of directors may fix the exact number
of directors within a stated range set forth in the articles of incorporation or
bylaws, if the stated range has been approved by the shareholders. The Company's
By-Laws presently permit the board of directors to adjust the size of the board
from a minimum of five directors to a maximum of nine; however, effective upon
becoming a "listed corporation" as defined in the CGCL, the minimum number of
board members will be increased to six directors. A "listed corporation" is
defined under the CGCL as a corporation with (i) outstanding securities listed
on the New York or American Stock Exchange, or (ii) outstanding securities
designated as qualified for trading as a national market system security on the
National Association of Securities Dealers Automatic Quotation System (or any
successor national market system) if the corporation has at least 800 holders of
its equity securities as of the record date of the corporation's most recent
annual meeting of shareholders. Pursuant to the CGCL, the Company became a
"listed corporation" after the Company's 1994 annual meeting of shareholders
because it had more than 800 holders of Company Common Stock on the record date
for such meeting, and, as a result, the board was increased in size to six.
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CLASSIFIED BOARD OF DIRECTORS.
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. The DGCL permits, but does
not require, a classified board of directors, pursuant to which the directors
can be divided into as many as three classes with staggered terms of office,
with only one class of directors standing for election each year. CUC
International's By-Laws provide for a classified board of directors which is
divided into three classes serving staggered terms of office, with one class of
directors elected annually.
Under the CGCL, directors generally must be elected annually; however, a
"listed corporation" (as defined above in the section entitled "Size of the
Board of Directors") is permitted to adopt a classified board. The Company
Charter and the Company's By-Laws provide that, effective upon becoming a
"listed corporation," the board of directors of the Company shall be divided
into two classes that serve staggered two-year terms, with one class of half of
the directors (or as close an approximation as possible) elected annually.
Pursuant to the CGCL, the Company became a "listed corporation" after the
Company's 1994 annual meeting of shareholders and, as a result, the board of
directors of the Company was divided into two classes that serve staggered
two-year terms, with one class of half of the directors elected annually.
CUMULATIVE VOTING.
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the shareholder may
choose. Under the DGCL, cumulative voting in the election of directors is not
available unless specifically provided in the certificate of incorporation. The
CUC International Charter does not provide for cumulative voting.
In contrast, under CGCL any shareholder is entitled to cumulate his or her
votes in the election of directors upon proper notice of his or her intention to
do so; however, a "listed corporation" (as defined above in the section entitled
"Size of Board of Directors") may eliminate shareholders' cumulative voting
rights. The Company Charter provides that effective upon becoming a "listed
corporation" cumulative voting shall be eliminated. The Company became a "listed
corporation" after the 1994 Annual Meeting and, as a result, cumulative voting
was eliminated.
REMOVAL OF DIRECTORS.
Under the DGCL, if a corporation has a classified board, the shareholders
may remove a director only for cause, unless the certificate of incorporation
provides otherwise. The CUC International Charter and CUC International's
By-Laws both however provide that any and all directors may be removed without
cause only by the affirmative vote of holders of at least 80% of the combined
voting power of the outstanding shares of stock entitled to vote generally in
the election of directors, voting together as a single class.
Under the CGCL and the Company's By-Laws, any director or the entire board
of directors may be removed, with or without cause, if the removal is approved
by the affirmative vote of a majority of the outstanding shares entitled to
vote; however, no director of a corporation whose board is classified may be
removed if the number of votes cast against removal would be sufficient to elect
the director under cumulative voting (without regard to whether shares may
otherwise be voted cumulatively) at an election at which the same total number
of votes were cast and either the number of directors elected at the most recent
annual meeting of shareholders, or if greater, the number of directors for whom
removal is being sought, were then being elected.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CUC International's By-Laws provide that CUC International shall indemnify
to the full extent permitted by, and in the manner permissible under, the DGCL
any person made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person is or was a director or officer of CUC International. Under the
DGCL, other than an action brought by or in the right of CUC International, such
indemnification is available if it is determined that the proposed indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceedings, had no reasonable cause to believe his or her
conduct was unlawful. In actions brought by or in the right of CUC
International, such indemnification is limited to expenses (including attorneys'
fees) actually and reasonably incurred and permitted only if the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of CUC International, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person is adjudged to be liable to CUC International, unless and only to
the extent that the Court of Chancery or the court in which the action was
brought determines that, despite the adjudication of liability but in view of
all the circumstances of the case, the person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other court
deems proper. To the extent that the proposed indemnitee has been successful in
defense of any action, suit or proceeding, he must be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the action.
The Company's By-Laws provide that the Company shall, to the maximum extent
permissible by the CGCL, indemnify any person who was or is a party, or is
threatened to be made a party, to any action or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or other agent of the Company,
against expenses, judgments, fines, settlements and other amounts, including
attorney fees and costs, actually and reasonably incurred in connection with
such action or proceeding. Under the CGCL, other than an action brought by or in
the right of the Company, such indemnification is available if it is determined
that the proposed indemnitee acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Company, and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of the
Company, such indemnification is limited to expenses (including attorneys' fees)
actually and reasonably incurred and permitted only if the indemnitee acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of the Company and its shareholders, except that no indemnification
may be made in respect of any claim, issue or matter as to which such person is
adjudged to be liable to the Company, unless and only to the extent that the
court in which the action was brought determines that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court shall
determine. Furthermore, no indemnification may be made for expenses incurred in
defending a pending action brought by or in the right of the Company which is
settled or otherwise disposed of without court approval. To the extent that the
proposed indemnitee has been successful in defense of any action, suit or
proceeding, he must be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the action.
AMENDMENTS TO THE CHARTER.
Under the DGCL, amendments to the certificate of incorporation must be
recommended by the board of directors and approved by the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote thereon,
unless the certificate of incorporation requires the vote of a larger portion of
the shares. The CUC International Charter requires the approval of the holders
of at least 80% of the outstanding shares 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,
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vacancies in directorships and removal of directors; (ii) certain business
combinations; (iii) amendment of certain provisions of CUC International's
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.
Under CGCL, a company's articles of incorporation can be amended by the
affirmative vote of the board of directors of the company and of the holders of
a majority of the outstanding shares entitled to vote, unless the company's
articles of incorporation require the vote of a larger portion of the shares.
The Company Charter does not require a larger percentage affirmative vote.
AMENDMENT OF BY-LAWS.
Under CUC International's By-Laws, the shareholders of CUC International may
alter, amend or repeal CUC International's By-Laws by majority vote and the
board of directors of CUC International may amend or enact such other bylaws by
majority vote, provided that amendments to certain provisions of CUC
International's By-Laws dealing with shareholder meetings and directors must be
approved by at least 80% of the shares of outstanding stock entitled to vote
thereon.
Under the Company's By-Laws, the Company Board has the power to adopt, amend
or repeal the Company's By-Laws, other than the bylaw fixing the authorized
number of directors or the maximum or minimum number of directors. The Company's
shareholders entitled to vote have concurrent power to adopt, amend or repeal
the Company's By-Laws by the affirmative vote of a majority of the outstanding
shares entitled to vote thereon; provided, however, that a bylaw or amendment of
the Company Charter reducing the fixed number or the minimum number of directors
to a number less than five cannot be adopted if the votes cast against its
adoption are equal to more than sixteen and two-thirds percent of the
outstanding shares entitled to vote.
QUORUM.
CUC International's 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 entitled to
vote at any meeting of shareholders of CUC International. In contrast, the
Company's By-Laws provide that a quorum for the purpose of a meeting of the
holders of Company Common Stock shall consist of a majority of the issued and
outstanding shares of stock of the Company
LOANS TO OFFICERS AND EMPLOYEES.
Under the DGCL a corporation may make loans to, guarantee the obligations
of, or otherwise assist its officers or other employees and those of its
subsidiaries when such action, in the judgment of the directors, may reasonably
be expected to benefit the corporation.
Under the CGCL any such loan or guaranty to or for the benefit of a director
or officer of the corporation or any of its subsidiaries requires approval of
the shareholders, unless such loan or guaranty is provided under a plan approved
by a majority of the shareholders entitled to vote; however, shareholders of any
corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone to approve a loan or guaranty to or on
behalf of an officer (whether or not a director) if the board determines that
such a loan or guaranty may reasonably be expected to benefit the corporation.
The Company's shareholders have not adopted such a bylaw provision.
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POWER TO CALL SPECIAL SHAREHOLDERS' MEETING; ACTION BY CONSENT.
Under the DGCL, a special meeting of shareholders may be called by the board
of directors or by any other person authorized to do so in the certificate of
incorporation or the by-laws. The CUC International Charter and CUC
International's By-Laws provide that special meetings of shareholders may be
called only by the Chairman of the CUC International Board, the President or the
by the CUC International Board pursuant to a resolution approved by a majority
of the entire CUC International Board. The CUC International Charter provides
that any action taken by shareholders must be effected at an annual or special
meeting and may not be effected by written consent without a meeting.
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president and the holders of shares
entitled to cast not less than 10% of the votes at such meeting and such persons
are so authorized to call shareholder meetings by the Company's By-Laws. Under
the CGCL and the Company's By-Laws, any action which may be taken at any annual
or special meeting of shareholders may be taken without a meeting and without
prior notice if a consent in writing setting forth the action so taken is signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all shares entitled to vote thereon were present and voted. The Company's
By-Laws provide however that in the case of election of Company directors (other
than an election to fill a vacancy that has not been filled by the directors),
such consent shall be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors.
INSPECTION OF SHAREHOLDERS' LIST.
Both the DGCL and the CGCL allow any shareholder to inspect the
shareholders' list for a purpose reasonably related to such person's interest as
a shareholder. The CGCL provides, in addition, an absolute right to inspect and
copy the corporation's shareholders' list by a person or persons holding 5% or
more of a corporation's outstanding voting shares, or any shareholder or
shareholders holding 1% or more of such shares who has filed certain documents
with the Commission relating to the election of directors. The DGCL does not
provide for any such absolute right of inspection.
DIVIDENDS AND REPURCHASES OF SHARES.
The DGCL permits a corporation, unless otherwise restricted by its
certificate of incorporation, to declare and pay dividends out of its surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared or for the preceding fiscal year as long as the amount of
capital of the corporation is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. The CUC International Charter does
not contain any such restrictions on CUC International's ability to declare and
pay dividends. In addition, the DGCL generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation. The ability of a Delaware corporation to
pay dividends on, or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not on a
consolidated basis. In determining the amount of surplus of a Delaware
corporation, the assets of the corporation, including stock of subsidiaries
owned by the corporation, must be valued at their fair market value as
determined by the board of directors, regardless of their historical book value.
Under the CGCL, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
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corporation's current assets, as defined, would be at least equal to its current
liabilities or (1 1/4 times its current liabilities if the average pre-tax and
pre-interest earnings for the preceding two fiscal years were less than the
average interest expenses for such years). Such tests are applied to California
corporations on a consolidated basis. Under the CGCL, there are certain
exceptions to the foregoing rules for repurchases of shares in connection with
certain rescission actions or pursuant to certain employee stock plans.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS.
Under both the CGCL and the DGCL, with certain exceptions, any merger,
consolidation or sale, lease or exchange of all or substantially all of the
assets must be approved by the board of directors and by the affirmative vote of
a majority of the outstanding shares entitled to vote. Under the CGCL, similar
board and shareholder approval is also required in connection with certain
additional acquisition transactions.
BUSINESS COMBINATION 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 or any affiliate of an owner of 5% or
more of the outstanding shares of capital stock entitled to vote, unless either
(i) such business combination is approved by a majority of disinterested
directors, or (ii) the shareholders receive a "fair price" for their holdings
and certain other procedural requirements are met. The Company Charter does not
include any "fair price provisions."
Section 203 of the DGCL also prohibits certain business combinations between
a Delaware corporation, the shares of which are listed on a national securities
exchange, and an "interested shareholder" for a period of three years following
the time that such person became an "interested shareholder" without board
approval, unless certain conditions are met and unless the certificate of
incorporation of the corporation contains a provision expressly electing not to
be governed by such provisions. The CUC International Charter does not contain
such an election. The CGCL does not contain an analogous law, however, the CGCL
does provide that (i) in connection with a sale of all or substantially all of
the assets of a company where the buyer is in control of or under common control
with the seller (control being ownership of shares possessing more than fifty
percent of the voting power), the principal terms of the sale must be approved
by at least 90% of the voting power unless the sale is in consideration of
nonredeemable common shares of the purchasing corporation or its parent and (ii)
in connection with a merger where one constituent corporation or its parent owns
more than 50% of the voting power of another constituent corporation (but less
than 90% of the voting power of each class) the common stock of a disappearing
corporation may be converted only into nonredeemable common shares of the
surviving corporation or parent unless all of the shareholders of the class
consent or the transaction is determined to be fair by the Commissioner of
Corporations.
APPRAISAL RIGHTS.
Under the DGCL and the CGCL, a shareholder of a corporation participating in
certain major corporate transactions may, under varying circumstances, be
entitled to appraisal rights pursuant to which such shareholder may receive cash
in the amount of the fair market value of the shares held by such shareholder
(as determined by a court or by agreement of the corporation and the
shareholder) in
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lieu of the consideration such shareholder may otherwise receive in the
transaction. The limitations on the availability of appraisal rights under the
DGCL are different from those under the CGCL.
Under the DGCL, appraisal rights are not available to: (i) shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by more than 2,000
holders if such shareholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or are
held of record by more than 2,000 holders; or (ii) shareholders of a corporation
surviving a merger if no vote of the shareholders of the surviving corporation
is required to approve the merger because, among other things, the number of
shares to be issued in the merger does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the merger, and if
certain other conditions are met.
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have such appraisal rights unless the holders of at least 5% of the class of
outstanding shares claim the right. See "Rights of Company Dissenting
Shareholders." Appraisal rights are unavailable, however, if the shareholders of
a corporation or the corporation itself, or both, immediately prior to a
reorganization shall own (immediately after the reorganization) more than five-
sixths of the voting power of the surviving or acquiring corporation or its
parent.
The DGCL also does not provide shareholders of a corporation with appraisal
rights when the corporation acquires another business through the issuance of
its capital stock: (i) in exchange for all or substantially all of the assets of
the business to be acquired, (ii) in exchange for more than fifty percent of the
outstanding shares of the corporation to be acquired, or (iii) in a merger of
the corporation to be acquired with a subsidiary of the acquiring corporation.
The CGCL treats these kinds of acquisitions in the same manner as a direct
merger of the acquiring corporation with the corporation to be acquired.
APPRAISAL RIGHTS ARE AVAILABLE TO SHAREHOLDERS OF THE COMPANY WITH RESPECT
TO THE MERGER. SEE "RIGHTS OF COMPANY DISSENTING SHARES."
DISSOLUTION.
Under the DGCL, a dissolution must be approved by shareholders holding 100%
of the shares entitled to vote thereon or the dissolution must be initiated by
the board of directors and approved by the affirmative vote of a majority of the
outstanding stock of the corporation entitled to vote thereon. Under the CGCL,
shareholders holding 50% or more of the voting power may authorize a
corporation's dissolution, with or without the approval of the corporation's
board of directors, and this right may not be modified by the articles of
incorporation.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 1996 Annual
Meeting of Shareholders, to be held only in the event the Merger is not
consummated, should have been received by the Company no later than November 25,
1995.
97
<PAGE>
OWNERSHIP OF COMPANY COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company Common Stock as of June 7, 1996 by (i) each person
believed by the Company to own beneficially more than 5% of the outstanding
shares of Company Common Stock, (ii) each of the Company's directors and five
most highly compensated executive officers, and (iii) all current executive
officers and directors of the Company as a group. Except as otherwise indicated
below, the address of each such person is that of the Company, 19840 Pioneer
Avenue, Torrance, California 90503.
<TABLE>
<CAPTION>
NUMBER OF
SHARES(1) PERCENT
---------- -------
<S> <C> <C>
Robert M. Davidson................................................. 16,000,125(2)(3) 45.3%
Janice G. Davidson................................................. 16,000,325(2)(4) 45.3%
Elizabeth A. Davidson Trust........................................ 2,168,750(5) 6.1%
Emilie A. Davidson Trust........................................... 2,168,750(5) 6.1%
John R. Davidson Trust............................................. 2,168,750(5) 6.1%
Todd Coyle......................................................... 20,000(6) *
John C. Goodman.................................................... 45,000(7) *
John R. Sosoka..................................................... 26,000(8) *
Jacques R. Allewaert............................................... 25,000 *
Robert B. Sheh..................................................... 8,000(9) *
c/o International Technology Corporation
23456 Hawthorne Boulevard
Torrance, California 90505
Charles Miller..................................................... 2,900 *
Allen Adham........................................................ 9,600(10) *
Executive Officers and Directors as a group, including those
persons named above (13 persons)................................. 25,671,000(11) 72.6%
</TABLE>
- ------------
* Less than one percent
(1) For purposes of this table, "beneficial ownership" of any security as of a
given date includes the right to acquire such security within 60 days after
such date. Except as indicated in the footnotes to this table and as
provided by applicable community property laws, to the knowledge of the
Company, the persons named in this table have sole voting and investment
power with respect to all shares beneficially owned by them.
(2) Includes 6,506,250 shares held in the Elizabeth A. Davidson Trust, the
Emilie A. Davidson Trust and the John R. Davidson Trust, with respect to
which Robert and Janice Davidson exercise shared voting and investment
power.
(3) Does not include 494,075 shares owned by his wife, Janice Davidson, as her
sole and separate property and 9,000,000 shares owned by the Janice G.
Davidson Charitable Remainder Unitrust for which she serves as trustee.
(4) Does not include 493,875 shares owned by her husband, Robert Davidson, as
his sole and separate property and 9,000,000 shares owned by the Robert M.
Davidson Charitable Remainder Unitrust for which he serves as trustee.
(5) Included in the 16,000,125 shares beneficially owned by Robert Davidson and
the 16,000,325 shares beneficially owned by Janice Davidson.
(6) Amount represents shares issuable upon exercise of options.
(7) Includes 40,000 shares issuable upon exercise of stock options.
(8) Amount represents shares issuable upon exercise of stock options.
(9) Includes 6,000 shares issuable upon exercise of stock options.
(Footnotes continued on following page)
98
<PAGE>
(Footnotes continued from preceding page)
(10) Amount represents shares issuable upon exercise of stock options.
(11) Includes (i) 6,506,250 shares held in the Elizabeth A. Davidson Trust, the
Emilie A. Davidson Trust and the John R. Davidson Trust of which Robert
and/or Janice Davidson may be deemed the beneficial owners, and (ii)
138,600 shares issuable upon exercise of stock options.
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, N.Y. 10022
</TABLE>
- ------------
(1) W.P. Stewart & Co. Inc. filed a Schedule 13G statement, dated February 15,
1996, pursuant to Section 13(g) of the Exchange Act reflecting the
beneficial ownership of 9,668,149 shares of CUC International Common Stock.
W.P. Stewart & Co. Inc. has the power to make investment decisions over the
CUC International Common Stock for many unrelated clients, but has no
economic interest in such securities.
After giving effect to the Merger, Robert M. Davidson, Chairman and Chief
Executive Officer of the Company, will be the beneficial owner of approximately
13,600,106 shares of CUC International Common Stock (including certain shares
held in trusts to which Mr. Davidson and Janice G. Davidson, the President of
the Company, 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 the
Davidsons 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
Company Common Stock owned by Mr. Davidson and Mrs. Davidson on June 7, 1996,
they (collectively with certain trusts for which they serve as fiduciaries) will
beneficially own approximately 9.8% of the the then outstanding shares of CUC
International Common Stock (assuming consummation of the Merger, but not the
Sierra Merger and the Ideon Merger), 9.2% of the then outstanding shares of CUC
International Common Stock (assuming consummation of the Merger and the Ideon
Merger, but not the Sierra Merger), 8.8% of the then outstanding shares of CUC
International Common Stock (assuming consummation of the Merger and the Sierra
Merger, but not the Ideon Merger) and approximately 8.3% of the then outstanding
shares of CUC International Common Stock (assuming consummation of the Merger,
the Sierra Merger and the Ideon Merger).
99
<PAGE>
LEGAL MATTERS
The validity of the shares of CUC International Common Stock to be issued in
connection with the Merger will be passed upon for CUC International by Robert
T. Tucker, Esq., Corporate Secretary of CUC International.
The opinion of counsel as described under "The Merger--Certain Federal
Income Tax Consequences," has been rendered by Gibson, Dunn & Crutcher, which
opinion is based on current law, certain information and certain
representations.
EXPERTS
The consolidated financial statements and schedule of CUC International Inc.
appearing in CUC International Inc.'s Annual Report on Form 10-K for the year
ended January 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended April 30, 1996 and April 30, 1995,
incorporated by reference in this Proxy Statement/Prospectus, Ernst & Young LLP
have reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report, included in CUC International, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by reference, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted considering the limited nature of the
review procedures applied. The independent auditors are not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the auditors
within the meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements and the related consolidated financial
statement schedules of Davidson & Associates, Inc. incorporated in this Proxy
Statement/Prospectus by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements and the related consolidated financial
statement schedules incorporated in this Proxy Statement/Prospectus by reference
from Advance Ross Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements and related financial statement
schedules of Sierra On-Line, Inc. incorporated in this Proxy
Statement/Prospectus by reference to Sierra's Amended Quarterly Report on Form
10-Q/A for the quarterly period ended December 31, 1995, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and 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 related financial statement
schedules of Ideon Group, Inc. incorporated in this Proxy Statement/Prospectus
by reference to Ideon's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 have been audited by Price Waterhouse LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been
100
<PAGE>
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited consolidated financial information of Ideon
for the three-month periods ended March 31, 1996 and 1995, incorporated by
reference in this Proxy Statement/Prospectus, Price Waterhouse LLP reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate report, dated April
29, 1996, incorporated by reference herein, states that they did not audit and
they do not express an opinion on that unaudited consolidated financial
information. Price Waterhouse LLP has not carried out any significant or
additional audit tests beyond those which would have been necessary if their
report had not been included. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Securities
Act.
101
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of Directors of
the Company does not intend to present, and have not been informed that any
other person intends to present, any matter for action at the Meeting, other
than as specifically discussed herein.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robert M. Davidson
Robert M. Davidson
Chairman of the Board
and Chief Executive Officer
102
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 19, 1996
AMONG
DAVIDSON & ASSOCIATES, INC.,
CUC INTERNATIONAL INC.
AND
STEALTH ACQUISITION I CORP.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE MERGER..................................................... A-7
SECTION 1.1. The Merger..................................................... A-7
SECTION 1.2. Effective Time................................................. A-8
SECTION 1.3. Closing of the Merger.......................................... A-8
SECTION 1.4. Effects of the Merger.......................................... A-8
SECTION 1.5. Articles of Incorporation and Bylaws........................... A-8
SECTION 1.6. Directors...................................................... A-8
SECTION 1.7. Officers....................................................... A-8
SECTION 1.8. Conversion of Shares........................................... A-8
SECTION 1.9. Shares of Dissenting Holders................................... A-9
SECTION 1.10. Exchange of Certificates....................................... A-9
SECTION 1.11. Stock Options.................................................. A-10
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. A-11
SECTION 2.1. Organization and Qualification; Subsidiaries................... A-11
SECTION 2.2. Capitalization of the Company and its Subsidiaries............. A-12
SECTION 2.3. Authority Relative to this Agreement; Consents and Approvals... A-13
SECTION 2.4. SEC Reports; Financial Statements.............................. A-14
SECTION 2.5. Information Supplied........................................... A-14
SECTION 2.6. Consents and Approvals; No Violations.......................... A-15
SECTION 2.7. No Default..................................................... A-15
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes................. A-15
SECTION 2.9. Litigation..................................................... A-16
SECTION 2.10. Compliance with Applicable Law................................. A-16
SECTION 2.11. Employee Plans................................................. A-16
SECTION 2.12. Environmental Laws and Regulations............................. A-16
SECTION 2.13. Tax Matters.................................................... A-17
SECTION 2.14. Intangible Property............................................ A-17
SECTION 2.15. Opinion of Financial Adviser................................... A-17
SECTION 2.16. Brokers........................................................ A-17
SECTION 2.17. Accounting Matters............................................. A-18
SECTION 2.18. Material Contracts............................................. A-18
SECTION 2.19. Disclosure..................................................... A-18
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION....... A-19
SECTION 3.1. Organization................................................... A-19
SECTION 3.2. Capitalization of Parent and its Subsidiaries.................. A-19
SECTION 3.3. Authority Relative to this Agreement........................... A-20
SECTION 3.4. SEC Reports; Financial Statements.............................. A-20
SECTION 3.5. Information Supplied........................................... A-21
SECTION 3.6. Consents and Approvals; No Violations.......................... A-21
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 3.7. No Default..................................................... A-21
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes................. A-22
SECTION 3.9. Litigation..................................................... A-22
SECTION 3.10. Compliance with Applicable Law................................. A-22
SECTION 3.11. Employee Plans................................................. A-22
SECTION 3.12. Environmental Laws and Regulations............................. A-23
SECTION 3.13. Tax Matters.................................................... A-23
SECTION 3.14. No Prior Activities............................................ A-23
SECTION 3.15. Brokers........................................................ A-23
SECTION 3.16. Accounting Matters............................................. A-23
SECTION 3.17. Disclosure..................................................... A-23
ARTICLE 4 COVENANTS...................................................... A-24
SECTION 4.1. Conduct of Business of the Company............................. A-24
SECTION 4.2. Conduct of Business of Parent.................................. A-26
SECTION 4.3. Preparation of S-4 and the Proxy Statement..................... A-27
SECTION 4.4. Other Potential Acquirors...................................... A-27
SECTION 4.5. Letter of the Company's Accountants............................ A-28
SECTION 4.6. Meeting........................................................ A-28
SECTION 4.7. Stock Exchange Listing......................................... A-28
SECTION 4.8. Access to Information.......................................... A-28
SECTION 4.9. Additional Agreements; Best Efforts............................ A-29
SECTION 4.10. Consents....................................................... A-29
SECTION 4.11. Public Announcements........................................... A-29
SECTION 4.12. Indemnification; Directors' and Officers' Insurance............ A-29
SECTION 4.13. Notification of Certain Matters................................ A-30
SECTION 4.14. Pooling........................................................ A-30
SECTION 4.15. Tax-Free Reorganization Treatment.............................. A-30
SECTION 4.16. Taxes.......................................................... A-31
SECTION 4.17. Employment and Non-Competition Agreements...................... A-31
SECTION 4.18. Employee Matters............................................... A-31
SECTION 4.19. Registration Rights Agreement.................................. A-31
SECTION 4.20. Company Affiliates............................................. A-31
SECTION 4.21. Election to Parent Board....................................... A-32
SECTION 4.22. SEC Filings.................................................... A-32
SECTION 4.23. Guarantee of Performance....................................... A-32
SECTION 4.24. Property....................................................... A-32
SECTION 4.25. Acquisition.................................................... A-32
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER....................... A-33
SECTION 5.1. Conditions to Each Party's Obligations to Effect the Merger.... A-33
SECTION 5.2. Conditions to the Obligations of the Company................... A-33
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition........ A-34
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER................................. A-35
SECTION 6.1. Termination.................................................... A-35
SECTION 6.2. Effect of Termination.......................................... A-36
SECTION 6.3. Fees and Expenses.............................................. A-36
SECTION 6.4. Amendment...................................................... A-37
SECTION 6.5. Extension; Waiver.............................................. A-38
ARTICLE 7 MISCELLANEOUS.................................................. A-38
SECTION 7.1. Nonsurvival of Representations and Warranties.................. A-38
SECTION 7.2. Entire Agreement; Assignment................................... A-38
SECTION 7.3. Validity....................................................... A-38
SECTION 7.4. Notices........................................................ A-38
SECTION 7.5. Governing Law.................................................. A-39
SECTION 7.6. Descriptive Headings........................................... A-39
SECTION 7.7. Parties in Interest............................................ A-39
SECTION 7.8. Arbitration.................................................... A-39
SECTION 7.9. Severability................................................... A-39
SECTION 7.10. Specific Performance........................................... A-39
SECTION 7.11. Recapitalization............................................... A-40
SECTION 7.12. Subsidiaries................................................... A-40
SECTION 7.13. Brokers........................................................ A-40
SECTION 7.14. Counterparts................................................... A-40
</TABLE>
A-4
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
- -------------------------------------- -------------------------------------- -----------
<S> <C> <C>
Acquisition........................... Preamble.............................. A-1
Affiliate Letter...................... Recitals.............................. A-7
Certificates.......................... Section 1.10(b)....................... A-9
CGCL.................................. Section 1.1........................... A-7
Claim................................. Section 4.12(a)....................... A-29
Closing............................... Section 1.3........................... A-8
Closing Date.......................... Section 1.3........................... A-8
Closing Price......................... Section 1.11(a)....................... A-10
Code.................................. Recitals.............................. A-7
Company............................... Preamble.............................. A-7
Company Affiliate..................... Recitals.............................. A-7
Company Board......................... Section 2.3(a)........................ A-13
Company Common Stock.................. Section 1.8(a)........................ A-8
Company Disclosure Schedule........... Section 2.2(a)........................ A-12
Company Dissenting Shares............. Section 1.9(a)........................ A-9
Company ERISA Plans................... Section 2.11.......................... A-16
Company Permits....................... Section 2.10.......................... A-16
Company Plans......................... Section 1.11(a)....................... A-10
Company SEC Reports................... Section 2.4(a)........................ A-14
Company Securities.................... Section 2.2(a)........................ A-12
Company Stock Option(s)............... Section 1.11(a)....................... A-10
Condor................................ Section 4.1(b)........................ A-24
Condor Transaction.................... Section 4.1(b)........................ A-24
Contracts............................. Section 2.18(a)....................... A-18
E&Y................................... Section 4.14.......................... A-30
Effective Time........................ Section 1.2........................... A-8
Employment Agreement.................. Section 4.17.......................... A-31
Environmental Claim................... Section 2.12(a)....................... A-16
Environmental Laws.................... Section 2.12(a)....................... A-16
ERISA................................. Section 2.11.......................... A-16
Exchange Act.......................... Section 2.2(c)........................ A-13
Exchange Agent........................ Section 1.10(a)....................... A-9
Exchange Fund......................... Section 1.10(a)....................... A-9
Financial Adviser..................... Section 2.15.......................... A-17
First Byte............................ Section 2.1(b)........................ A-12
GAAP.................................. Section 2.4(a)........................ A-14
Governmental Entity................... Section 2.6........................... A-15
HSR Act............................... Section 2.6........................... A-15
Sierra Agreement...................... Section 4.25.......................... A-32
Lien.................................. Section 2.2(b)........................ A-13
Material Adverse Effect............... Sections 2.1(a), 3.1(a)............... A-11, A-19
Merger................................ Section 1.1........................... A-7
Merger Agreement...................... Recitals.............................. A-7
Merger Consideration.................. Section 1.8(a)........................ A-8
Newco................................. Recitals.............................. A-7
NewMedia.............................. Section 2.1(b)........................ A-12
NewMedia Agreement.................... Section 2.2(b)........................ A-13
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
- -------------------------------------- -------------------------------------- -----------
<S> <C> <C>
Non-Competition Agreements............ Section 4.17.......................... A-31
NYSE.................................. Section 1.10(f)....................... A-10
Parent................................ Preamble.............................. A-7
Parent Board.......................... Section 4.21.......................... A-32
Parent Common Stock................... Section 1.8(a)........................ A-8
Parent Disclosure Schedule............ Section 3.2........................... A-19
Parent ERISA Plans.................... Section 3.11.......................... A-22
Parent Option......................... Section 1.11(a)....................... A-11
Parent Permits........................ Section 3.10.......................... A-22
Parent SEC Reports.................... Section 3.4(a)........................ A-20
Parent Securities..................... Section 3.2(a)........................ A-19
Property.............................. Section 4.24.......................... A-32
Proxy Statement....................... Section 2.5........................... A-14
Registration Rights Agreement......... Section 4.19.......................... A-31
S-4................................... Section 2.5........................... A-14
SEC................................... Section 2.4(a)........................ A-14
Securities Act........................ Recitals.............................. A-7
Shareholders Agreement................ Section 1.8(a)........................ A-8
Share(s).............................. Section 1.8(a)........................ A-8
Subsidiaries.......................... Section 7.12.......................... A-38
Surviving Corporation................. Section 1.1........................... A-7
Taxes................................. Section 2.13.......................... A-17
Third Party........................... Section 6.1(d)........................ A-37
Third Party Acquisition............... Section 6.1(d)........................ A-37
</TABLE>
A-6
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 19, 1996, is among
DAVIDSON & ASSOCIATES, INC., a California corporation (the "Company"), CUC
INTERNATIONAL INC., a Delaware corporation ("Parent"), and STEALTH ACQUISITION
II CORP., a Delaware corporation and a direct wholly owned subsidiary of Parent
("Acquisition").
WITNESSETH:
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition each
have, in light of and subject to the terms and conditions set forth herein, (i)
determined that the Merger (as defined in Section 1.1) is fair to their
respective shareholders and in the best interests of such shareholders and (ii)
approved the Merger in accordance with this Agreement and an Agreement of Merger
in the form attached hereto as Exhibit A (the "Merger Agreement");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution hereof, certain holders of Shares
(as defined in Section 1.8(a)) are entering into the Shareholders Agreement, a
copy of which is attached hereto as Exhibit B (the "Shareholders Agreement");
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a "pooling-of-interests";
WHEREAS, it is anticipated that, promptly following the execution of this
Agreement, Acquisition will assign all of its rights and obligations under this
Agreement to a newly-formed direct wholly owned California subsidiary ("Newco")
of Parent (whereupon all references in this Agreement to Acquisition shall be
deemed to be references to Newco); and
WHEREAS, the Company has delivered to Parent a letter identifying all
persons (each, a "Company Affiliate") who are, at the date hereof, "affiliates"
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended (the "Securities Act"), and each Company Affiliate (other than those
identified herein) has delivered to Parent a letter (each, an "Affiliate
Letter") relating to (i) the transfer, prior to the Effective Time (as defined
in Section 1.8(a)), of the Shares beneficially owned by such Company Affiliate
on the date hereof, (ii) the transfer of the shares of Parent Common Stock (as
defined in Section 1.8(a)) to be received by such Company Affiliate in the
Merger and (iii) the obligations of each such Company Affiliate to deliver to
Gibson, Dunn & Crutcher, counsel to the Company, a certificate requested by such
firm (if requested).
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Acquisition hereby agree as
follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and the Merger Agreement and in
accordance with the California General Corporation Law (the "CGCL"), Acquisition
shall be merged with and into the Company (the "Merger"). Following the Merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition shall cease.
A-7
<PAGE>
SECTION 1.2. Effective Time. Subject to the terms and conditions set forth
in this Agreement, the Merger Agreement shall be duly executed and acknowledged
by Acquisition and the Company and thereafter delivered to the Secretary of
State of the State of California for filing pursuant to the CGCL on the Closing
Date (as defined in Section 1.3). The Merger shall become effective at such time
as a properly executed and certified copy of the Merger Agreement is duly filed
by the Secretary of State of the State of California in accordance with the CGCL
(the time the Merger becomes effective being referred to herein as the
"Effective Time").
SECTION 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
(or waiver) of the conditions set forth in Article 5 (the "Closing Date"), at
the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, unless another time, date or place is agreed to in writing by the parties
hereto.
SECTION 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the CGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Acquisition shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5. Articles of Incorporation and Bylaws. The Articles of
Incorporation of the Company in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The Bylaws of the Company in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 1.6. Directors. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
SECTION 1.7. Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
SECTION 1.8. Conversion of Shares.
(a) At the Effective Time, each share of common stock, par value $0.00025
per share, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time (individually a "Share" and
collectively, the "Shares") (other than (i) Shares held by any subsidiary of the
Company, (ii) Shares held by Parent, Acquisition or any other subsidiary of
Parent and (iii) Company Dissenting Shares (as defined in Section 1.9(a)) shall,
by virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be converted into and shall become 0.85 of one
fully paid and nonassessable share of common stock, $.01 par value per share, of
Parent ("Parent Common Stock") (the "Merger Consideration").
(b) At the Effective Time, each outstanding share of the common stock, no
par value, of Acquisition shall be converted into one share of common stock, par
value $0.00025 per share, of the Surviving Corporation.
(c) At the Effective Time, each Share held by Parent, Acquisition or any
subsidiary of Parent, Acquisition or the Company immediately prior to the
Effective Time shall, by virtue of the Merger and
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without any action on the part of Acquisition, the Company or the holder
thereof, be canceled, retired and cease to exist and no payment shall be made
with respect thereto.
SECTION 1.9. Shares of Dissenting Holders. (a) Notwithstanding anything to
the contrary contained in this Agreement, any holder of Shares with respect to
which dissenters' rights, if any, are granted by reason of the Merger under the
CGCL and who does not vote in favor of the Merger and who otherwise complies
with Chapter 13 of the CGCL ("Company Dissenting Shares") shall not be entitled
to receive shares of Parent Common Stock pursuant to Section 2.1(c) hereof,
unless such holder fails to perfect, effectively withdraws or loses his right to
dissent from the Merger under the CGCL. Such holder shall be entitled to receive
only the payment provided for by Chapter 13 of the CGCL. If any such holder so
fails to perfect, effectively withdraws or loses his or her dissenters' rights
under the CGCL, his or her Company Dissenting Shares shall thereupon be deemed
to have been converted, as of the Effective Time, into the right to receive
shares of Parent Common Stock pursuant to Section 1.8(a).
(b) Any payments relating to Company Dissenting Shares shall be made solely
by the Surviving Corporation and no funds or other property have been or will be
provided by Acquisition or any of Parent's other direct or indirect subsidiaries
for such payment.
SECTION 1.10. Exchange of Certificates.
(a) As of the Effective Time, Parent shall make available to The Bank of
Boston or another bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of Shares, for exchange in accordance with this Article I, through the Exchange
Agent: (i) certificates representing the appropriate number of shares of Parent
Common Stock and (ii) cash to be paid in lieu of fractional shares of Parent
Common Stock (such shares of Parent Common Stock and such cash are hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 1.8 in exchange
for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") whose Shares were converted into the right to receive shares of
Parent Common Stock pursuant to Section 1.8 and whose shares are not Company
Dissenting Shares: (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent and
Acquisition, together with such letter of transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock and,
if applicable, a check representing the cash consideration to which such holder
may be entitled on account of a fractional share of Parent Common Stock, which
such holder has the right to receive pursuant to the provisions of this Article
I, and the Certificate so surrendered shall forthwith be canceled. In the event
of a transfer of ownership of Shares which is not registered in the transfer
records of the Company, a certificate representing the proper number of shares
of Parent Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.10, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock and cash in
lieu of any fractional shares of Parent Common Stock as contemplated by this
Section 1.10.
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(c) No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
1.10(f) until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 1.10(f) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) In the event that any Certificate for Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon
the making of an affidavit of that fact by the holder thereof such shares of
Parent Common Stock and cash in lieu of fractional shares, if any, as may be
required pursuant to this Agreement; provided, however, that Parent may, in its
discretion, require the delivery of a suitable bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for exchange
of Shares in accordance with the terms hereof (including any cash paid pursuant
to Section 1.10(c) or 1.10(f)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall, upon surrender of his or her
Certificate or Certificates, be entitled to receive an amount of cash (without
interest) determined by multiplying the closing price for Parent Common Stock as
reported on the New York Stock Exchange (the "NYSE") Composite Transactions on
the business day two days prior to the Effective Date by the fractional share
interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
problems which would otherwise be caused by the issuance of fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed to the
shareholders of the Company for six months after the Effective Time shall be
delivered to Parent, upon demand, and any shareholders of the Company who have
not theretofore complied with this Article I shall thereafter look only to
Parent for payment of their claim for Parent Common Stock, as the case may be,
any cash in lieu of fractional shares of Parent Common Stock and any dividends
or distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of Shares,
or Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
SECTION 1.11. Stock Options. (a) At the Effective Time, each outstanding
option to purchase shares of Company Common Stock (a "Company Stock Option" or
collectively, "Company Stock
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Options") issued pursuant to the 1992 Incentive Stock Option Plan of the Company
and the 1992 Non-Statutory Stock Option Plan of the Company (collectively, the
"Company Plans"), whether vested or unvested, shall be cancelled and, in lieu
thereof, Parent shall issue to each holder of a Company Stock Option an option
(each, a "Parent Option"), which does not qualify under section 422 of the Code,
to acquire, on substantially the same terms and subject to substantially the
same conditions as were applicable under such Company Stock Option, the same
number of shares of Parent Common Stock as the holder of such Company Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time, at
a price per share equal to (y) the aggregate exercise price for the shares of
Company Common Stock otherwise purchasable pursuant to such Company Stock Option
divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such Company Stock Option; provided, however, that the
number of shares of Parent Common Stock that may be purchased upon exercise of
any such Parent Option shall not include any fractional share and, upon exercise
of the Parent Option, a cash payment shall be made for any fractional share
based upon the Closing Price (as hereinafter defined) of a share of Parent
Common Stock on the trading day immediately preceding the date of exercise.
"Closing Price" shall mean, on any day, the last reported sale price of one
share of Parent Common Stock on the NYSE. The Company shall use all reasonable
efforts to cause all options issued to non-employee directors of the Company
pursuant to the Company Plans that are outstanding prior to the Effective Time
and that are vested to be exercised by the holders thereof prior to the
Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Plans and stating that the
holders will receive Parent Options exercisable for shares of Parent Common
Stock on substantially the same terms and conditions as their Company Stock
Options (subject to the adjustments required by this Section 1.11 after giving
effect to the Merger).
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Parent Options in accordance with this Section 1.11. As soon as practicable
after the Effective Time, Parent shall file a registration statement on Form S-3
or Form S-8, as the case may be (or any successor or other appropriate forms),
or another appropriate form with respect to the shares of Parent Common Stock
subject to the Parent Options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as the Parent Options remain outstanding.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Acquisition
as follows:
SECTION 2.1. Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power and authority would not have a Material Adverse Effect (as defined below)
on the Company. When used in connection with the Company or its subsidiaries (as
defined in Section 7.12), the term "Material Adverse Effect" means any change or
effect (i) that is or is reasonably likely to be materially adverse to the
properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries, taken as whole, other than any
change or effect arising out of general economic conditions unrelated to any
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businesses in which the Company is engaged or (ii) that may impair the ability
of the Company to consummate the transactions contemplated hereby.
(b) The Company's direct wholly-owned subsidiary, First Byte, Inc., a
California corporation ("First Byte"), is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not have a Material Adverse Effect on the
Company. NewMedia EXPRESS, L.L.C., a Delaware limited liability company the
majority of limited liability company interests of which are owned directly by
the Company ("NewMedia"), is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation and has all
requisite limited liability company power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not have a Material Adverse Effect on the
Company. Other than First Byte and NewMedia, the Company has no subsidiaries
and, except for (i) 2,000 shares of Series A Preferred Stock and 12,500 Warrants
issued by IVI Publishing, Inc. (and any shares of common stock of IVI
Publishing, Inc. issuable upon conversion or exercise thereof) and (ii) 6,404
shares of common stock of Sanctuary Woods Multimedia Corporation, does not own,
directly or indirectly, beneficially or of record, any shares of capital stock
or other security of any other entity or any other investment in any other
entity.
(c) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent accurate and complete
copies of the articles of incorporation and by-laws, as currently in effect, of
each of the Company and First Byte.
SECTION 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized capital stock of the Company consists of: 100,000,000
shares of Company Common Stock, of which, as of January 31, 1996, 34,967,904
Shares were issued and outstanding, and 1,000,000 shares of preferred stock,
without par value, no shares of which are outstanding. All of the issued and
outstanding shares of Company Common Stock have been validly issued, and are
fully paid, nonassessable and free of preemptive rights. As of January 31, 1996,
approximately 2,288,200 shares of Company Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding Company Stock Options issued pursuant to the Company
Plans. Except as described in the Company SEC Reports (as defined in Section
2.4(a)), as of the date hereof, since January 31, 1996, no shares of the
Company's capital stock have been issued other than pursuant to Company Stock
Options already in existence on such date, and, since January 31, 1996, no stock
options have been granted. Except as set forth above, as of the date hereof,
there are outstanding (i) no shares of capital stock or other voting securities
of the Company, (ii) no securities of the Company or its subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) no options or other rights to acquire from the
Company or its subsidiaries, and no obligations of the Company or its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, and (iv) no equity equivalents, interests in the ownership or earnings
of the Company or its subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "Company Securities"). There are no
outstanding obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any Company Securities. Except as set forth in Section
2.2(a) of the Disclosure Schedule previously delivered by the Company to Parent
(the "Company Disclosure Schedule"), there are no stockholder
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agreements (other than the Shareholders Agreement), voting trusts or other
agreements or understandings to which the Company is a party or to which it is
bound relating to the voting or registration of any shares of capital stock of
the Company. The Company has not taken any action that would result in any
Company Stock Options 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.
(b) All of the outstanding capital stock of First Byte is owned by the
Company, directly or indirectly, free and clear of any Lien (as defined below)
or any other limitation or restriction (including any restriction on the right
to vote or sell the same, except as may be provided as a matter of law). The
Company owns 750 "Units" issued by NewMedia, as such term is defined in that
certain Amended and Restated Limited Liability Company Agreement of NewMedia,
dated as of April 5, 1995, between the Company and Mattel, Inc. (the "NewMedia
Agreement"), an accurate and complete copy of which has been provided to Parent.
The 750 Units of NewMedia issued to the Company pursuant to the NewMedia
Agreement constitute 75% of the issued and outstanding Units issued by NewMedia
and are owned by the Company free and clear of any Liens or any other limitation
or restriction (including any restriction on the right to vote or sell the same,
except as may be provided as a matter of law), except for any limitations,
restrictions or encumbrances on such Units provided for in the NewMedia
Agreement. Except as contemplated by the NewMedia Agreement with respect to
Units of NewMedia, there are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of any capital stock or other ownership
interests in, or any other securities of, any subsidiary of the Company. There
are no outstanding contractual obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company. For purposes of
this Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
(c) The Company Common Stock constitutes the only class of securities of the
Company or its subsidiaries registered or required to be registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
SECTION 2.3. Authority Relative to this Agreement; Consents and Approvals.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and the Merger Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of the Company (the "Company Board") and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or the Merger Agreement or to consummate the transactions contemplated hereby or
thereby (other than, with respect to the Merger, the approval and adoption of
this Agreement and the Merger Agreement by the holders of a majority of the then
outstanding shares of Company Common Stock). This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The Company Board has unanimously and duly and validly approved, and
taken all corporate actions required to be taken by the Company Board for the
consummation of, the transactions, including the Merger, contemplated hereby and
by the Merger Agreement and resolved to recommend that the shareholders of the
Company approve and adopt this Agreement and the Merger Agreement; provided,
however, that such approval and recommendation may be withdrawn, modified or
amended in the event that the Company Board by majority vote determines in its
good faith judgment, after consultation with independent legal counsel, that it
is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law. No state takeover statute or similar statute
or regulation applies or purports to apply to the Merger, this Agreement or any
of the transactions contemplated hereby.
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SECTION 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since March 31, 1993, each of
which has complied in all material respects with all applicable requirements of
the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. The Company has heretofore delivered to
Parent, in the form filed with the SEC (including any amendments thereto), (i)
its Annual Reports on Form 10-K for each of the fiscal years ended December 31,
1993 and 1994, (ii) all definitive proxy statements relating to the Company's
meetings of shareholders (whether annual or special) held since March 31, 1993
and (iii) all other reports or registration statements filed by the Company with
the SEC since March 31, 1993 (the "Company SEC Reports"). None of such forms,
reports or documents, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of the Company
included in the Company SEC Reports complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto and fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis ("GAAP") (except as
may be indicated in the notes thereto), the consolidated financial position of
the Company and its consolidated subsidiary as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and except that, in the case of
financial statements included therein which were later restated to account for
one or more business combinations accounted for as poolings-of-interests, such
original financial statements do not reflect such restatements). Since December
31, 1994, there has not been any change, or any application or request for any
change, by the Company or any of its subsidiaries in accounting principles,
methods or policies for financial accounting or tax purposes (subject, in the
case of the unaudited interim financial statements, to normal year-end
adjustments).
(b) The Company has heretofore made available to Parent a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Exchange
Act.
SECTION 2.5. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the proxy
statement relating to the meeting of the Company's shareholders, and, if
required, a meeting of Parent's shareholders, to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to shareholders and at
the times of the meeting or meetings of shareholders to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event with
respect to the Company, its officers and directors or any of its subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, the S-4 or the Proxy Statement, the Company shall promptly so
advise Parent and such event shall be so described, and such amendment or
supplement (which Parent shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as required by law, disseminated to the
shareholders of the Company. The Proxy Statement, insofar as it relates to the
meeting of the Company's shareholders to vote on the
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Merger, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
SECTION 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the filing and recordation of the Merger
Agreement as required by the CGCL, no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or administrative,
governmental or regulatory body, agency or authority (a "Governmental Entity")
is necessary for the execution and delivery by the Company of this Agreement or
the Merger Agreement or the consummation by the Company of the transactions
contemplated hereby or thereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on the Company. Neither the
execution, delivery and performance of this Agreement or the Merger Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby or thereby will (i) conflict with or result in any breach of any
provision of the respective Articles of Incorporation or Bylaws (or similar
governing documents) of the Company or any of its subsidiaries, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, except in the case
of (ii) or (iii) for violations, breaches or defaults which would not have a
Material Adverse Effect on the Company. The Company has complied in full with
all of its obligations under Article III, Section 2.1 of the agreement described
in Section 2.6 of the Company Disclosure Schedule, and the other party to such
agreement has no further rights under Article III, Section 2.1 thereof.
SECTION 2.7. No Default. None of the Company or its subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its Articles of Incorporation or Bylaws (or similar
governing documents) or the NewMedia Agreement, (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or either of its subsidiaries is now a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company, its subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not have a Material Adverse Effect on the
Company.
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by the Company in the Company SEC Reports, as
of December 31, 1994, none of the Company or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, and whether due or to become due or asserted or unasserted, which
would be required by GAAP to be reflected in, reserved against or otherwise
described in the consolidated balance sheet of the Company (including the notes
thereto) as of such date or which could reasonably be expected to have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, since December 31, 1994, the business of the
Company and its subsidiaries has been carried on only in the ordinary and usual
course, none of the Company or its subsidiaries has incurred any liabilities of
any nature, whether or not accrued, contingent or otherwise, which could
reasonably be expected to have, and there have been no events, changes or
effects with respect to the Company or its subsidiaries having or which could
reasonably be expected to have, a Material Adverse Effect on the Company.
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SECTION 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or any of their respective properties or
assets which (a) if adversely determined, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
(b) as of the date hereof, questions the validity of this Agreement or any
action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby or could otherwise prevent or delay the
consummation of the transactions contemplated by this Agreement. Except as
publicly disclosed by the Company, none of the Company or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on the Company or would prevent or delay the
consummation of the transactions contemplated hereby.
SECTION 2.10. Compliance with Applicable Law. Except as publicly disclosed
by the Company in the Company SEC Reports, the Company and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which could not reasonably
be expected to have a Material Adverse Effect on the Company. Except as publicly
disclosed by the Company in the Company SEC Reports, the Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or warranty
is made in this Section 2.10 with respect to Environmental Laws (as defined in
Section 2.12(a)) and except for violations or possible violations which do not,
and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or, to the best knowledge of the Company, threatened, nor, to the best knowledge
of the Company, has any Governmental Entity indicated an intention to conduct
the same, other than, in each case, those which the Company reasonably believes
will not have a Material Adverse Effect on the Company.
SECTION 2.11. Employee Plans. Except as disclosed in Section 2.11 of the
Company Disclosure Schedule, there are no "employee benefit plans" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by the Company or its subsidiaries
("Company ERISA Plans"). The Company ERISA Plans are in compliance with the
applicable provisions of ERISA, the Code and other applicable law, except for
instances of non-compliance that could not reasonably be expected to have a
Material Adverse Effect on the Company. A complete and correct copy of each
Company Benefit Plan has been provided to Parent.
SECTION 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by the Company in the Company SEC Reports,
(i) each of the Company and its subsidiaries is in compliance with all
applicable federal, state and local laws and regulations relating to pollution
or protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), except for non-compliance that could not
reasonably be expected to have a Material Adverse Effect on the Company, which
compliance includes, but is not limited to, the possession by the Company and
its subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) none of the Company or its subsidiaries has received
written notice of, or, to the best knowledge of the Company, is the subject of,
any action, cause of action, claim, investigation,
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demand or notice by any person or entity alleging liability under or
non-compliance with any Environmental Law (an "Environmental Claim") that could
reasonably be expected to have a Material Adverse Effect on the Company; and
(iii) to the best knowledge of the Company, there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in the
future.
(b) Except as publicly disclosed by the Company in the Company SEC Reports,
there are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on the Company that are pending or, to the best
knowledge of the Company, threatened against the Company or its subsidiaries or,
to the best knowledge of the Company, against any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
or may have retained or assumed either contractually or by operation of law.
SECTION 2.13. Tax Matters. The Company and its subsidiaries have accurately
prepared and duly filed with the appropriate federal, state, local and foreign
taxing authorities all tax returns, information returns and reports required to
be filed with respect to the Company and its subsidiaries and have paid in full
or made adequate provision for the payment of all Taxes (as defined below).
Neither the Company nor any of its subsidiaries is delinquent in the payment of
any Taxes. As used herein, the term "Taxes" means all federal, state, local and
foreign taxes, including, without limitation, income, profits, franchise,
employment, transfer, withholding, property, excise, sales and use taxes
(including interest penalties thereon and additions thereto).
SECTION 2.14. Intangible Property.
The Company and its subsidiaries own or possess adequate licenses or other
valid rights to use all material patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, service marks, trade
secrets, applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
business of the Company and its subsidiaries as currently conducted or as
contemplated to be conducted, and the Company is unaware of any assertion or
claim challenging the validity of any of the foregoing which, individually or in
the aggregate, would have a Material Adverse Effect on the Company. The conduct
of the business of the Company and its subsidiaries as heretofore and currently
conducted has not and does not conflict in any way with any patent, patent
right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party that, individually or in the
aggregate, would have a Material Adverse Effect on the Company. To the best
knowledge of the Company, there are no infringements of any proprietary rights
owned by or licensed by or to the Company or any subsidiary which, individually
or in the aggregate, would have a Material Adverse Effect on the Company.
SECTION 2.15. Opinion of Financial Adviser. Smith Barney Inc. (the
"Financial Adviser") has delivered to the Company Board its written opinion,
dated the date of this Agreement, to the effect that, as of such date, the
Merger Consideration is fair to the holders of Shares from a financial point of
view, a signed, true and complete copy of which opinion has been delivered to
Parent, and such opinion has not been modified in any material respect or
withdrawn.
SECTION 2.16. Brokers. No broker, finder or investment banker (other than
Smith Barney and Kerlin Capital Group, LLC, a true and correct copy of whose
engagement agreements have been provided to Acquisition or Parent) is entitled
to any brokerage, finder's or other fee or commission or expense reimbursement
in connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of the Company or any of its affiliates or
shareholders (including the Company Affiliates). The Company shall be
responsible for all such fees and expenses, except as otherwise provided in
Section 6.3.
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SECTION 2.17. Accounting Matters. Neither the Company nor, to the best of
its knowledge, any of its affiliates or shareholders (including the Company
Affiliates), has taken or agreed to take any action that would prevent Parent
from accounting for the business combination to be effected by the Merger as a
"pooling-of-interests." The Company has not failed to bring to the attention of
Parent any actions, or agreements or understandings, whether written or oral, to
act that would be reasonably likely to prevent Parent from accounting for the
Merger as a "pooling-of-interests."
SECTION 2.18. Material Contracts.
(a) The Company has delivered or otherwise made available to Parent true,
correct and complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which the Company
is a party affecting the obligations of any party thereunder) to which the
Company or any of its subsidiaries is a party or by which any of its properties
or assets are bound that are material to the business, properties or assets of
the Company and its subsidiaries taken as a whole, including, without
limitation, all: (i) employment, consulting, non-competition, severance, golden
parachute or indemnification contracts (including, without limitation, any
contract to which the Company is a party involving employees of the Company);
(ii) material licensing, merchandising or distribution agreements; (iii)
contracts granting a right of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets of the Company (by merger,
purchase or sale of assets or stock or otherwise) entered into since January 1,
1993; (vi) contracts or agreements with any Governmental Entity; (vii) all
agreements described in Section 2.2(a) of the Company Disclosure Schedule; and
(viii) all commitments and agreements to enter into any of the foregoing
(collectively, together with any such contracts entered into in accordance with
Section 4.1 hereof, the "Contracts").
(b) Except as set forth in Section 2.18(b) of the Company Disclosure
Schedule:
(i) There is no default under any Contract either by the Company or, to
the knowledge of the Company, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by the Company or, to the knowledge of the
Company, any other party, in any such case in which such default or event
could reasonably be expected to have a Material Adverse Effect on the
Company.
(ii) No party to any such Contract has given notice to the Company of or
made a claim against the Company with respect to any breach or default
thereunder, in any such case in which such breach or default could
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 2.19. Disclosure. No representation or warranty by the Company
contained in this Agreement and no statement contained in any certificate
delivered by the Company to Acquisition or Parent pursuant to this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
when taken together in light of the circumstances in which they were made.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 3.1. Organization.
(a) Each of Parent and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Material Adverse
Effect (as defined below) on Parent. When used in connection with Parent or
Acquisition, the term "Material Adverse Effect" means any change or effect that
is (i) materially adverse to the properties, business, results of operations or
condition (financial or otherwise) of Parent and its subsidiaries, taken as a
whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which Parent and its subsidiaries are
engaged or (ii) that may impair the ability of Parent and/or Acquisition to
consummate the transactions contemplated hereby.
(b) Parent has heretofore delivered to the Company accurate and complete
copies of the certificate or articles of incorporation and bylaws, as currently
in effect, of Parent and Acquisition. Each of Parent and its subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on
Parent.
SECTION 3.2. Capitalization of Parent and its Subsidiaries. (a) The
authorized capital stock of Parent consists of (i) 400,000,000 shares of Parent
Common Stock, of which, as of January 31, 1996, approximately 189,000,000 shares
of Parent Common Stock were issued and outstanding and 3,000,000 shares of
Parent Common Stock were held in treasury and (ii) 1,000,000 shares of preferred
stock, $.01 par value per share, none of which is issued or outstanding. All of
the shares of Parent Common Stock have been validly issued, and are fully paid,
nonassessable and free of preemptive rights. As of January 31, 1996,
approximately 29.7 million shares of Parent Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding options. Except as described in the Parent SEC Reports
(as defined in Section 3.4(a)) and except as set forth in Section 3.2 of the
Disclosure Schedule previously delivered by Parent to the Company (the "Parent
Disclosure Schedule"), as of the date hereof, since January 31, 1996, no shares
of Parent's capital stock have been issued other than pursuant to stock options
already in existence on January 31, 1996, and no stock options have been
granted. Except (i) as described in the Parent SEC Reports, and (ii) as set
forth above, as of the date hereof, there are outstanding (A) no shares of
capital stock or other voting securities of Parent, (B) no securities of Parent
or its subsidiaries convertible into or exchangeable for shares of capital stock
or voting securities of Parent, (C) except as provided in the Sierra Agreement
or as disclosed in Section 3.2 of the Parent Disclosure Schedule, no options or
other rights to acquire from Parent or its subsidiaries, and no obligations of
Parent or its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent, and (D) no equity equivalents, interests in the ownership
or earnings of Parent or its subsidiaries or other similar rights (including
stock appreciation rights) (collectively, "Parent Securities"). There are no
outstanding obligations of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities. Except as set forth in the
Parent SEC Reports, there are no stockholder agreements, voting trusts or other
agreements or understandings to
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which Parent is a party or to which it is bound relating to the voting of any
shares of capital stock of Parent.
(b) All of the outstanding capital stock of Parent's subsidiaries (including
Acquisition) is owned by Parent, directly or indirectly, free and clear of any
Lien or any other limitation or restriction (including any restriction on the
right to vote or sell the same, except as may be provided as a matter of law).
There are no securities of Parent or its subsidiaries convertible into or
exchangeable for, no options or other rights to acquire from Parent or its
subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any subsidiary of Parent. There are no outstanding contractual
obligations of Parent or its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any subsidiary of Parent.
(c) The Parent Common Stock constitutes the only class of equity securities
of Parent or its subsidiaries registered or required to be registered under the
Exchange Act.
SECTION 3.3. Authority Relative to this Agreement. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and the Merger Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the boards of
directors of Parent and Acquisition and by Parent as the sole shareholder of
Acquisition, and no other corporate proceedings (including any meeting of
Parent's shareholders) on the part of Parent or Acquisition are necessary to
authorize this Agreement or the Merger Agreement or to consummate the
transactions contemplated hereby or thereby. This Agreement has been duly and
validly executed and delivered by each of Parent and Acquisition and constitutes
a valid, legal and binding agreement of each of Parent and Acquisition,
enforceable against each of Parent and Acquisition in accordance with its terms.
SECTION 3.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents with the SEC
since February 1, 1993, each of which has complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, each as
in effect on the dates such forms, reports and documents were filed. Parent has
heretofore delivered to the Company, in the form filed with the SEC (including
any amendments thereto), (i) its Annual Reports on Form 10-K for each of the
fiscal years ended January 31, 1993, 1994 and 1995, (ii) all definitive proxy
statements relating to Parent's meetings of shareholders (whether annual or
special) held since February 1, 1993 and (iii) all other reports or registration
statements filed by Parent with the SEC since February 1, 1993 (the "Parent SEC
Reports"). None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of Parent included in the Parent SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and except that, in the case of financial statements
included therein which were later restated to account for one or more business
combinations accounted for as poolings-of-interests, such original financial
statements do not reflect such restatements). Since January 31, 1995,
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there has not been any change, or any application or request for any change, by
Parent or any of its subsidiaries in accounting principles, methods or policies
for financial accounting or tax purposes.
(b) Parent has heretofore made available to the Company a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
previously had been filed by Parent with the SEC pursuant to the Exchange Act.
SECTION 3.5. Information Supplied. None of the information supplied or to be
supplied by Parent or Acquisition (including information with respect to Sierra
(as defined in Section 4.25)) for inclusion or incorporation by reference in (i)
the S-4 will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to shareholders and at the times of the
meeting of shareholders of the Company to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent, its officers and directors or any of its subsidiaries should occur which
is required to be described in an amendment of, or a supplement to, the S-4 or
the Proxy Statement, Parent shall promptly so advise the Company and such event
shall be so described, and such amendment or supplement (which the Company shall
have a reasonable opportunity to review) shall be promptly filed with the SEC.
The S-4 will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and the filing and recordation of the
Merger Agreement as required by the CGCL, no filing with or notice to, and no
permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and delivery by Parent or Acquisition of this
Agreement or the Merger Agreement or the consummation by Parent or Acquisition
of the transactions contemplated hereby or thereby, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings or give such notice would not have a Material Adverse Effect on Parent.
Except as set forth in Section 4.2(f) of the Parent Disclosure Schedule, neither
the execution, delivery and performance of this Agreement or the Merger
Agreement by Parent or Acquisition nor the consummation by Parent or Acquisition
of the transactions contemplated hereby or thereby will (i) conflict with or
result in any breach of any provision of the respective certificate or articles
of incorporation or bylaws (or similar governing documents) of Parent or
Acquisition or any of Parent's subsidiaries, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent or Acquisition or
any of Parent's subsidiaries or any of their respective properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults which
would not have a Material Adverse Effect on Parent.
SECTION 3.7. No Default. None of Parent or any of its subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its Certificate of Incorporation or Bylaws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its subsidiaries is now a party or by which any
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of them or any of their respective properties or assets may be bound or (iii)
any order, writ, injunction, decree, law, statute, rule or regulation applicable
to Parent, its subsidiaries or any of their respective properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults that
would not have a Material Adverse Effect on Parent.
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by Parent, as of January 31, 1995, none of
Parent or its subsidiaries had any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due or asserted or unasserted, which would be required by GAAP to be reflected
in, reserved against or otherwise described in the consolidated balance sheet of
Parent and its consolidated subsidiaries (including the notes thereto) as of
such date or which could reasonably be expected to have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, since January 31, 1995, the business of Parent and its subsidiaries has
been carried on only in the ordinary and usual course, none of Parent or its
subsidiaries has incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, which could reasonably be expected to have, and there have been no
events, changes or effects with respect to Parent or its subsidiaries having or
which could reasonably be expected to have, a Material Adverse Effect on Parent.
SECTION 3.9. Litigation. Except as publicly disclosed by Parent in the
Parent SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of Parent, threatened against Parent or any of its
subsidiaries or any of their respective properties or assets which (a) if
adversely determined, could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent or (b) as of the date hereof,
questions the validity of this Agreement or any action to be taken by Parent in
connection with the consummation of the transactions contemplated hereby or
could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by Parent in the
Parent SEC Reports, none of Parent or its subsidiaries is subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on Parent or would prevent or delay the consummation of
the transactions contemplated hereby.
SECTION 3.10. Compliance with Applicable Law. Except as publicly disclosed
by Parent in the Parent SEC Reports, Parent and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which could not reasonably
be expected to have a Material Adverse Effect on Parent. Except as publicly
disclosed by Parent in the Parent SEC Reports, Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure so
to comply could not reasonably be expected to have a Material Adverse Effect on
Parent. Except as publicly disclosed by Parent in the Parent SEC Reports, the
businesses of Parent and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 3.10 with respect to
Environmental Laws and except for violations or possible violations which do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on Parent. Except as publicly disclosed by Parent in the
Parent SEC Reports, no investigation or review by any Governmental Entity with
respect to Parent or its subsidiaries is pending or, to the best knowledge of
Parent, threatened, nor, to the best knowledge of Parent, has any Governmental
Entity indicated an intention to conduct the same, other than, in each case,
those which Parent reasonably believes will not have a Material Adverse Effect
on Parent.
SECTION 3.11. Employee Plans. All "employee benefit plans" as defined in
Section 3(3) of ERISA, maintained or contributed to by Parent and its
subsidiaries ("Parent ERISA Plans") are in
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compliance with the applicable provisions of ERISA and the Code, except for
instances of non-compliance that could not reasonably be expected to have a
Material Adverse Effect on Parent.
SECTION 3.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by Parent in the Parent SEC Reports, (i)
each of Parent and its subsidiaries is in compliance with all Environmental
Laws, except for non-compliance that could not reasonably be expected to have a
Material Adverse Effect on Parent, which compliance includes, but is not limited
to, the possession by Parent and its subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof; (ii) none of Parent or its
subsidiaries has received written notice of, or, to the best knowledge of
Parent, is the subject of, any Environmental Claim that could reasonably be
expected to have a Material Adverse Effect on Parent; and (iii) to the best
knowledge of Parent, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Parent in the Parent SEC Reports, there
are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Parent that are pending or, to the best knowledge of
Parent, threatened against Parent or any of its subsidiaries or, to the best
knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or its subsidiaries has or may have retained or
assumed either contractually or by operation of law.
SECTION 3.13. Tax Matters. Parent and its subsidiaries have accurately
prepared and duly filed with the appropriate federal, state, local and foreign
taxing authorities all tax returns, information returns and reports required to
be filed with respect to Parent and its subsidiaries and have paid in full or
made adequate provision for the payment of all Taxes. Neither Parent nor any of
its subsidiaries is delinquent in the payment of any Taxes.
SECTION 3.14. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person or entity.
SECTION 3.15. Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent or Acquisition.
SECTION 3.16. Accounting Matters. Neither Parent nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action that
would prevent Parent from accounting for the business combination to be effected
by the Merger as a "pooling-of-interests." Parent has not failed to bring to the
attention of the Company any actions, or agreements or understandings, whether
written or oral, to act that would be reasonably likely to prevent Parent from
accounting for the Merger as a "pooling-of-interests."
SECTION 3.17. Disclosure. No representation or warranty by Parent contained
in this Agreement and no statement contained in any certificate delivered by
Acquisition or Parent to the Company pursuant to this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading when taken
together in light of the circumstances in which they were made.
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ARTICLE 4
COVENANTS
SECTION 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, seek to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, neither the Company nor any of its subsidiaries
will, without the prior written consent of Parent:
(a) amend its certificate or articles of incorporation or bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i) the
issuance of shares of Company Common Stock having a market value of up to $5.5
million in connection with the proposed agreement by the Company to acquire
Condor, Inc. ("Condor") (the "Condor Transaction"), (ii) the grant of options to
acquire up to 200,000 shares of Company Common Stock to employees of Condor who
become employees of the Company in connection with the Condor Transaction and
(iii) the grant of options to purchase up to 100,000 shares of Company Common
Stock to employees under the Company Plans and the issuance or sale of shares of
Company Common Stock pursuant to options granted to employees under the Company
Plans (in each case, in the ordinary course of business and consistent with past
practice);
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of any shares of
its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities or any
securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business and in amounts not material to the Company and its
subsidiaries taken as a whole; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in connection with the Condor
Transaction, except in the ordinary course of business consistent with past
practice and in amounts not material to the Company and its subsidiaries, taken
as a whole, except for obligations of the wholly owned subsidiaries of the
Company and except for guarantees by the Company of the payment of certain
obligations of NewMedia pursuant to the provisions of the NewMedia Agreement;
(iii) except for the Condor Transaction, make any loans,
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advances or capital contributions to, or investments in, any other person (other
than to the wholly owned subsidiaries of the Company or customary loans or
advances to employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or advance); (iv)
pledge or otherwise encumber shares of capital stock of the Company or its
subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon;
(g) except as may be required by law or as contemplated by this Agreement,
enter into, adopt or amend or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreement, trust, plan, fund, award or other arrangement for the benefit
or welfare of any director, officer or employee in any manner, or (except for
the grant of options in connection with the Condor Transaction and except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, and as required under existing
agreements or in the ordinary course of business generally consistent with past
practice) increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock appreciation rights or performance units);
(h) except in connection with the Condor Transaction (which shall be
effected, in all material respects, only on the terms described in Section
4.1(h) of the Company Disclosure Schedule), acquire, sell, lease or dispose of
any assets outside the ordinary course of business or any assets which in the
aggregate are material to the Company and its subsidiaries taken as a whole, or
enter into any commitment or transaction outside the ordinary course of business
consistent with past practice;
(i) except as may be required as a result of a change in law or in generally
accepted accounting principles, change any of the accounting principles or
practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business;
(k) except in connection with the Condor Transaction, (i) acquire (by
merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any equity
interest therein; (ii) enter into any contract or agreement, other than in the
ordinary course of business consistent with past practice or amend any of the
Contracts or the agreements referred to in Section 2.18; (iii) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$500,000 or, in the aggregate, are in excess of $5 million; provided, that none
of the foregoing shall limit any capital expenditure already included in the
Company's 1996 capital expenditure budget provided to Parent prior to the date
hereof; or (iv) enter into or amend any contract, agreement, commitment or
arrangement providing for the taking of any action that would be prohibited
hereunder;
(l) make or revoke any tax election or settle or compromise any tax
liability material to the Company and its subsidiaries taken as a whole or
change (or make a request to any taxing authority to change) any material aspect
of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and its
subsidiaries or incurred in the ordinary course of business consistent with past
practice;
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(n) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby; or
(o) take, propose to any Third Party to take or agree in writing or
otherwise to take, any of the actions described in Sections 4.1(a) through
4.1(n) or any action which would make any of the representations or warranties
of the Company contained in this Agreement untrue or incorrect.
SECTION 4.2. Conduct of Business of Parent. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, Parent
will, and will cause each of its subsidiaries to, conduct its operations in the
ordinary course of business consistent with past practice and, to the extent
consistent therewith, with no less diligence and effort than would be applied in
the absence of this Agreement, seek to preserve intact its current business
organizations, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, Parent will not, without the prior written consent of the
Company, which consent shall not be unreasonably withheld:
(a) amend its certificate of incorporation (other than to increase the
number of authorized shares of Parent Common Stock) or bylaws;
(b) split, combine or reclassify any shares of its capital stock; declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock; make any
other actual, constructive or deemed distribution in respect of any shares of
its capital stock or otherwise make any payments to stockholders in their
capacity as such; or redeem or otherwise acquire any of its securities;
(c) adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Parent;
(d) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
Parent Common Stock or any preferred stock or any other securities or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights) totaling, or exercisable for or convertible into shares of
Parent Common Stock totaling, in the aggregate, more than 30% of the total
number of shares of Parent Common Stock outstanding on the date hereof, except
for the grant of options to purchase shares of Parent Common Stock to employees
under Parent's employee stock option plans and the issuance or sale of shares of
Parent Common Stock pursuant to options granted to employees under Parent's
employee stock option plans (in each case, in the ordinary course of business
and consistent with past practice) and except for the issuance of shares of
Parent Common Stock and options pursuant to the Sierra Agreement or as
contemplated by Item 4 set forth in Section 3.2 of the Parent Disclosure
Schedule;
(e) grant options to purchase, or make restricted stock grants with respect
to, in excess of 1,000,000 shares of Parent Common Stock under Parent's employee
stock option plans or stock purchase plans, except in connection with any
acquisition (by merger, consolidation, or acquisition of stock or assets) of any
corporation, partnership or other business organization or division thereof or
any equity interest therein (including, without limitation, in connection with
the transactions contemplated by the Sierra Agreement);
(f) except as set forth in Section 4.2(f) of the Parent Disclosure Schedule,
incur or assume any long-term or short-term debt or issue any debt securities
except for borrowings under existing lines of credit in the ordinary course of
business and in amounts not material to Parent and its subsidiaries taken as a
whole and except for other indebtedness not exceeding $100,000,000 in the
aggregate; or
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(g) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(f).
SECTION 4.3. Preparation of S-4 and the Proxy Statement. Parent will, as
promptly as practicable, prepare and, following receipt of notification from the
SEC that it has no further comments on the Proxy Statement, file with the SEC
the S-4, containing a proxy statement/prospectus and a form of proxy, in
connection with the registration under the Securities Act of the shares of
Parent Common Stock issuable upon conversion of the Shares and the other
transactions contemplated hereby. The Company will, as promptly as practicable
(but in any event not later than 45 days after this Agreement), prepare and file
with the SEC the Proxy Statement that will be the same proxy
statement/prospectus contained in the S-4 and a form of proxy, in connection
with the vote of the Company's stockholders with respect to the Merger. Parent
will cooperate with the Company in such preparation and filing and will provide
the Company with all financial and other data (including pro forma financial
statements and financial and other data regarding Sierra) as is necessary in
order to enable the Company to comply with the foregoing time schedule. Parent
and the Company will, and will cause their accountants and lawyers to, use their
best efforts to have or cause the S-4 declared effective as promptly as
practicable, including, without limitation, causing their accountants to deliver
necessary or required instruments such as opinions, consents and certificates,
and will take any other action required or necessary to be taken under federal
or state securities laws or otherwise in connection with the registration
process, it being understood and agreed that Gibson, Dunn & Crutcher, counsel to
the Company, will render the tax opinion referred to in Section 5.2(d) not later
than the date the S-4 is required to be filed with the SEC and (ii) the date the
S-4 is filed with the SEC. The Company will use its best efforts to cause the
Proxy Statement to be mailed to its shareholders at the earliest practicable
date.
SECTION 4.4. Other Potential Acquirors. The Company, its affiliates and
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its subsidiaries.
The Company may, directly or indirectly, furnish information and access, in each
case only in response to unsolicited requests therefor, to any corporation,
partnership, person or other entity or group pursuant to confidentiality
agreements, and may participate in discussions and negotiate with such entity or
group concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any subsidiary or division of the
Company, if such entity or group has submitted a written proposal to the Company
Board relating to any such transaction and the Company Board by a majority vote
determines in its good faith judgment, after consultation with independent legal
counsel, that it is necessary to do so to comply with its fiduciary duties to
shareholders under applicable law. The Company Board shall (i) provide a copy of
any such written proposal and a summary of any oral proposal to Parent or
Acquisition immediately after receipt thereof (and shall specify the material
terms and conditions of such proposal and identify the person making such
proposal), (ii) afford Parent a reasonable opportunity to respond to such
proposal and (iii) keep Parent and Acquisition promptly advised of any
development with respect thereto. Except as set forth above, neither the Company
nor any of its affiliates shall, nor shall the Company authorize or permit any
of its or their respective officers, directors, employees, representatives or
agents to directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent and
Acquisition, any affiliate or associate of Parent and Acquisition or any
designees of Parent and Acquisition) concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction involving the Company or any
subsidiary or division of the Company; provided, however, that nothing herein
shall prevent the Company Board from taking, and disclosing to the Company's
shareholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer; provided, further, that
nothing herein shall prevent the Company Board
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from making such disclosure to the Company's shareholders as, in the good faith
judgment of the Company Board, after consultation with independent legal
counsel, is necessary to comply with its fiduciary duties to shareholders under
applicable law.
SECTION 4.5. Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent a letter of KPMG Peat Marwick,
the Company's independent auditors, dated a date within two business days before
the date on which the S-4 shall become effective and addressed to Parent, in
form and substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
SECTION 4.6. Meeting. The Company shall call a meeting of its shareholders
to be held as promptly as practicable for the purpose of voting upon this
Agreement and related matters. The Company and Acquisition will, through their
respective Boards of Directors recommend to their respective shareholders
approval of such matters; provided, however, that the Company Board may withdraw
its recommendation if the Company Board by a majority vote determines in its
good faith judgment, after consultation with independent legal counsel, that it
is necessary to do so to comply with its fiduciary duties to shareholders under
applicable law. Notwithstanding the foregoing (but without limiting the
provisions of Section 6.1(c)(iv)), the Company Board may not withdraw its
recommendation because of the trading price of Parent Common Stock between the
date hereof and the date of the Company's shareholders' meeting. The Company and
Parent shall coordinate and cooperate with respect to the timing of such meeting
and, subject to Section 4.25(c), the Company shall use its best efforts to hold
such meeting as soon as practicable after the date hereof.
SECTION 4.7. Stock Exchange Listing. Parent shall use all reasonable efforts
to cause the shares of Parent Common Stock to be issued in the Merger and the
shares of Parent Common Stock to be reserved for issuance upon exercise of
Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Closing Date.
SECTION 4.8. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and Acquisition and their authorized representatives reasonable access to
all employees, plants, offices, warehouses and other facilities and to all books
and records of the Company and its subsidiaries, will permit Parent and
Acquisition to make such inspections as Parent and Acquisition may reasonably
require and will cause the Company's officers and those of its subsidiaries to
furnish Parent and Acquisition with such financial and operating data and other
information with respect to the business, properties and personnel of the
Company and its subsidiaries as Parent or Acquisition may from time to time
reasonably request, provided that no investigation pursuant to this Section
4.8(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Acquisition within 25 business days after the end of each
calendar month (commencing with January 1996), an unaudited balance sheet of the
Company as of the end of such month and the related statements of earnings,
stockholders' equity (deficit) and, within 25 business days after the end of
each calendar quarter, cash flows for the quarter then ended, each prepared in
accordance with GAAP in conformity with the practices consistently applied by
the Company with respect to its monthly financial statements. All the foregoing
shall be in accordance with the books and records of the Company and fairly
present the financial position of the Company (taking into account the
differences between the monthly and quarterly statements prepared by the Company
in conformity with its past practices) as of the last day of the period then
ended.
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(c) Each of Parent and Acquisition will hold and will cause its consultants
and advisors to hold in confidence all documents and information concerning the
Company and its subsidiaries furnished to Parent or Acquisition in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Confidentiality Agreement entered into between the Company and
Parent dated September 17, 1995.
SECTION 4.9. Additional Agreements; Best Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including, without limitation, (i) cooperation in the
preparation and filing of the Proxy Statement and the S-4, any filings that may
be required under the HSR Act, and any amendments to any thereof; (ii) the
taking of all action reasonably necessary, proper or advisable to secure any
necessary consents under existing debt obligations of the Company and its
subsidiaries or amend the notes, indentures or agreements relating thereto to
the extent required by such notes, indentures or agreements or redeem or
repurchase such debt obligations; (iii) contesting any legal proceeding relating
to the Merger; and (iv) the execution of any additional instruments, including
the Merger Agreement, necessary to consummate the transactions contemplated
hereby. Subject to the terms and conditions of this Agreement, Parent and
Acquisition agree to use all reasonable efforts to cause the Effective Time to
occur as soon as practicable after the shareholder vote with respect to the
Merger. In case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, the proper officers and
directors of each party hereto shall take all such necessary action.
SECTION 4.10. Consents. Parent, Acquisition and the Company each will use
all reasonable efforts to obtain consents of all third parties and Governmental
Entities necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement.
SECTION 4.11. Public Announcements. Parent, Acquisition and the Company, as
the case may be, will consult with one another before issuing any press release
or otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with the NYSE or the Nasdaq Stock
Market, as determined by Parent, Acquisition or the Company, as the case may be.
SECTION 4.12. Indemnification; Directors' and Officers' Insurance.
(a) Parent and Acquisition agree that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of the Company and its subsidiaries as provided in their respective
charters or bylaws (or other similar governing instruments) or otherwise in
effect as of the date hereof with respect to matters occurring prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the disposition of such Claim.
To the maximum extent permitted by the CGCL, such indemnification shall be
mandatory rather than permissive and the Surviving Corporation shall advance
expenses in connection with such indemnification to the fullest extent permitted
under applicable law, provided that the person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such person is not entitled to indemnification); provided, however, the
indemnification provided hereunder shall not be greater than the indemnification
permissible pursuant to the Company's or its subsidiaries' respective charters
and bylaws (or other similar governing instruments), as in effect as of the date
hereof.
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(b) Parent shall cause the Surviving Corporation to maintain in effect for
not less than three years from the Effective Time the policies of the directors'
and officers' liability and fiduciary insurance currently maintained by the
Company with respect to matters occurring prior to the Effective Time to cover
the types of actions and omissions currently covered by such policies (provided
that (i) the Surviving Corporation may substitute therefor policies of
substantially the same coverage containing terms and conditions which are no
less advantageous, in any material respect, to the beneficiaries thereof so long
as such substitution does not result in gaps or lapses in coverage and (ii) the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of $250,000, but in such case shall purchase as much
coverage as possible for such amount).
SECTION 4.13. Notification of Certain Matters. The Company shall give prompt
notice to Parent and Acquisition, and Parent and Acquisition shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material failure of
the Company, Parent or Acquisition, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default,
received by it or any of its subsidiaries subsequent to the date of this
Agreement and prior to the Effective Time, under any contract or agreement
material to the financial condition, properties, businesses or results of
operations of it and its subsidiaries taken as a whole to which it or any of its
subsidiaries is a party or is subject, (iv) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement, or
(v) any material adverse change in their respective financial condition,
properties, businesses, results of operations or prospects, taken as a whole,
other than changes resulting from general economic conditions; provided,
however, that the delivery of any notice pursuant to this Section 4.13 shall not
cure such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 4.14. Pooling. The Company and Parent each agrees that it will not
take any action which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and the Company will bring to the
attention of Parent, and Parent will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, that could be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests." Parent shall use commercially reasonable efforts to
cause Ernst & Young LLP ("E&Y") to deliver to Parent a letter to the effect that
pooling-of-interests accounting is appropriate for the Merger if it is closed
and consummated in accordance with the terms of this Agreement, and the Company
shall use commercially reasonable efforts to cause KPMG Peat Marwick to
cooperate fully with E&Y (including, without limitation, sharing information,
analysis and work product, engaging in active discussions and delivering to the
Company a letter substantially similar to E&Y's letter to Parent) in connection
with E&Y's delivery of such letter. The Company will cause KPMG Peat Marwick 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 4.15. Tax-Free Reorganization Treatment. The Company, and Parent and
Acquisition shall execute and deliver to Gibson, Dunn & Crutcher, counsel to the
Company, certificates substantially in the form attached hereto as Exhibits C-1
and C-2, respectively, 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 the Company and Parent shall each provide
a copy thereof to the other parties hereto. Prior to the Effective Time, none of
the Company, Parent or Acquisition shall take or cause to be taken any action
which would cause to be untrue (or fail to take or cause not to be taken any
action which would cause to be untrue) any of the representations in Exhibits
C-1 or C-2.
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SECTION 4.16. Taxes. In respect of income Tax returns of the Company or any
subsidiary not required to be filed prior to the date hereof, the Company shall,
to the extent permitted by law without any penalty, delay (and cause its
subsidiaries to delay) the filing of any such Tax returns until after the
Effective Time; provided, however, that the Company shall notify Parent of its
intention to delay (or cause any subsidiary to delay) any such filing and shall
not so delay the filing of a Tax return if Parent and the Company agree that so
delaying the filing of such Tax return is not in the best interests of either
the Company or Parent. If any such Tax return is required to be filed on or
prior to the Effective Time, the Company or its subsidiaries, as the case may
be, shall prepare and timely file such Tax return in a manner consistent with
prior years and all applicable laws and regulations; provided, however, that
Parent shall be notified and given an opportunity to review and to comment,
prior to the filing thereof, on any such Tax return (a) which relates to a Tax
which is based upon or measured by income, (b) which is not regularly filed by
the Company or a subsidiary thereof in connection with the conduct of its
business in the ordinary course, or (c) for which Parent requests such
opportunity, although neither Parent's approval nor consent shall be required
prior to the filing of any such Tax return.
SECTION 4.17. Employment and Non-Competition Agreements. The Company and
Parent shall, as of or prior to the Effective Time, enter into employment
agreements and non-competition agreements with Robert M. Davidson and Janice G.
Davidson on substantially the terms set forth in the forms of Employment
Agreement and Non-Competition Agreement agreed to as of the date hereof
(respectively, the "Employment Agreements" and the "Non-Competition
Agreements").
SECTION 4.18. Employee Matters.
(a) Employees of the Company and its subsidiaries shall be treated after the
Merger no less favorably under the Parent ERISA Plans than other similarly
situated employees of Parent and its subsidiaries.
(b) For a period of one year following the Merger, Parent shall and shall
cause its subsidiaries to maintain with respect to their employees who had been
employed by the Company or any of its subsidiaries (i) base salary or regular
hourly wage rates for each such employee at not less than the rate applicable
immediately prior to the Merger to such employee, and (ii) employee benefits (as
defined for purposes of Section 3(3) of ERISA), other than stock option plans)
which are substantially comparable in the aggregate to such employee benefits
provided by the Company and its subsidiaries immediately prior to the Merger.
(c) Parent and its subsidiaries shall credit employees of the Company and
its subsidiaries for purposes of determining eligibility to participate or
vesting under the Parent ERISA Plans with their service prior to the Merger with
the Company and its subsidiaries to the same extent such service was counted
under similar benefit plans of the Company prior to the Merger.
(d) Nothing contained herein shall be construed as requiring Parent or the
Surviving Corporation
to continue any specific plans or to continue the employment of any specific
person.
SECTION 4.19. Registration Rights Agreement. Parent agrees at the Closing to
enter into a Registration Rights Agreement with the parties to the Shareholders
Agreement (other than Parent and the Company) in substantially the form attached
to this Agreement as Exhibit D (the "Registration Rights Agreement").
SECTION 4.20. Company Affiliates. The Company has identified to Parent each
Company Affiliate and, except as set forth in Section 4.20 of the Company
Disclosure Schedule, each Company Affiliate has delivered to Parent on or prior
to the date hereof, a written agreement (i) that such Company Affiliate will not
sell, pledge, transfer or otherwise dispose of any shares of Parent Common Stock
issued to such Company Affiliate pursuant to the Merger, except in compliance
with Rule 145 promulgated under the Securities Act or an exemption from the
registration requirements of the
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Securities Act and (ii) that on or prior to the earlier of (x) the mailing of
the Proxy Statement/Prospectus or (y) the thirtieth day prior to the Effective
Time such Company Affiliate will not thereafter sell or in any other way reduce
such Company Affiliate's risk relative to any shares of Parent Common Stock
received in the Merger (within the meaning of the SEC's Financial Reporting
Release No. 1, "Codification of Financing Reporting Policies," Sec. 201.01 47
F.R. 21028 (April 15, 1982)), until such time as financial results (including
combined sales and net income) covering at least 30 days of post-merger
operations have been published, except as permitted by Staff Accounting Bulletin
No. 76 issued by the SEC. The Company will use its best efforts to cause the
Company Affiliate listed in Section 4.20 of the Company Disclosure Schedule to
execute and deliver the Affiliate Letter as promptly as practicable (and, in all
events, prior to the Effective Time).
SECTION 4.21. Election to Parent Board. Effective as of the Closing Date,
Parent shall increase the size of its Board of Directors (the "Parent Board") by
two directors and shall cause Robert M. Davidson and Janice G. Davidson to be
appointed to the Parent Board to fill the vacancies created, for initial terms
expiring two years and one year, respectively, following the date of Parent's
first annual meeting of shareholders following the date hereof, and shall cause
Robert M. Davidson to be elected to the position of Vice Chairman of the Parent
Board. From and after the Closing Date, and for so long as the parties to the
Shareholders Agreement (other than Parent and the Company) collectively
beneficially own (as such term is defined in Section 13 of the Exchange Act and
the rules and regulations thereunder) 25% of the shares of Parent Common Stock
received by them in the Merger, Parent shall cause at least one of Robert M.
Davidson and Janice G. Davidson to be included in the slate of nominees for
election to the Parent Board at each annual meeting of shareholders of Parent
and at any special meeting of shareholders of Parent at which directors are to
be elected (unless one of them is then a member of a director class whose term
does not expire at such meeting).
SECTION 4.22. SEC Filings. Each of Parent and the Company shall promptly
provide the other party (or its counsel) with copies of all filings made by the
other party or any of its subsidiaries with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
SECTION 4.23. Guarantee of Performance. Parent hereby guarantees the
performance by Acquisition of its obligations under this Agreement and the
indemnification obligations of the Surviving Corporation pursuant to Section
4.12(a) hereof.
SECTION 4.24. Property. At the Closing, Parent will purchase, or cause an
affiliate to purchase, the real property described in Section 4.24 of the
Company Disclosure Schedule (the "Property") from the owners thereof in
accordance with the terms of the letter agreement, dated the date hereof,
between Parent and such owners.
SECTION 4.25. Acquisition. (a) The Company hereby acknowledges that it has
been advised by Parent that Parent is, substantially simultaneously with the
execution and delivery of this Agreement, entering into an Agreement and Plan of
Merger (the "Sierra Agreement"), dated as of the date hereof, among Parent,
Sierra Acquisition Corp. ("Merger Sub") and Sierra On-Line, Inc. ("Sierra")
pursuant to which Merger Sub will merge with and into Sierra and Sierra will
become a wholly-owned subsidiary of Parent (the "Sierra Merger") and the
shareholders and stock option holders of Sierra will receive, respectively,
shares of Parent Common Stock and options to purchase shares of Parent Common
Stock in the Sierra Merger.
(b) The parties hereto expressly acknowledge and agree that it shall not be
a condition to the respective obligations of any party hereto to effect the
Merger that the transactions contemplated by the Sierra Agreement shall have
been approved by the shareholders of Parent or Sierra or that such transactions
shall have been consummated.
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<PAGE>
(c) Notwithstanding anything to the contrary contained herein (including,
without limitation, in Sections 4.3, 4.6 and 4.9 hereof), the Company will
cooperate with all reasonable requests of Parent to coordinate the timing of the
shareholders meetings with respect to the transactions contemplated by this
Agreement and the Sierra Agreement; provided, however, that the Company shall
not be required to agree to a material delay of its shareholders meeting for any
reason related to the timing of the Sierra shareholders meeting or any other
matters related to the Sierra transaction. In addition, the Company will provide
Parent with all financial and other data regarding the Company as may be
reasonably requested by Parent in connection with the preparation of the proxy
statement and Form S-4 relating to the Sierra Merger.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the shareholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall have
terminated or expired, and any other governmental or regulatory notices or
approvals required with respect to the transactions contemplated hereby shall
have been either filed or received;
(d) the S-4 shall have become effective under the Securities Act and shall
not be the subject of any stop order or proceedings seeking a stop order and
Parent shall have received all state securities laws or "blue sky" permits and
authorizations necessary to issue shares of Parent Common Stock in exchange for
the Shares in the Merger;
(e) Parent shall have received a letter from E&Y stating that the Merger
will be accounted for under GAAP as a "pooling-of-interests," and such opinion
shall not have been withdrawn or modified in any material respect; and
(f) Parent or an affiliate shall have purchased the Property as contemplated
by Section 4.24 hereof.
SECTION 5.2. Conditions to the Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) the representations of Parent and Acquisition contained in this
Agreement or in any other document delivered pursuant hereto shall be true and
correct in all material respects at and as of the Effective Time with the same
effect as if made at and as of the Effective Time, and at the Closing Parent and
Acquisition shall have delivered to the Company a certificate to that effect;
(b) each of the obligations of Parent and Acquisition to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time and
at the Closing Parent and Acquisition shall have delivered to the Company a
certificate to that effect;
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<PAGE>
(c) the shares of Parent Common Stock issuable to the Company shareholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NYSE upon official notice of issuance;
(d) the opinion of Gibson, Dunn & Crutcher, counsel to the Company,
addressed to the Company and its shareholders to the effect that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code shall have been delivered and such opinion
shall not have been withdrawn or modified in any material respect;
(e) Parent shall have obtained the consent or approval of each person whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of the Company, individually or in the aggregate, have a Material
Adverse Effect on Parent; and
(f) there shall have been no events, changes or effects with respect to
Parent or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on Parent, and at the Closing Parent shall have
delivered to the Company a certificate to that effect.
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations of the Company contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct in all
material respects at and as of the Effective Time with the same effect as if
made at and as of the Effective Time, and at the Closing the Company shall have
delivered to Parent and Acquisition a certificate to that effect;
(b) each of the obligations of the Company to be performed at or before the
Effective Time pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Effective Time and at the
Closing the Company shall have delivered to Parent and Acquisition a certificate
to that effect;
(c) each Company Affiliate and each shareholder which is a party to the
Shareholders Agreement shall have performed his or its respective obligations
under the applicable Affiliate Letter and/or the Shareholders Agreement (if
applicable), and Parent shall have received a certificate signed by each of them
to such effect;
(d) the Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger to any obligation, right or
interest of the Company or any subsidiary of the Company under any loan or
credit agreement, note, mortgage, indenture, lease or other agreement or
instrument, except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of Parent, individually or in the
aggregate, have a Material Adverse Effect on the Company;
(e) the number of Company Dissenting Shares as of the Effective Time shall
not exceed 5% of the then issued and outstanding shares;
(f) there shall have been no events, changes or effects with respect to the
Company or its subsidiaries having or which could reasonably be expected to
have, a Material Adverse Effect on the Company and at the Closing the Company
shall have delivered to Parent a certificate to that effect;
(g) the Employment Agreements shall be in full force and effect, and each of
Robert M. Davidson and Janice G. Davidson shall be in good physical and mental
health and capable of performing his or her obligations under their respective
Employment Agreements;
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(h) the Non-Competition Agreements shall be in full force and effect; and
(i) the Company Affiliate listed in Section 4.20 of the Company Disclosure
Schedule shall have executed an Affiliate Letter.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time, but prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of competent
jurisdiction in the United States or other United States governmental authority
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by September 30, 1996; provided that no
party may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement, or if any representation or warranty of Parent or Acquisition
shall have become untrue, in either case such that the conditions set forth in
Section 5.2(a) would be incapable of being satisfied by September 30, 1996 (or
as otherwise extended), (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Parent or materially adversely affecting (or
materially delaying) the consummation of the Merger, and Parent or Acquisition,
as the case may be, has not cured such breach within twenty business days after
notice by the Company thereof, provided that the Company has not breached any of
its obligations hereunder, (iii) the Company Board by a majority vote determines
in its good faith judgment, after consultation with independent legal counsel,
that it is necessary to do so to comply with its fiduciary duties to
shareholders, provided that such termination under this clause (iii) shall not
be effective unless at the time of such determination the Company has received a
bona fide proposal to effect a Third Party Acquisition that had not been
withdrawn as of the time of such termination and until payment of the fee
required by Section 6.3(a) hereof, or (iv) prior to the meeting of shareholders
of the Company, the Average Stock Price (as defined below) is less than $29.00.
The term "Average Stock Price" means a fraction, the numerator of which is the
sum of the Closing Price (as hereinafter defined) for each trading day during
the 15 consecutive trading days ending on the first trading day that is at least
10 calendar days prior to the scheduled date of such meeting of shareholders of
the Company and the denominator of which is 15. For purposes hereof, with
respect to any trading day, the Closing Price shall be equal to the per share
closing price on the NYSE of Parent Common Stock on such day, as reported in the
New York Stock Exchange Composite Transactions; or
(d) by Parent and Acquisition if (i) there shall have been a breach of any
representation or warranty on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by September 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by the Company of its covenants
or agreements hereunder having a Material Adverse Effect on the Company or
materially adversely affecting (or materially delaying) the consummation of the
Merger, and the Company has not cured such breach within twenty business days
after notice by Parent or Acquisition thereof, provided that neither Parent nor
Acquisition has breached
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<PAGE>
any of their respective obligations hereunder, (iii) the Company shall engage in
negotiations with any entity or group (other than Parent or Acquisition) that
has proposed a Third Party Acquisition (as defined below) and such negotiations
shall have continued for more than 15 business days after the Company has first
furnished information to such entity or group or commenced negotiations with
such party (whichever is earlier), (iv) the Company Board shall have withdrawn,
modified or changed its approval or recommendation of this Agreement or the
Merger, shall have recommended to the Company's shareholders a Third Party
Acquisition or shall have failed to call, give notice of, convene or hold a
shareholders' meeting to vote upon the Merger, or shall have adopted any
resolution to effect any of the foregoing, or (v) the Company shall have
convened a meeting of its shareholders to vote upon the Merger and shall have
failed to obtain the requisite vote of its shareholders.
"Third Party Acquisition" means the occurrence of any of the following
events (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) or entity other than Parent, Acquisition or any affiliate thereof
(a "Third Party"); (ii) the acquisition by a Third Party of more than 30% of the
total assets of the Company and its subsidiaries, taken as a whole; or (iii) the
acquisition by a Third Party of 30% or more of the outstanding shares of Company
Common Stock. "Significant Acquisition" means the acquisition by the Company or
any subsidiary, by merger, purchase of stock or assets, joint venture or
otherwise, of a direct or indirect ownership interest or investment in any
business whose annual revenues, net income or assets is equal to or greater than
40% of the annual revenues, net income or assets of the Company.
SECTION 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 6.2 and Sections 4.8(c), 6.3, 7.5, 7.8, 7.10
and 7.13 hereof. Nothing contained in this Section 6.2 shall relieve any party
from liability for any breach of this Agreement.
SECTION 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Section 6.1(c)(iii);
(ii) Sections 6.1(d)(i) or (ii) as a result of a willful breach of any
representation, warranty, covenant or agreement of the Company and, within
twelve months thereafter, the Company enters into an agreement with respect
to a Third Party Acquisition or a Significant Acquisition, or a Third Party
Acquisition or a Significant Acquisition occurs, involving any party (or any
affiliate thereof) (x) with whom the Company (or its agents) had
negotiations with a view to a Third Party Acquisition or a Significant
Acquisition, (y) to whom the Company (or its agents) furnished information
with a view to a Third Party Acquisition or a Significant Acquisition or (z)
who had submitted a proposal or expressed an interest in a Third Party
Acquisition or a Significant Acquisition, in the case of each of clauses
(x), (y) and (z) after the date hereof and prior to such termination;
(iii) Section 6.1(d)(iii) and, within twelve months thereafter, the
Company enters into an agreement with respect to a Third Party Acquisition
or a Significant Acquisition, or a Third Party Acquisition or a Significant
Acquisition occurs, involving any party (or any affiliate thereof) (x) with
whom the Company (or its agents) had negotiations with a view to a Third
Party Acquisition or a Significant Acquisition, (y) to whom the Company (or
its agents) furnished information with a view to a Third Party Acquisition
or a Significant Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition or a Significant
Acquisition, in the case of each of clauses (x), (y) and (z) after the date
hereof and prior to such termination; or
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<PAGE>
(iv) Section 6.1(d)(iv) (in the absence of an event or circumstance
described in Section 5.2(f)); or
(v) Section 6.1(d)(v);
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages, the Company shall pay to Parent the amount of $25
million as liquidated damages (A) in the case of Sections 6.3(a)(i), (iv) and
(v), immediately upon such a termination and (B) in the case of Sections
6.3(a)(iii) and (iv), simultaneously with the earlier of entering into or
consummating the Third Party Acquisition or Significant Transaction referred to
therein. It is specifically agreed that the amount to be paid pursuant to this
Section 6.3(a) represents liquidated damages and not a penalty.
(b) Upon the termination of this Agreement pursuant to Sections 6.1(d)(i),
(ii), (iii), (iv) or (v), the Company shall reimburse Parent, Acquisition and
their affiliates (not later than ten business days after submission of
statements therefor) for all actual documented out-of-pocket fees and expenses,
not to exceed $2,500,000 (unless such termination is not covered by Section
3(a)), actually and reasonably incurred by any of them or on their behalf in
connection with the Merger and the consummation of all transactions contemplated
by this Agreement (including, without limitation, fees payable to investment
bankers, counsel to any of the foregoing, and accountants). If Parent or
Acquisition shall submit a request for reimbursement hereunder, Parent or
Acquisition will provide the Company in due course with invoices or other
reasonable evidence of such expenses upon request. The Company shall in any
event pay the amount requested (not to exceed $2,500,000, except as provided
above) within ten business days of such request, subject to the Company's right
to demand a return of any portion as to which invoices are not received in due
course.
(c) Upon the termination of this Agreement pursuant to Sections 6.1(c)(i) or
(ii), Parent shall reimburse the Company and their affiliates (not later than
ten business days after submission of statements therefor) for all actual
documented out-of-pocket fees and expenses actually and reasonably incurred by
any of them or on their behalf in connection with the Merger and the
consummation of all transactions contemplated by this Agreement (including,
without limitation, fees payable to investment bankers, counsel to any of the
foregoing, and accountants). If the Company shall submit a request for
reimbursement hereunder, the Company will provide Parent in due course with
invoices or other reasonable evidence of such expenses upon request. Parent
shall in any event pay the amount requested within ten business days of such
request, subject to Parent's right to demand a return of any portion as to which
invoices are not received in due course.
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby. The cost of printing the S-4 and the Proxy Statement shall
be borne equally by the Company and Parent.
SECTION 6.4. Amendment. This Agreement may be amended by action taken by the
Company, Parent and Acquisition at any time before or after approval of the
Merger by the shareholders of the Company (if required by applicable law) but,
after any such approval, no amendment shall be made which requires the approval
of such shareholders under applicable law without such approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of the
parties hereto.
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<PAGE>
SECTION 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Acquisition shall together be
deemed one party and the Company shall be deemed the other party) may (i) extend
the time for the performance of any of the obligations or other acts of the
other party, (ii) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. Any agreement on the part of
either party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
either party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 7.2. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise; provided,
however, that Acquisition may assign any or all of its rights and obligations
under this Agreement to any subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
SECTION 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
SECTION 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
<TABLE>
<CAPTION>
<S> <C>
if to Parent or Acquisition: CUC International Inc.
707 Summer Street
Stamford, CT 06901
Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 310-8007
if to the Company to: Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Attention: Robert M. Davidson
Facsimile: (310) 793-0601
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue, 48th Floor
Los Angeles, CA 90071
Attention: Peter F. Ziegler, Esq.
Facsimile: (213) 229-7520
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the principles of conflicts of law thereof.
SECTION 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.12 and 7.2, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 7.8. Arbitration. Any controversy, dispute or claim arising out of
or relating to this Agreement or the breach hereof which cannot be settled by
mutual agreement (except for actions by Parent or the Company seeking equitable,
injunctive or other relief under Section 7.10) shall be finally settled by
arbitration as follows: Any party who is aggrieved shall deliver a notice to
other party setting forth the specific points in dispute. Any points remaining
in dispute twenty (20) days after the giving of such notice shall be submitted
to arbitration in New York, New York, or Los Angeles, California, whichever the
complaining party may choose, to Endispute, before a single arbitrator appointed
in accordance with Endispute's Arbitration Rules, modified only as herein
expressly provided. The arbitrator may enter a default decision against any
party who fails to participate in the arbitration proceedings. The decision of
the arbitrator on the points in dispute will be final, unappealable and binding
and judgment on the award may be entered in any court having jurisdiction
thereof. The arbitrator will be authorized to apportion its fees and expenses
and the reasonable attorney's fees and expenses of Parent and the Company as the
arbitrator deems appropriate. In the absence of any such apportionment, the fees
and expense of the arbitrator will be borne equally by each party, and each
party will bear the fees and expenses of its own attorney. The parties agree
that this clause has been included to rapidly and inexpensively resolve any
disputes between them with respect to this Agreement, and that this clause shall
be grounds for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions seeking to
enforce an arbitration award. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law, the existence of any
controversy hereunder, the referral of any such controversy to arbitration or
the status or resolution thereof.
SECTION 7.9. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
SECTION 7.10. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific performance
issued by a court of competent jurisdiction. Such remedy shall, however, not be
exclusive and,
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subject to Section 7.8, shall be in addition to any other remedies, including
arbitration, which any party may have under this Agreement or otherwise.
SECTION 7.11. Recapitalization. Whenever (a) the number of outstanding
shares of Parent Common Stock is changed by reason of a subdivision or
combination of shares, whether effected by a reclassification of shares or
otherwise or (b) Parent pays a cash or stock dividend or makes a similar
distribution, each specified number of shares referred to in this Agreement and
each specified per share amount (other than par values) shall be adjusted
accordingly.
SECTION 7.12. Subsidiaries. The term "subsidiary" shall mean, when used with
reference to any entity, any entity more than fifty percent (50%) of the
outstanding voting securities or interests (including membership interests) of
which are owned directly or indirectly by such former entity.
SECTION 7.13. Brokers. Except as otherwise provided in Section 6.3, the
Company agrees to indemnify and hold harmless Parent and Acquisition, and Parent
and Acquisition agree to indemnify and hold harmless the Company, from and
against any and all liability to which Parent and Acquisition, on the one hand,
or the Company, on the other hand, may be subjected by reason of any brokers,
finders or similar fees or expenses with respect to the transactions
contemplated by this Agreement to the extent such similar fees and expenses are
attributable to any action undertaken by or on behalf of the Company, or Parent
or Acquisition, as the case may be.
SECTION 7.14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: DAVIDSON & ASSOCIATES, INC.
By: /s/ JANICE G. DAVIDSON By: /s/ ROBERT M. DAVIDSON
......................................... .........................................
Name: Janice G. Davidson Name: Robert M. Davidson
Title: President Title: Chairman and Chief Executive Officer
ATTEST: CUC INTERNATIONAL INC.
By: /s/ AMY N. LIPTON By: /s/ E. KIRK SHELTON
......................................... .........................................
Name: Amy N. Lipton Name: E. Kirk Shelton
Title: Assistant Secretary Title: President
ATTEST: STEALTH ACQUISITION II CORP.
By: /s/ AMY N. LIPTON By: /s/ E. KIRK SHELTON
......................................... .........................................
Name: Amy N. Lipton Name: E. Kirk Shelton
Title: Secretary Title: President
<CAPTION>
</TABLE>
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<PAGE>
SCHEDULE I TO
SHAREHOLDERS AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS* NUMBER OF SHARES OWNED
- ----------------------------------------------------------------------- ----------------------
<S> <C>
Robert M. Davidson..................................................... 494,0751
Robert M. Davidson, as trustee of Robert M. Davidson Charitable
Remainder Unitrust..................................................... 9,000,0001
Robert M. Davidson, as co-trustee of Elizabeth A. Davidson Trust....... 2,168,7502
Robert M. Davidson, as co-trustee of Emilie A. Davidson Trust2......... 2,168,7502
Robert M. Davidson, as co-trustee of John R. Davidson Trust............ 2,168,7502
Janice G. Davidson..................................................... 488,4751
Janice G. Davidson, as trustee of Janice G. Davidson Charitable
Remainder Unitrust................................................... 9,000,0001
Janice G. Davidson, as co-trustee of Elizabeth A. Davidson Trust....... 2,168,7502
Janice G. Davidson, as co-trustee of Emilie A. Davidson Trust.......... 2,168,7502
Janice G. Davidson, as co-trustee of John R. Davidson Trust............ 2,168,7502
</TABLE>
- ------------
1 Shareholder has sole power with respect to such shares. See Section 2(a)(i) of
this Agreement.
2 Shareholder has shared power with respect to such shares. See Section 2(a)(ii)
of this Agreement.
* c/o Robert M. Davidson and Janice G. Davidson, 19840 Pioneer Avenue, Torrance,
CA 90503; Tel. (310) 793-0600; Fax (310) 793-0601.
<PAGE>
ANNEX B
SHAREHOLDERS AGREEMENT
AGREEMENT, dated February 19, 1996 (this "Agreement"), by and among CUC
INTERNATIONAL INC., a Delaware corporation ("Parent"), and each of the other
parties signatory hereto (each, a "Shareholder" and, collectively, the
"Shareholders").
WITNESSETH:
WHEREAS, concurrently herewith, Parent, STEALTH ACQUISITION II CORP., a
Delaware corporation and a direct wholly-owned subsidiary of Parent ("Merger
Sub"), and DAVIDSON & ASSOCIATES, INC., a California corporation (the
"Company"), are entering into an Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger Agreement;" capitalized
terms used and not defined herein have the respective meanings ascribed to them
in the Merger Agreement) pursuant to which Merger Sub will be merged with and
into the Company (the "Merger");
WHEREAS, each of the Shareholders Beneficially Owns (as defined herein) the
number of shares, par value $.01 per share, of common stock of the Company (the
"Shares" or "Company Common Stock") set forth opposite such Shareholder's name
on Schedule I hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholders agree, and the Shareholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Provisions Concerning Company Common Stock. Each Shareholder hereby
agrees that during the period commencing on the date hereof and continuing until
the first to occur of the Effective Time and termination of the Merger Agreement
in accordance with its terms, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, such Shareholder shall vote (or cause to be voted) the
Shares held of record or Beneficially Owned (as defined below) by such
Shareholder, whether heretofore owned or hereafter acquired, (i) in favor of
approval of the Merger Agreement and any actions required in furtherance thereof
and hereof; (ii) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement (after giving
effect to any materiality or similar qualifications contained therein); and
(iii) except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company; (B) a
sale, lease, transfer or disposition of any assets outside the ordinary course
of business or any assets which in the aggregate are material to the Company and
its subsidiaries taken as a whole, or a reorganization, recapitalization,
dissolution or liquidation of the Company; (C) (1) any change in a majority of
the persons who constitute the board of directors of the Company; (2) any change
in the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-Laws; (3) any other material change in the
Company's corporate structure or business; or (4) any other action which, in the
case of each of the matters referred to in clauses C (1), (2), (3) or (4), is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Shareholder shall
not enter into any agreement or understanding with any Person (as defined below)
the effect of which would be inconsistent or violative of the provisions and
B-1
<PAGE>
agreements contained in Section 1 or 2 hereof. For purposes of this Agreement,
"Beneficially Own" or "Beneficial Ownership" with respect to any securities
shall mean having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" as within the meanings of Section 13(d)(3) of
the Exchange Act. For purposes of this Agreement, "Person" shall mean an
individual, corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
2. Other Covenants, Representations and Warranties. Each Shareholder hereby
represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Shareholder is the record and Beneficial
Owner of the number of Shares set forth opposite such Shareholder's name on
Schedule I hereto. On the date hereof, the Shares set forth opposite such
Shareholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Shareholder. Such Shareholder has
(i) sole voting power and sole power to issue instructions with respect to
the matters set forth in Section 1 hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Shares set forth opposite such Shareholder's name on
Schedule I hereto and denoted by footnote 1, with no limitations,
qualifications or restrictions on such rights (ii) shared voting power and
shared power to issue instructions with respect to the matters set forth in
Section 1 hereof, shared power of disposition, shared power of conversion,
shared power to demand appraisal rights and shared power to agree to all of
the matters set forth in this Agreement, in each case shared with another
Shareholder party to this Agreement and in each case with respect to all of
the Shares set forth opposite such Shareholder's name on Schedule 1 hereto
and denoted by footnote 2.
(b) Power; Binding Agreement. Such Shareholder has the legal capacity,
power and authority to enter into and perform all of such Shareholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Shareholder will not violate any other agreement to
which such Shareholder is a party including, without limitation, any voting
agreement, shareholder agreement or voting trust. This Agreement has been
duly and validly executed and delivered by such Shareholder and constitutes
a valid and binding agreement of such Shareholder, enforceable against such
Shareholder in accordance with its terms. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which such
Shareholder is Trustee who is not a party to this Agreement and whose
consent is required for the execution and delivery of this Agreement or the
consummation by such Shareholder of the transactions contemplated hereby. If
such Shareholder is married and such Shareholder's Shares constitute
community property, this Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, such
Shareholder's spouse, enforceable against such person in accordance with its
terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Shareholder and the
consummation by such Shareholder of the transactions contemplated hereby and
(B) none of the execution and delivery of this Agreement by such
Shareholder, the consummation by such Shareholder of the transactions
contemplated hereby or compliance by such Shareholder with any of the
provisions hereof shall (1) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms,
B-2
<PAGE>
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which such Shareholder is a party or
by which such Shareholder or any of such Shareholder's properties or assets
may be bound, or (2) violate any order, writ, injunction, decree, judgment,
order, statute, rule or regulation applicable to such Shareholder or any of
such Shareholder's properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
investment banking arrangements and agreements between the Company and Smith
Barney Inc. and between the Company and Kerlin Capital Group, no broker,
investment banker, financial adviser or other person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission
in connection with the transactions contemplated by the Merger Agreement
based upon arrangements made by or on behalf of such Shareholder or any of
its affiliates or, to the knowledge of such Shareholder, the Company or any
of its affiliates.
(e) Other Potential Acquirors. Such Shareholder (i) shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, the Company or its
subsidiaries or any business combination with the Company or its
subsidiaries, in his, her or its capacity as such, and (ii) from and after
the date hereof until termination of the Merger Agreement, unless and until
the Company is permitted to take such actions under Section 4.4 of the
Merger Agreement, shall not, in such capacity, directly or indirectly,
initiate, solicit or knowingly encourage (including by way of furnishing
non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any such transaction
or acquisition, or agree to or endorse any such transaction or acquisition,
or authorize or permit any of such Shareholder's agents to do so, and such
Shareholder shall promptly notify Parent or Merger Sub of any proposal and
shall provide a copy of any such written proposal and a summary of any oral
proposal to Parent or Merger Sub immediately after receipt thereof (and
shall specify the material terms and conditions of such proposal and
identify the person making such proposal) and thereafter keep Parent or
Merger Sub promptly advised of any development with respect thereto.
(f) Restriction on Transfer, Proxies and Non-Interference. Such
Shareholder shall not, directly or indirectly: (i) except as contemplated by
the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or
other disposition of, any or all of such Shareholder's Shares or any
interest therein; (ii) grant any proxies or powers of attorney, deposit any
Shares into a voting trust or enter into a voting agreement with respect to
any Shares; or (iii) take any action that would make any representation or
warranty of such Shareholder contained herein untrue or incorrect or have
the effect of preventing or disabling such Shareholder from performing such
Shareholder's obligations under this Agreement.
(g) Reliance by Parent. Such Shareholder understands and acknowledges
that Parent is entering into, and causing Merger Sub to enter into, the
Merger Agreement in reliance upon such Shareholder's execution and delivery
of this Agreement.
3. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer; Restrictive Legend. (a) Each Shareholder agrees with, and
covenants to, Parent that such Shareholder shall not request that the Company
register the transfer (book-entry or
B-3
<PAGE>
otherwise) of any certificate or uncertificated interest representing any of
such Shareholder's Shares, unless such transfer is made in compliance with this
Agreement. In the event of a stock dividend or distribution, or any change in
the Company Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term "Shares"
shall be deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or all of
the Shares may be changed or exchanged.
(b) Upon the written request of Parent, all certificates representing
any of such Shareholder's Shares shall contain the following legend:
"The securities represented by this certificate, including certain
voting and transfer rights with respect thereto, are subject to
the terms of a Shareholders Agreement, dated February 19, 1996,
among CUC International Inc., the Issuer and the parties listed on
the signature pages thereto, a copy of which is on file in the
principal office of the Issuer."
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earliest of (a) termination of the Merger Agreement in accordance with its
terms, (b) the Effective Time or (c) at the election of the Shareholders, if the
Company's Board of Directors would have the right to terminate the Merger
Agreement under Section 6.1(c)(iv) thereof.
6. Shareholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Shareholder
signs solely in his or her capacity as the record and/or beneficial owner of
such Shareholder's Shares.
7. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) Certain Events. Each Shareholder agrees that this Agreement and the
obligations hereunder shall attach to such Shareholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Shareholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations under this Agreement of
the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but
no such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Shareholders, except upon the execution and
delivery of a written agreement executed by the relevant parties hereto;
provided that Schedule I hereto may be supplemented by Parent by adding the
name and other relevant information concerning any Shareholder of the
Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added shareholder
shall be treated as a "Shareholder" for all purposes of this Agreement.
B-4
<PAGE>
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service, such
as Federal Express, providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the following
addresses:
<TABLE>
<S> <C>
If to any Shareholder: At the addresses set forth on Schedule I
hereto
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Peter F. Ziegler, Esq.
Telephone: (213) 229-7000
Facsimile: (213) 229-7520
If to Parent or Merger Sub: CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 977-8501
Attention: Amy N. Lipton, Esq.
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore
each of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in
equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
B-5
<PAGE>
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without giving effect
to the principles of conflicts of law thereof.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
B-6
<PAGE>
IN WITNESS WHEREOF, Parent and each Shareholder have caused this Agreement
to be duly executed as of the day and year first above written.
CUC INTERNATIONAL INC.
By: /s/ E. KIRK SHELTON
...............................
Name: E. Kirk Shelton
Title: President
<TABLE>
<S> <C>
ROBERT M. DAVIDSON By: /s/ ROBERT M. DAVIDSON
CHARITABLE REMAINDER TRUST .........................................
Robert M. Davidson
By: /s/ ROBERT M. DAVIDSON, By: /s/ JANICE G. DAVIDSON
......................................... .........................................
Robert M. Davidson, Trustee Janice G. Davidson
JANICE G. DAVIDSON ELIZABETH A. DAVIDSON TRUST
CHARITABLE REMAINDER TRUST
By: /s/ JANICE G. DAVIDSON By: /s/ ROBERT M. DAVIDSON
......................................... .........................................
Janice G. Davidson, Trustee Robert M. Davidson, Co-Trustee
JOHN R. DAVIDSON TRUST By: /s/ JANICE G. DAVIDSON
.........................................
Janice G. Davidson, Co-Trustee
By: /s/ ROBERT M. DAVIDSON EMILIE A. DAVIDSON TRUST
.........................................
Robert M. Davidson, Co-Trustee
By: /s/ JANICE G. DAVIDSON By: /s/ ROBERT M. DAVIDSON
......................................... .........................................
Janice G. Davidson, Co-Trustee Robert M. Davidson, Co-Trustee
By: /s/ JANICE G. DAVIDSON
.........................................
Janice G. Davidson, Co-Trustee
</TABLE>
AGREED TO AND ACKNOWLEDGED
(with respect to Section 4):
DAVIDSON & ASSOCIATES, INC.
By: /s/ ROBERT M. DAVIDSON
..............................
Name: Robert M. Davidson
Title: Chairman and Chief
Executive Officer
B-7
<PAGE>
ANNEX C
OPINION OF SMITH BARNEY INC.
February 19, 1996
The Board of Directors
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, California 90503
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Davidson & Associates, Inc.
("Davidson") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of February 19, 1996 (the "Merger Agreement"), by and among
Davidson, CUC International Inc. ("CUC") and Stealth Acquisition II Corp., a
wholly owned subsidiary of CUC ("Acquisition"). As more fully described in the
Merger Agreement, (i) Acquisition (or a successor thereto) will be merged with
and into Davidson (the "Merger") and (ii) each outstanding share of the common
stock, par value $0.00025 per share, of Davidson (the "Davidson Common Stock")
will be converted into the right to receive 0.85 (the "Exchange Ratio") of a
share of the common stock, par value $0.01 per share, of CUC (the "CUC Common
Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Davidson and certain senior officers and other representatives
and advisors of CUC concerning the businesses, operations and prospects of
Davidson and CUC. We examined certain publicly available business and financial
information relating to Davidson and CUC as well as certain financial forecasts
and other data for Davidson and CUC which were provided to us by the respective
managements of Davidson and CUC. We reviewed the financial terms of the Merger
as set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of Davidson Common Stock and
CUC Common Stock; the respective companies' historical and projected earnings
and operating data; and the capitalization and financial condition of Davidson
and CUC. We also considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of Davidson and CUC. We also evaluated the potential pro forma financial impact
of the Merger on CUC. In connection with our engagement, we were requested to
approach, and held discussions with, certain third parties to solicit
indications of interest in a possible acquisition of Davidson. In addition to
the foregoing, we conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information
provided to or otherwise reviewed by or discussed with us, we have been advised
by the managements of Davidson and CUC that such forecasts and other information
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of Davidson and CUC as to
the future financial performance of Davidson and CUC. We assumed, with
C-1
<PAGE>
your consent, that the Merger will be treated as a pooling of interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Our opinion, as set forth
herein, relates to the relative values of Davidson and CUC. We are not
expressing any opinion as to what the value of the CUC Common Stock actually
will be when issued to Davidson stockholders pursuant to the Merger or the price
at which the CUC Common Stock will trade subsequent to the Merger. We have not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Davidson or CUC nor have we made any
physical inspection of the properties or assets of Davidson or CUC. We have been
informed by representatives of Davidson and CUC that CUC is currently evaluating
another potential transaction. As you are aware, Davidson and Smith Barney have
had minimal access to financial and other business information relating to such
transaction and, consequently, our review for purposes of this opinion has been,
with your consent, more limited than the financial analyses and investigations
customarily undertaken in similar transactions. Our opinion is necessarily based
upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to
Davidson in connection with the Merger and will receive a fee for our services,
a significant portion of which is contingent upon the consummation of the
Merger. We also will receive a fee upon the delivery of this opinion. In the
ordinary course of our business, we and our affiliates may actively trade the
securities of Davidson and CUC for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities. We have in the past provided certain financial advisory and
investment banking services to Davidson unrelated to the proposed Merger, for
which services we have received compensation. In addition, Smith Barney and its
affiliates (including Travelers Group Inc. and its affiliates) may maintain
relationships with Davidson and CUC.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Davidson in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of Davidson Common Stock.
Very truly yours,
By /s/ SMITH BARNEY INC,
...................................
Smith Barney Inc.
C-2
<PAGE>
ANNEX D
STATUTORY PROVISIONS RELATING TO DISSENTER'S RIGHTS
(SECTIONS 1300 THROUGH 1312 OF THE
CALIFORNIA GENERAL CORPORATION LAW)
<TABLE>
<CAPTION>
SECTION
- -------
<C> <S>
1300. Reorganization or short-form merger; dissenting shares; corporate purchase at fair
market value; definitions.
1301. Notice to holders of dissenting shares in reorganizations; demand for purchase;
time; contents.
1302. Submission of share certificates for endorsement; uncertificated securities.
1303. Payment of agreed price with interest; agreement fixing fair market value; filing;
time of payment.
1304. Action to determine whether shares are dissenting shares or fair market value;
limitation; joinder; consolidation; determination of issues; appointment of
appraisers.
1305. Report of appraisers; confirmation; determination by court; judgment; payment;
appeal; costs.
1306. Prevention of immediate payment; status as creditors; interest.
1307. Dividends on dissenting shares.
1308. Rights of dissenting shareholders pending valuation; withdrawal of demand for
payment.
1309. Termination of dissenting share and shareholder status.
1310. Suspension of right to compensation or valuation proceedings; litigation of
shareholders' approval.
1311. Exempt shares.
1312. Right of dissenting shareholder to attack, set aside or rescind merger or
reorganization; restraining order or injunction; conditions.
</TABLE>
SEC. 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 an 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any
D-1
<PAGE>
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to any
class of shares described in * * * subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in * * * subparagraph
(A) or (B) of paragraph (1) (without regard to the provisos in that
paragraph), were voted against the reorganization, or which were held of
record on the effective date of a short-form merger; provided, however, that
* * * subparagraph (A) rather than * * * subparagraph (B) of this paragraph
applies in any case where the approval required by Section 1201 is sought by
written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SEC. 1301. NOTICE TO HOLDER OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
D-2
<PAGE>
SEC. 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SEC. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them,
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<PAGE>
shall make and file a report in the office of the clerk of the court. Thereupon,
on the motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court finds
the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
required the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301, and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SEC. 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SEC. 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SEC. 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
D-4
<PAGE>
SEC. 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SEC. 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
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<PAGE>
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transactions is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
D-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware empowers
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. Such indemnification may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation is permitted to indemnify directors, officers,
employees and other agents of such corporation in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee or
agent of the corporation is successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the corporation must indemnify such person against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith.
CUC International's By-Laws contain provisions that indemnify officers and
directors and their heirs and distributees to the fullest extent permitted by,
and in the manner permissible under, the General Corporation Law of the State of
Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, CUC International's Restated Certificate of Incorporation, as
amended, contains a provision eliminating the personal liability of a director
to CUC International or its stockholders for monetary damages for breach of
fiduciary duty as a director, subject to certain exceptions.
CUC International maintains policies insuring its 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
- ----------- --------------------------------------------------------------------------------
<C> <S>
2(a) 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(b) Agreement and Plan of Merger dated as of February 19, 1996, as amended, among
CUC International Inc., Larry Acquisition Corp. and Sierra On-Line, Inc. (filed
as Exhibit 2B to CUC International's Current Report on Form 8-K dated March 12,
1996).*
2(c) Agreement and Plan of Merger dated as of April 19, 1996, among CUC International
Inc., IG Acquisition Corp. and Ideon Group, Inc. (filed as Exhibit 10.21 to CUC
International's Annual Report on Form 10-K for the fiscal year ended January 31,
1996, dated April 10, 1996).*
4 Form of certificate evidencing shares of CUC International Common Stock (filed
as Exhibit 4.1 to CUC International's Registration Statement (No. 33-44453), on
Form S-4 dated December 19, 1991).*
5 Opinion of as to the legality of CUC International's Common Stock.
8 Tax opinion of Gibson, Dunn & Crutcher
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 Letter from Ernst & Young LLP re: unaudited interim financial information
15.2 Letter from Price Waterhouse LLP re: unaudited interim financial information
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Gibson, Dunn & Crutcher (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 this 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, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, as
amended, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933, as amended, and
will be 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 21st day of
June, 1996.
CUC INTERNATIONAL INC.
By: /s/ WALTER A. FORBES
..................................
Walter A. Forbes
Chief Executive Officer and
Chairman of the
Board of Directors
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Walter A. Forbes and E. Kirk Shelton, and
each and either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including,
without limitation, post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every 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 virture hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/ WALTER A. FORBES Chief Executive Officer and Chairman June 21, 1996
....................................... of the Board (Principal Executive
Walter A. Forbes Officer)
/s/ COSMO CORIGLIANO Executive Vice President and Chief June 21, 1996
....................................... Financial Officer (Principal
Cosmo Corigliano Financial and Accounting Officer)
/s/ BARTLETT BURNAP Director June 21, 1996
.......................................
Bartlett Burnap
/s/ T. BARNES DONELLEY Director June 21, 1996
.......................................
T. Barnes Donelley
/s/ STEPHEN A. GREYSER Director June 21, 1996
.......................................
Stephen A. Greyser
/s/ CHRISTOPHER K. MCLEOD Director June 21, 1996
.......................................
Christopher K. McLeod
/s/ BURTON C. PERFIT Director June 21, 1996
.......................................
Burton C. Perfit
/s/ ROBERT P. RITTEREISER Director June 21, 1996
.......................................
Robert P. Rittereiser
/s/ STANLEY M. RUMBOUGH, JR. Director June 21, 1996
.......................................
Stanley M. Rumbough, Jr.
/s/ E. KIRK SHELTON Director June 21, 1996
.......................................
E. Kirk Shelton
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- -------------------------------------------------------------------------------- --------
<C> <S> <C>
2(a) 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(b) Agreement and Plan of Merger dated as of February 19, 1996, as amended, among
CUC International Inc., Larry Acquisition Corp. and Sierra On-Line, Inc. (filed
as Exhibit 2B to CUC International's Current Report on Form 8-K dated March 12,
1996).*
2(c) Agreement and Plan of Merger dated as of April 19, 1996, among CUC International
Inc., IG Acquisition Corp. and Ideon Group, Inc. (filed as Exhibit 10.21 to CUC
International's Annual Report on Form 10-K for the fiscal year ended January 31,
1996, dated April 10, 1996).*
4 Form of certificate evidencing shares of CUC International Common Stock (filed
as Exhibit 4.1 to CUC International's Registration Statement (No. 33-44453), on
Form S-4 dated December 19, 1991).*
5 Opinion of as to the legality of CUC International's Common Stock.
8 Tax opinion of Gibson, Dunn & Crutcher
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 Letter from Ernst & Young LLP re: unaudited interim financial information
15.2 Letter from Price Waterhouse LLP re: unaudited interim financial information
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Gibson, Dunn & Crutcher (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.
EXHIBIT 5
---------
ROBERT T. TUCKER
ATTORNEY AT LAW
61 PURCHASE ST. (914) 967-8105
RYE, N.Y. 10580 FAX: (914) 967-8161
June 21, 1996
CUC International Inc.
707 Summer Street
Stamford, CT 06901
Ladies and Gentlemen:
I refer to the Registration Statement (the "Registration Statement")
on Form S-4 being filed by CUC International Inc. ("CUC") under the
Securities Act of 1933, as amended (the "Securities Act") with the Securities
and Exchange Commission (the "Commission"), relating to the registration
of up to 30,039,606 shares of common stock par value $ .01 per share of CUC
(the "Shares") to be issued to the shareholders of Davidson & Associates, Inc.
("Davidson") in connection with the merger of CUC's wholly owned subsidiary,
Stealth Acquisition Corp. I ("Merger Sub"), into and with Davidson, all as set
forth in the Agreement and Plan of Merger dated February 19, 1996, among
CUC, Davidson 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 Davidson 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
---------
June 21, 1996
(213) 229-7000
C19278-00010
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, California 90503
Re: Registration Statement on Form S-4
Gentlemen:
We are acting as counsel to Davidson & Associates, Inc., a California
corporation (the "Company") in connection with the merger (the "Merger") of
Stealth Acquisition I Corp ("Acquisition Sub"), a California corporation and
a wholly owned subsidiary of CUC International, Inc., a Delaware corporation
("Parent"), with and into the Company. You have requested our opinion as to
the material federal income tax consequences of the Merger to holders of
Company common stock, $.00025 par value. The Merger will be effected pursuant
to the terms and conditions of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of February 19, 1996, among the Company, Parent and
Stealth Acquisition II Corp., a Delaware corporation and predecessor to
Acquisition Sub. The Merger Agreement is attached as Exhibit 2(a) to
Registration Statement on Form S-4 (the "Registration Statement") filed on
the date hereof with the Securities and Exchange Commission in connection with
the Merger. This opinion is being rendered pursuant to Section 5.2(d) of the
Merger Agreement.
In rendering our opinion, we have examined the Merger Agreement and
have, with your permission, relied upon, and assumed as correct now and as of
the Effective Time, (i) the factual information contained in the Registration
Statement, (ii) the representations and covenants contained in the Agreement,
(iii) certain factual representations made by the Company, Parent,
Acquisition Sub, and Robert M. Davidson and Janice G. Davidson (the "Major
Shareholders"), which are attached hereto and made part hereof, and (iv) such
other materials as we have deemed necessary or appropriate as a basis for our
opinion.
<PAGE>
Davidson & Associates, Inc.
June 21, 1996
Page 2
On the basis of the information, representations and covenants
contained in the foregoing materials, we hereby confirm our opinion set
forth under the caption "Merger--Certain Federal Income Tax Consequences"
in the Registration Statement.
This opinion expresses our views only as to federal income tax laws
in effect as of the date hereof, including the Internal Revenue Code of
1986, as amended, applicable Treasury Regulations, published rulings and
administrative practices of the Internal Revenue Service (the "Service")
and court decisions. This opinion represents our best legal judgment as
to the matters addressed herein, but is not binding on the Service or the
courts. Furthermore, the legal authorities upon which we rely are subject
to change either prospectively or retroactively. Any change in such
authorities or any change in the facts or representations, or any past or
future actions by the Company, Parent, Acquisition Sub, or the Major
Shareholders contrary to such representations might adversely affect the
conclusions stated herein.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and further consent to the use of our name under
the caption "The Merger--Certain Federal Income Tax Consequences" in the
Registration Statement and the offering circular that forms a part thereof.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
June 3, 1996
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Gentlemen:
This letter is being delivered to you pursuant to Section 4.15 of the
Agreement and Plan of Merger (the "Agreement"), dated as of February 19, 1996,
among Davidson & Associates, Inc., a California corporation (the "Company"), CUC
International Inc., a Delaware corporation ("Parent"), and Stealth Acquisition
II Corp., a Delaware corporation and a wholly owned subsidiary of Parent
(together with its successors and assigns, "Acquisition Sub"). Unless otherwise
indicated, capitalized terms not defined herein have the meaning set forth in
the Agreement.
After due inquiry and investigation regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that, assuming the Merger were to occur on the date
hereof and without waiver of the condition set forth in Section 5.3(f) of the
Agreement, the following facts are true:
1. Pursuant to the Merger, Acquisition Sub will merge with and into
the Company, and the Company will acquire all of the assets and liabilities of
Acquisition Sub. Specifically, the assets transferred to the Company pursuant
to the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Acquisition Sub immediately prior to the
Merger. In addition, at least ninety percent (90%) of the fair market value of
the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by the Company immediately prior to the Merger will
continue to be held by the Company immediately after the Merger. For the
purpose of determining the percentage of the Company's and Acquisition Sub's net
and gross assets held by the Company immediately following the Merger, the
following assets will be treated as property held by Acquisition Sub or the
Company, as the case may be, immediately prior but not subsequent to the Merger:
(i) assets used by the Company or Acquisition Sub (other than assets transferred
from Parent to Acquisition Sub for such purpose) to pay shareholders perfecting
dissenters' rights or other expenses or liabilities incurred in connection with
the Merger and (ii) assets used to make distributions, redemptions or other
payments in respect of stock of the Company (except for regular, normal
distributions) or in respect of rights to acquire such stock (including payments
treated as such for tax purposes) that are made in contemplation of the Merger
or that are related thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreement, the Company has not disposed of any of its
assets (including any distribution of assets with respect to, or in redemption
of, stock) since January 1, 1995;
3. The Company's principal reasons for participating in the Merger
are bona fide business purposes unrelated to taxes;
4. The Company has no outstanding warrants, options, convertible
securities or any other type of right to acquire the Company stock (or any other
equity interest in the Company) or to vote (or restrict or otherwise control the
vote of) shares of stock of the
<PAGE>
Company which, if exercised, would affect Parent's acquisition and retention of
Control of the Company;
5. In the Merger, shares of stock of the Company representing
"Control" of the Company will be exchanged solely for shares of voting stock of
Parent. For purposes of this paragraph, shares of the stock of Company
exchanged in the Merger for cash and other property (including, without
limitation, cash paid to shareholders of the Company perfecting dissenters'
rights or in lieu of fractional shares of Parent voting stock) will be treated
as shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent. As used in this letter,
"Control" shall consist of direct ownership of shares of stock possessing at
least eighty percent (80%) of the total combined voting power of shares of all
classes of stock entitled to vote and at least eighty percent (80%) of the total
number of shares of all other classes of stock of the corporation. For purposes
of determining Control, a person shall not be considered to own shares of voting
stock if rights to vote such shares (or to restrict or otherwise control the
voting of such shares) are held by a third party (including a voting trust)
other than an agent of such person;
6. The payment of cash in lieu of fractional shares of Parent stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
the Company shareholders in lieu of fractional shares of Parent stock will not
exceed one (1) percent of the total consideration that will be issued in the
Merger to the Company shareholders in exchange for their Shares;
7. The Company has no plan or intention to issue additional shares
of stock after the Merger, or take any other action, that would result in Parent
losing Control of the Company;
8. The Company has no plan or intention to sell or otherwise dispose
of any of its assets or of any of the assets acquired from Acquisition Sub in
the Merger except for dispositions made in the ordinary course of business or
payment of expenses, including payments to shareholders of the Company
perfecting dissenters' rights, incurred by the Company pursuant to the Merger
and except for transfers described in both Section 368(a)(2)(C) of the Code and
Treasury Regulation Section 1.368-2(j)(4);
9. Following the Merger, the Company will continue its historic
business or use a significant portion of its historic business assets in a
business;
10. The liabilities of the Acquisition Sub assumed by the Company and
the liabilities to which the transferred assets of Acquisition Sub are subject
were incurred by Acquisition Sub in the ordinary course of its business;
11. The fair market value of the Company's assets will, at the
Effective Time of the Merger, exceed the aggregate liabilities of the Company
plus the amount of liabilities, if any, to which such assets are subject;
12. The Company is not an "investment company" within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code;
13. The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
14. There is no plan or intention ("Plan) on the part of the
shareholders of the Company who own five percent or more of the Company stock
and, after due inquiry with
2
<PAGE>
its officers and directors, the Company has no knowledge of, and believes that
there does not exist, any Plan on the part of the remaining shareholders of the
Company to engage in a sale, exchange, transfer, distribution (including,
without limitation, a distribution by a partnership to its partners or by a
corporation to its stockholders), pledge, disposition or any other transaction
which results in a reduction in the risk of ownership or a direct or indirect
disposition (a "Sale") of shares of Parent stock received in the Merger that
would reduce ownership by shareholders of the Company of Parent stock to a
number of shares having a value as of the effective time of the Merger of less
than fifty percent (50%) of the aggregate fair market value, immediately prior
to the Merger, of all outstanding shares of the Company stock. For purposes of
this paragraph, shares of the Company stock (i) with respect to which a
shareholder of the Company receives consideration in the Merger other than
shares of Parent stock (including, without limitation, cash received pursuant to
the exercise of dissenter's rights or in lieu of fractional shares of Parent
stock) and/or (ii) with respect to which a Sale occurs prior to and in
contemplation of the Merger, shall be considered outstanding shares of stock of
the Company exchanged for shares of Parent stock in the Merger and then disposed
of pursuant to a Plan;
15. The fair market value of the shares of Parent stock received by
each shareholder of the Company will be approximately equal to the fair market
value of the shares of stock of the Company surrendered in exchange therefor and
the aggregate consideration received by shareholders of the Company in exchange
for their shares of stock of the Company will be approximately equal to the fair
market value of all of the outstanding shares of stock of the Company
immediately prior to the Merger;
16. Acquisition Sub, Parent, the Company and the shareholders of the
Company will each pay separately its or their own expenses relating to the
Merger;
17. There is no intercorporate indebtedness existing between Parent
and the Company or between Acquisition Sub and the Company that was issued,
acquired, or will be settled at a discount as a result of the Merger;
18. The terms of the Agreement are the product of arm's length
negotiations;
19. None of the compensation received by any shareholder-employees of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent stock received by
any shareholder-employees of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employees of the Company will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services;
20. To the best knowledge of the Company, during the past five (5)
years, none of the outstanding shares of capital stock of the Company, including
the right to acquire or vote any such shares, have directly or indirectly been
owned by Parent.;
21. Factual statements contained in the Registration Statement on
Form S-4 of Parent filed with the Securities and Exchange Commission in
connection with the Merger, which Registration Statement includes the Proxy
Statement-Prospectus of the Company are true, correct and complete in all
material respects;
22. The Company is authorized to make all of the representations set
forth herein; and
3
<PAGE>
23. The Agreement represents the full and complete agreement among
Parent, Acquisition Sub and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreement (including all schedules and exhibits thereto) and documents related
thereto, and (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects.
Notwithstanding anything herein to the contrary, the undersigned makes
no representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger. It is
understood that your opinions will not address any tax consequence of the Merger
or any action taken in connection therewith except as expressly set forth in
such opinions.
Very truly yours,
DAVIDSON & ASSOCIATES, INC.,
A CALIFORNIA CORPORATION
By: /s/ Robert M. Davidson
----------------------------------
Title: CEO
------------------------------
4
<PAGE>
June 3, 1996
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Gentlemen:
This letter is being delivered to you pursuant to Section 4.15 of the
Agreement and Plan of Merger (the "Agreement"), dated as of February 19, 1996,
among Davidson & Associates, Inc., a California corporation (the "Company"),
CUC International Inc., a Delaware corporation ("Parent"), and Stealth
Acquisition II Corp., a Delaware corporation and a wholly owned subsidiary of
Parent (together with its successors and assigns, "Acquisition Sub"). Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Agreement.
After due inquiry and investigation regarding the meaning of and
factual support for the following representation, the undersigned hereby certify
and represent that, assuming the Merger were to occur on the date hereof and
without waiver of the condition set forth in Section 5.3(f) of the Agreement,
the following facts are true:
1. Pursuant to the Merger, Acquisition Sub will merge with and into
the Company, and the Company will acquire all of the assets and liabilities of
Acquisition Sub. Specifically, the assets transferred to the Company pursuant
to the Merger will represent at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Acquisition Sub immediately prior to the
Merger. In addition, at least ninety percent (90%) of the fair market value of
the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by the Company immediately prior to the Merger will
continue to be held by the Company immediately after the Merger. For the
purpose of determining the percentage of the Company's and Acquisition Sub's net
and gross assets held by the Company immediately following the Merger, the
following assets will be treated as property held by Acquisition Sub or the
Company, as the case may be, immediately prior but not subsequent to the Merger:
(i) assets used by the Company or Acquisition Sub (other than assets transferred
from Parent to Acquisition Sub for such purpose) to pay shareholders perfecting
dissenter's rights or other expenses or liabilities incurred in connection with
the Merger and (ii) assets used to make distributions, redemptions or other
payments in respect of stock of the Company (except for regular, normal
distributions) or in respect of rights to acquire such stock (including payments
treated as such for tax purposes) that are made in contemplation of the Merger
or that are related thereto;
2. Acquisition Sub was formed solely for the purpose of consummating
the transactions contemplated by the Agreement and at no time will Acquisition
Sub conduct any business activities or other operations, or dispose of any of
its assets, other than pursuant to its obligations under the Agreement;
3. Parent's principal reasons for participating in the Merger are
bona fide business purposes not related to taxes;
<PAGE>
4. Prior to the Merger, Parent will be in "Control" of Acquisition
Sub. As used in this letter, "Control" shall consist of direct ownership of
shares of stock possessing at least eighty percent (80%) of the total combined
voting power of all classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of all other classes of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held by a third
party (including a voting trust) other than an agent of such person;
5. In the Merger, shares of stock of the Company representing
Control of the Company will be exchanged solely for shares of voting stock of
Parent. For purposes of this paragraph, shares of stock of the Company
exchanged in the Merger for cash and other property (including, without
limitation, cash paid to shareholders of the Company perfecting dissenters'
rights or in lieu of fractional shares of Parent voting stock) will be treated
as shares of stock of the Company outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent;
6. The payment of cash in lieu of fractional shares of Parent stock
is solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the Merger to
the Company shareholders in lieu of fractional shares of Parent stock will not
exceed one (1) percent of the total consideration that will be issued in the
Merger to the Company shareholders in exchange for their Shares;
7. Parent has no plan or intention to cause the Company to issue
additional shares of stock after the Merger, or take any other action, that
would result in Parent losing Control of the Company;
8. Parent has no plan or intention to reacquire any of its stock
issued pursuant to the Merger;
9. Parent has no plan or intention to liquidate the Company; to
merge the company with or into another corporation, including Parent or its
affiliates; to sell, distribute or otherwise dispose of the stock of the
Company; or to cause the Company to sell or otherwise dispose of any of its
assets or of any assets acquired from Acquisition Sub, except for dispositions
made in the ordinary course of business or payment of expenses, including
payments to shareholders of the Company perfecting dissenters' rights, incurred
by the Company pursuant to the Merger and except for transfers described in both
Section 368(a)(2)(C) of the Code and Treasury Regulation Section 1.368-2(j)(4);
10. In the Merger, Acquisition Sub will have no liabilities assumed
by the Company and will not transfer to the Company any assets subject to
liabilities, except to the extent incurred in connection with the transactions
contemplated by the Agreement;
11. Following the Merger, the Company will continue its historic
business or use a significant portion of its historic business assets in a
business;
12. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any such
shares, have directly or indirectly been owned by Parent;
2
<PAGE>
13. Neither Parent nor Acquisition Sub is an "investment company"
within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
14. The liabilities of Acquisition Sub assumed by Target and the
liabilities to which the transferred assets of Acquisition Sub are subject were
incurred by Acquisition Sub in the ordinary course of its business;
15. The fair market value of the Parent stock received by each
stockholder of the Company will be approximately equal to the fair market value
of the stock of the Company surrendered in exchange therefor, and the aggregate
consideration received by shareholders of the Company in exchange for their
stock of the Company will be approximately equal to the fair market value of all
of the outstanding shares of stock of the Company immediately prior to the
Merger;
16. Acquisition Sub, Parent, the Company and the shareholders of the
Company will each pay separately its or their own expenses relating to the
Merger;
17. There is no intercorporate indebtedness existing between Parent
and the Company or between Acquisition Sub and the Company that was issued,
acquired or will be settled at a discount as a result of the Merger;
18. The terms of the Agreement are the product of arm's-length
negotiations;
19. None of the compensation received by any shareholder-employee of
the Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent stock received by
any shareholder-employee of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employee of the Company will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services;
20. Factual statements contained in the Registration Statement on
Form S-4 of Parent filed with the Securities and Exchange Commission in
connection with the Merger, which Registration Statement includes the Proxy
Statement-Prospectus of the Company are true, correct and complete in all
material respects;
21. Parent and Acquisition Sub are authorized to make all of the
representations set forth herein; and
22. The Agreement represents the full and complete agreement among
Parent, Acquisition Sub and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the
completeness and accuracy of and compliance with, representations set forth
herein and on the statements contained in the Agreement (including all schedules
and exhibits thereto) and documents related thereto, and (ii) your opinions will
be subject to certain limitations and qualifications, including that they may
not be relied upon if any such representations are not accurate in all material
respect.
3
<PAGE>
It is understood that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
CUC INTERNATIONAL INC.,
a DELAWARE CORPORATION
By: Cosmo Corigliano
----------------------------
Title: Senior Vice President
-------------------------
STEALTH ACQUISITION I CORP.,
a CALIFORNIA CORPORATION
By: Cosmo Corigliano
----------------------------
Title: Vice President
-------------------------
4
<PAGE>
CONTINUITY OF INTEREST CERTIFICATE
Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Gentlemen and Mesdames:
The undersigned, constituting all of the shareholders of Davidson &
Associates, Inc., a California corporation (the "Company"), who beneficially own
five (5) percent or more of the common stock of the Company (the "Company Common
Stock"), are aware that pursuant to an Agreement and Plan of Merger, dated as of
February 19, 1996 (the "Agreement"), made and entered into by and among the
Company, CUC International Inc., a Delaware corporation ("Parent"), and Stealth
Acquisition II Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Acquisition"), pursuant to which it is contemplated that Acquisition
will merge with and into the Company in a transaction (the "Merger") in which
shares of Company Common Stock will be exchanged for shares of the common stock
of Parent ("Parent Common Stock").
1. The undersigned hereby represent, warrant, certify and covenant
as follows:
(a) Each of the undersigned currently is the beneficial owner of
that number and class of shares of Company Common Stock as set forth opposite
the undersigned's name on Schedule A hereto and did not acquire any of such
shares in contemplation of the Merger;
(b) The undersigned have not engaged in a Sale (as defined
below) of any shares of Company Common Stock in contemplation of the Merger;
(c) The undersigned have no plan or intention ("Plan") to
exercise dissenters' rights in connection with the Merger;
(d) There is no Plan on the part of the undersigned, and the
undersigned have no knowledge of and believe that there does not exist any Plan
on the part of the remaining holders of shares of Company Common Stock, to
engage in a sale, exchange, transfer, distribution (including a distribution by
a partnership to its partners or by a corporation to its stockholders),
redemption or reduction in any way of the undersigned's risk of ownership (by
short sale or otherwise), or other disposition, directly or indirectly (such
actions being collectively referred to herein as a "Sale"), or Sales of the
shares of Parent Common Stock to be received in the Merger such that the
aggregate fair market value, as of the Effective Time (as defined in the
Agreement), of shares subject to
<PAGE>
such Sales would exceed fifty percent (50%) of the aggregate fair market value
of all shares of outstanding the Company Common Stock immediately prior to the
Merger. For purposes of the preceding sentence, shares of Company Common Stock
(or the portion thereof) (i) with respect to which a shareholder of the Company
receives consideration in the Merger other than shares of Parent Common Stock
(including, without limitation, cash received pursuant to the exercise of
dissenters' rights or in lieu of a fractional share of Parent Common Stock) or
(ii) with respect to which a Sale occurs prior to and in contemplation of the
Merger, shall be considered shares of outstanding Company Common Stock exchanged
for shares of Parent Common Stock in the Merger and then disposed of pursuant to
a Plan;
(e) For a two (2)-year period following the Merger, the
undersigned, in the aggregate, will retain ownership, and will not engage in a
Sale, of that number of shares of Parent Common Stock issued to the undersigned
in the Merger, which together with the shares of Parent Common Stock issued to
the remaining shareholders of the Company in the Merger, has an aggregate fair
market value as of the Effective Time (as defined in the Agreement) of fifty-
five percent (55%) or more of the total fair market value of all shares of
outstanding Company Common Stock immediately prior to the Merger. For purposes
of the preceding sentence, shares of Company Common Stock (or the portion
thereof) (i) with respect to which a shareholder of the Company receives
consideration in the Merger other than shares of Parent Common Stock (including,
without limitation, cash received pursuant to the exercise of dissenters' rights
or in lieu of a fractional share of Parent Common Stock) or (ii) with respect to
which a Sale occurs prior to and in contemplation of the Merger, shall be
considered shares of outstanding Company Common Stock exchanged for shares of
Parent Common Stock in the Merger and then disposed of during the two-year
period following the Merger;
(f) To the best of the knowledge of the undersigned, all of the
statements set forth in those certain "Officer's Certificates Regarding Certain
Tax Matters," attached as Exhibit C-2 and Exhibit C-3 to the Agreement, are
----------- -----------
true, correct and complete; and
(g) Except to the extent written notification to the contrary is
received by the Company from the undersigned prior to the Merger, the
representations and warranties and certifications contained herein shall be true
and correct at all times from the date hereof through the Effective Date (as
defined in the Agreement). The undersigned agree to promptly notify the Company
prior to the Merger if at any time after the date hereof and prior to the
Merger, the undersigned would no longer be able to make the representations,
warranties and covenants set forth herein.
2. The undersigned have been provided with a copy of the Agreement
(including all schedules and exhibits thereto) and have consulted with such
legal and financial counsel as the undersigned have deemed appropriate in
connection with the execution of this Certificate.
2
<PAGE>
3. The undersigned understands that the Company and its
shareholders, as well as legal counsel to the Company (in connection with
rendering of an opinion that the Merger will be a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended) will be
relying on (a) the truth and accuracy of the representations contained herein
and (b) the undersigned's performance of the obligations set forth herein.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
______________, 1996.
/s/ Robert M. Davidson
------------------------------
Robert M. Davidson
/s/ Janice G. Davidson
------------------------------
Janice G. Davidson
ROBERT M. DAVIDSON ELIZABETH A. DAVIDSON TRUST
CHARITABLE REMAINDER UNITRUST
By: /s/ Robert M. Davidson By: /s/ Robert M. Davidson
--------------------------- ---------------------------
Robert M. Davidson, Trustee Robert M. Davidson, Co-Trustee
JANICE G. DAVIDSON
CHARITABLE REMAINDER UNITRUST
By: /s/ Janice G. Davidson By: /s/ Janice G. Davidson
--------------------------- ---------------------------
Janice G. Davidson, Trustee Janice G. Davidson, Co-Trustee
JOHN R. DAVIDSON TRUST EMILIE A. DAVIDSON TRUST
By: /s/ Robert M. Davidson By: /s/ Robert M. Davidson
--------------------------- ---------------------------
Robert M. Davidson, Co-Trustee Robert M. Davidson, Co-Trustee
By: /s/ Janice G. Davidson By: /s/ Janice G. Davidson
--------------------------- ---------------------------
Janice G. Davidson, Co-Trustee Janice G. Davidson, Co-Trustee
4
<PAGE>
SCHEDULE A
No. Shares of Company
Common Stock
Name and Address* Beneficially Owned
---------------- ------------------------
Robert M. Davidson 494,0751
Robert M. Davidson, as trustee of 9,000,0001
Robert M. Davidson Charitable Remainder
Unitrust
Robert M. Davidson, as co-trustee of 2,168,7502
Elizabeth A. Davidson Trust
Robert M. Davidson, as co-trustee of 2,168,7502
Emilie A. Davidson Trust2
Robert M. Davidson, as co-trustee of 2,168,7502
John R. Davidson Trust
Janice G. Davidson 488,4751
Janice G. Davidson, as trustee of 9,000,0001
Janice G. Davidson Charitable Remainder
Unitrust
Janice G. Davidson, as co-trustee of 2,168,7502
Elizabeth A. Davidson Trust
Janice G. Davidson, as co-trustee of 2,168,7502
Emilie A. Davidson Trust
Janice G. Davidson, as co-trustee of 2,168,7502
John R. Davidson Trust
--------------------
* c/o Robert M. Davidson and Janice G. Davidson, 19840
Pioneer Avenue,
Torrance, CA 90503; Telephone: (310) 793-0600;
Fax: (310) 793-0601.
1 Shareholder has sole power with respect to such shares.
2 Shareholder has shared power with respect to such shares.
EXHIBIT 15.1
Letter Re: Unaudited Interim Financial Information
June 19, 1996
Board of Directors and Shareholders'
CUC International Inc.
We are aware of the incorporation by reference in the Proxy Statement of
Davidson & Associates, Inc. that is made a part of the Registration Statement
(Form S-4) and Prospectus of CUC International Inc. for the registration of
30,039,606 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 LLP
June 18, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
We are aware that CUC International Inc. has included our report dated April 29,
1996, of Ideon Group, Inc. (issued pursuant to the provisions of Statement on
Auditing Standards No. 71), in the Prospectus constituting part of CUC
International Inc.'s Registration Statement on Form S-4 (related to Davidson &
Associates, 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 Davidson and Associates, Inc. and CUC International, Inc.
and the Form S-4 of CUC International, Inc. which includes such proxy
statement, dated June, 1996.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Long Beach, California
June 19, 1996
Exhibit 23.4
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 19, 1996, incorporated by reference in the
Proxy Statement of Davidson & Associates, Inc. that is made a part of the
Registration Statement (Form S-4) and Prospectus of CUC International Inc.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
June 19, 1996
EXHIBIT 23.5(a)
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in this Registration Statement
of CUC International, Inc. on Form S-4 of our report dated March 13, 1995,
appearing in the Annual Report on Form 10-K of Advance Ross Corporation
for the year ended December 31, 1994, and to the reference to us under the
heading "Experts" in the Proxy Statement of Davidson & Associates, Inc.,
which is part of this Registration Statement.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
June 17, 1996
Exhibit 23.5(b)
EXHIBIT
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
Davidson & Associates, Inc., which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
June 19, 1996
Exhibit 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of CUC
International Inc. (related to Davidson & Associates, Inc.) of our
report dated February 2, 1996, appearing on page 39 of the Ideon Group,
Inc. Annual Report on Form 10-K for the year ended December 31, 1995. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
June 18, 1996
