<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CUC INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
May 5, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
CUC International Inc. The meeting will be held on Wednesday, June 11, 1997, at
9:15 a.m. at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old
Greenwich, Connecticut.
At this meeting, you will be asked to consider and vote upon the election of
Directors, the approval of the Corporation's 1997 Stock Option Plan, and the
ratification of the appointment of the Corporation's independent auditors for
the fiscal year ending January 31, 1998.
You are entitled to vote all shares of Common Stock registered in your name
at the close of business on April 25, 1997. If you attend the meeting and desire
to vote in person, your proxy will not be used.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
We hope that you will find it convenient to attend the meeting, where we
will also report on the Corporation's current operations and outlook.
On behalf of the Board of Directors and the employees of CUC International
Inc., thank you for your continued interest and support.
Sincerely,
[LOGO]
Walter A. Forbes
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
CUC INTERNATIONAL INC.
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
To CUC Shareholders:
The 1997 Annual Meeting of Shareholders of CUC International Inc. (the
"Corporation") will be held on Wednesday, June 11, 1997, at 9:15 a.m. at the
Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut. At
the Annual Meeting, the shareholders of the Corporation will be asked to
consider and vote upon the following proposals:
1. To elect Bartlett Burnap, Walter A. Forbes and Robert P. Rittereiser
to the Board of Directors of the Corporation, each for a term to expire at
the 2000 Annual Meeting;
2. To approve the Corporation's 1997 Stock Option Plan;
3. To ratify the appointment of Ernst & Young LLP as the Independent
Auditors of the Corporation for the fiscal year ending January 31, 1998; and
4. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are described more fully in the Proxy
Statement accompanying this Notice.
The Board of Directors of the Corporation has fixed the close of business on
April 25, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the Annual Meeting. You are entitled to vote all
shares of Common Stock registered in your name at the close of business on April
25, 1997. If you attend the meeting and desire to vote in person, your proxy
will not be used.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE
URGE YOU TO SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF
DIRECTORS OF THE CORPORATION, AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS SOON
AS POSSIBLE, SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. IT IS
IMPORTANT THAT YOUR PROXY BE RETURNED PROMPTLY IN ORDER TO AVOID THE ADDITIONAL
EXPENSE OF FURTHER SOLICITATION.
A list of shareholders entitled to vote at the 1997 Annual Meeting will be
open to the examination of any shareholder, for any purpose germane to the
meeting, for ten days prior to the meeting at the Corporation's corporate
office, 707 Summer Street, Stamford, Connecticut 06901.
By Order of the Board of Directors,
[LOGO]
Robert T. Tucker
SECRETARY
May 5, 1997
Stamford, CT
<PAGE>
CUC INTERNATIONAL INC.
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 11, 1997
------------------------
Your proxy is solicited by the Board of Directors (the "Board") of CUC
International Inc. (the
"Corporation") in connection with the Annual Meeting of Shareholders of the
Corporation to be held on
Wednesday, June 11, 1997, at 9:15 a.m. at the Hyatt Regency Greenwich, 1800 East
Putnam Avenue, Old Greenwich, Connecticut, and any postponement or adjournment
thereof (the "Annual Meeting").
The Corporation has authorized two classes of voting securities: common
stock, par value $.01 per share ("Common Stock"), and preferred stock, par value
$.01 per share ("Preferred Stock"). There were 409,721,450 shares of Common
Stock issued and outstanding at the close of business on April 25, 1997 (the
"Record Date"). No shares of Preferred Stock have been issued. All shareholders
of record of the Common Stock at the close of business on the Record Date will
be entitled to vote at the Annual Meeting. Each share of Common Stock is
entitled to one vote. The presence at the Annual Meeting, in person or by proxy,
of the holders of at least one third of the shares of Common Stock outstanding
on the Record Date will constitute a quorum.
If the accompanying proxy is properly executed, returned to the Corporation
in time to be voted at the Annual Meeting, and not revoked, the shares of Common
Stock represented thereby will be voted in accordance with the instructions
marked on the proxy. Unless contrary instructions are given, the persons
designated as proxy holders in the proxy will vote FOR the slate of nominees
proposed by the Board of Directors, FOR approval of the Corporation's 1997 Stock
Option Plan, and FOR ratification of Ernst & Young LLP as the Corporation's
Independent Auditors for the fiscal year ending January 31, 1998. Any
shareholder giving a proxy has the right to attend the Annual Meeting to vote
his or her shares of Common Stock in person (thereby revoking any prior proxy)
and also has the right to revoke a previously granted proxy at any time before
it is exercised by written notice filed with the Secretary of the Corporation.
Attendance at the Annual Meeting will not, in itself, constitute revocation of a
previously granted proxy.
The approximate date on which this Proxy Statement and the accompanying form
of proxy, Notice of Meeting and Annual Report to Shareholders for the fiscal
year ended January 31, 1997 ("Fiscal Year 1997"), which contains the
Corporation's financial statements for Fiscal Year 1997, were first mailed to
the Corporation's shareholders was May 5, 1997.
The Corporation has retained D.F. King & Co., Inc. to aid in the
solicitation of proxies for a fee estimated not to exceed $8,000 plus
reimbursement of expenses. In addition to solicitation by mail, officers,
directors ("Directors") and employees of the Corporation may solicit proxies by
telephone, telecopy and personal contact. All costs of solicitation, including
printing and mailing of this Proxy Statement and accompanying materials, fees
and expenses of D.F. King & Co., Inc., reimbursement of brokerage firms and
others for their expenses in forwarding solicitation material to the beneficial
owners of the Corporation's Common Stock, and supplementary solicitations to
submit proxies, if any, will be borne by the Corporation.
VOTING PROCEDURES
Directors of the Corporation must be elected by a majority of the vote of
the shares of Common Stock present in person or represented by proxy at the
Annual Meeting. Consequently, only shares that are voted
1
<PAGE>
in favor of a particular nominee will be counted toward such nominee's
achievement of a majority. Abstentions and instructions on a proxy to withhold
authority to vote for one or more of the nominees for Director will have the
effect of a negative vote for such nominees. However, if a broker indicates that
it does not have authority to vote certain shares of Common Stock, those votes
will not be considered as shares present and entitled to vote at the Annual
Meeting with respect to the election of Directors and will not be counted toward
the outcome of the vote, although they will have the practical effect of
reducing the number of affirmative votes required to achieve a majority for the
election of the nominees for Director by reducing the total number of shares of
Common Stock from which such majority is calculated.
With respect to Proposal 2, the approval of the Corporation's 1997 Stock
Option Plan, the affirmative vote of a majority of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting is required for that
matter to become effective. With respect to Proposal 2, abstentions and
indications by brokers that they do not have authority to vote certain shares
will have the effect of a negative vote on such proposal.
With respect to Proposal 3, the ratification of the Corporation's
Independent Auditors, and any other matter which may properly be submitted to
the shareholders for a vote at the Annual Meeting, the affirmative vote of the
holders of at least a majority of the shares of Common Stock present in person
or represented by proxy at the Annual Meeting for a particular matter is
required to become effective. With respect to Proposal 3 and any other such
matter, abstentions will have the effect of negative votes, but if a broker
indicates that it does not have authority to vote certain shares of Common
Stock, those votes will not be considered as shares present and entitled to vote
at the Annual Meeting with respect to such matters and will not be counted
toward the outcome of the vote, although they will have the practical effect of
reducing the number of affirmative votes required to achieve a majority for such
matters by reducing the total number of shares of Common Stock from which such
majority is calculated.
In order that your shares of Common Stock may be represented at the Annual
Meeting, you are requested to:
- Indicate your instructions on the proxy;
- Date and sign the proxy;
- Mail the proxy promptly in the enclosed envelope; and
- Allow sufficient time for the proxy to be received before the date of the
Annual Meeting.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND
THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION
SINCE THE DATE OF THIS PROXY STATEMENT.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
All share numbers and per share amounts in this Proxy Statement reflect the
Corporation's three-for-two stock splits, each in the nature of a stock
dividend, which were effective on October 21, 1996, June 30, 1995, April 30,
1993 and July 2, 1992.
The following table sets forth each person known by the Corporation to be
the beneficial owner as of February 28, 1997 of more than 5% of the
Corporation's outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, MA 02109....................................................... 37,705,236(1) 9.2%
</TABLE>
- ------------------------
(1) FMR Corp. filed a Schedule 13G statement, dated February 14, 1997, pursuant
to Section 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), reflecting the beneficial ownership of 37,705,236 shares of
Common Stock. This amount includes 35,222,388 shares beneficially owned by
Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., as a result of Fidelity's acting as investment
adviser to several registered investment companies, and 2,482,848 shares
beneficially owned by Fidelity Management Trust Company ("FMTC"), a
wholly-owned subsidiary of FMR Corp., as a result of FMTC's serving as
investment manager of certain institutional accounts. In addition, such
Schedule 13G statement lists Edward C. Johnson 3d, the Chairman of FMR Corp.
and a member, along with certain members of his family (including Abigail P.
Johnson, a director of FMR Corp.), of a controlling group with respect to
FMR Corp., as having sole power to dispose of the shares of Common Stock
owned by Fidelity and FMTC.
3
<PAGE>
The following table shows the number of shares of the Corporation's Common
Stock beneficially owned as of January 31, 1997 by each Director of the
Corporation, by each nominee for Director of the Corporation, by each executive
officer of the Corporation named in the "Summary Compensation Table" set forth
in "Executive Compensation and Other Information--Summary of Cash and Other
Compensation," below (the "Named Executive Officers"), and by all Directors and
current executive officers of the Corporation as a group.
Each person named in the following table has sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
such person, except as otherwise set forth in the notes to the table. Shares of
Common Stock that any person has a right to acquire within 60 days after January
31, 1997 pursuant to an exercise of options or otherwise are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person, but are not deemed to be outstanding for computing the percentage
ownership of any other person shown in the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP COMMON STOCK
- --------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Bartlett Burnap............................................................ 3,107,826(1) *
Cosmo Corigliano........................................................... 381,041(2) *
Janice G. Davidson......................................................... 13,752,493(3) 3.4%
Robert M. Davidson......................................................... 13,752,493(4) 3.4%
T. Barnes Donnelley........................................................ 2,046,895(5) *
Walter A. Forbes........................................................... 1,503,622(6) *
Stephen A. Greyser......................................................... 190,967(7) *
Amy N. Lipton.............................................................. 307,398(8) *
Christopher K. McLeod...................................................... 1,728,166(9) *
Burton C. Perfit........................................................... 140,554(10) *
Robert P. Rittereiser...................................................... 190,967(11) *
Stanley M. Rumbough, Jr.................................................... 1,903,522(12) *
E. Kirk Shelton............................................................ 1,675,310(13) *
Kenneth A. Williams........................................................ 3,033,038(14) *
All Directors and Executive Officers as a group (14 persons)............... 29,961,799 7.4%
</TABLE>
4
<PAGE>
- ------------------------
* Amount represents less than one percent of Common Stock.
(1) Amount includes options to purchase 177,188 shares of Common Stock and
2,930,638 shares of Common Stock held by Sun Valley Investments, a limited
partnership in which Mr. Burnap is the sole general and sole limited
partner. Amount does not include 209,650 shares of Common Stock held by Mr.
Burnap's spouse and 150,000 shares of Common Stock held by the Bartlett
Burnap Charitable Remainder Trust Dated August 10, 1995, as to which Mr.
Burnap disclaims beneficial ownership.
(2) Amount includes options to purchase 180,707 shares of Common Stock and
60,000 shares of restricted Common Stock.
(3) Amount includes: 441,185 shares of Common Stock held by Ms. Davidson's
spouse; 2,737,500 shares of Common Stock held by the Janice G. Davidson
Charitable Remainder Unitrust; 2,737,500 shares of Common Stock held by the
Robert M. Davidson Charitable Remainder Unitrust; 2,465,155 shares of Common
Stock held by The Elizabeth Davidson Trust; 2,465,155 shares of Common Stock
held by The Emilie A. Davidson Trust; and 2,465,155 shares of Common Stock
held by The John R. Davidson Trust; as to all of which Ms. Davidson
disclaims beneficial ownership.
(4) Amount includes: 440,843 shares of Common Stock held by Mr. Davidson's
spouse; 2,737,500 shares of Common Stock held by the Janice G. Davidson
Charitable Remainder Unitrust; 2,737,500 shares of Common Stock held by the
Robert M. Davidson Charitable Remainder Unitrust; 2,465,155 shares of Common
Stock held by The Elizabeth Davidson Trust; 2,465,155 shares of Common Stock
held by The Emilie A. Davidson Trust; and 2,465,155 shares of Common Stock
held by The John R. Davidson Trust; as to all of which Mr. Davidson
disclaims beneficial ownership.
(5) Amount includes options to purchase 177,188 shares of Common Stock,
1,144,218 shares of Common Stock held indirectly by Mr. Donnelley under a
trust under the will of Mr. Donnelley, 613,052 shares of Common Stock held
indirectly by Mr. Donnelley under the Thorne Barnes Donnelley 1994 Trust and
112,437 shares of Common Stock held indirectly by Mr. Donnelley under a
grantor retained annuity trust of which Mr. Donnelley is the income
beneficiary and in which Mr. Donnelley's children have a residual interest
(as to which Mr. Donnelley disclaims beneficial ownership). Amount does not
include 8,589 shares of Common Stock held by a custodian for Mr. Donnelley's
children, as to which Mr. Donnelley disclaims beneficial ownership.
(6) Amount includes options to purchase 715,998 shares of Common Stock and
225,000 shares of restricted Common Stock. Amount does not include 9,523
shares of Common Stock held by Mr. Forbes' wife nor 19,666 shares of Common
Stock held by Mr. Forbes' wife as custodian for their children, as to which
Mr. Forbes disclaims beneficial ownership.
(7) Amount includes options to purchase 177,188 shares of Common Stock.
(8) Amount includes options to purchase 177,004 shares of Common Stock and
60,000 shares of restricted Common Stock. Amount does not include 13,612
shares of Common Stock held by Ms. Lipton's husband, as to which Ms. Lipton
disclaims beneficial ownership.
(9) Amount includes options to purchase 464,069 shares of Common Stock and
187,500 shares of restricted Common Stock. Amount does not include 118,377
shares of Common Stock held by a charitable foundation founded by Mr.
McLeod, as to which Mr. McLeod disclaims beneficial ownership.
(10) Amount includes options to purchase 127,188 shares of Common Stock and
13,366 shares of Common Stock held by the Burton Charles Perfit Trust dated
January 31, 1992.
(11) Amount includes options to purchase 177,188 shares of Common Stock.
(12) Amount includes options to purchase 177,188 shares of Common Stock and
1,726,334 shares of Common Stock held by the Rumbough Family Limited
Partnership, a limited partnership in which Mr. Rumbough is the sole limited
partner and the sole shareholder of the sole general partner.
5
<PAGE>
(13) Amount includes options to purchase 535,784 shares of Common Stock and
187,500 shares of restricted Common Stock.
(14) Amount includes options to purchase 85,258 shares of Common Stock and
2,947,780 shares of Common Stock held in trust. Amount does not include
options to purchase 20,946 shares of Common Stock held by Mr. Williams'
wife, as to which Mr. Williams disclaims beneficial ownership.
PROPOSAL 1: ELECTION OF DIRECTORS
Three persons are to be elected to the Board of Directors of the Corporation
at the Annual Meeting, to hold office for a term of three years or until their
respective successors are duly elected and qualified, and eight of the current
Directors will continue in office for the terms specified below. The persons
named in the enclosed proxy intend to vote for the election of the three
nominees listed below, unless instructions to the contrary are given therein.
All three of the nominees are currently Directors.
The three nominees have indicated that they are able and willing to serve as
Directors. However, if some unexpected occurrence should require the
substitution of some other person or persons for any one or more of the
nominees, the person or persons voting the proxies will vote for such nominee or
nominees as the Corporation may select. The Corporation has no reason to believe
that any nominee will be unable to serve if elected. The affirmative vote of a
majority of the shares present and entitled to vote at the Annual Meeting is
required to elect each nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE. UNLESS MARKED TO
THE CONTRARY, PROXIES RECEIVED BY THE CORPORATION WILL BE VOTED FOR THE ELECTION
OF THE THREE NOMINEES LISTED BELOW.
The following table lists, as of May 1, 1997, the name, age, position(s)
with the Corporation and principal occupation of each of the three nominees, the
eight continuing Directors, the year in which each Director's term of office
will expire (assuming, in the case of each of the three nominees, that such
nominee is elected at the Annual Meeting), and the year in which each Director
was first appointed or elected as a Director of the Corporation. For information
regarding the beneficial ownership of Common Stock by the nominees and current
Directors of the Corporation, see "Security Ownership of Management and Certain
Beneficial Owners," above.
6
<PAGE>
NOMINEES:
<TABLE>
<CAPTION>
YEAR IF
FIRST ELECTED,
APPOINTED OR YEAR
PRINCIPAL OCCUPATION AND ELECTED TO TERM
NAME OTHER DIRECTORSHIPS AGE THE BOARD EXPIRES
- ----------------------------------------- ----------------------------------------- --- --------------- -----------
<S> <C> <C> <C> <C>
BARTLETT BURNAP.......................... Mr. Burnap is an independent investor. 65 1976 2000
Since 1978, he has been President of
the Ralph J. Weiler Foundation, a
charitable foundation. Since 1981, he
has been President of CIB Associates, a
venture capital firm. Mr. Burnap was
Chairman of the Corporation's Board of
Directors between 1976 and 1983.
WALTER A. FORBES......................... Mr. Forbes has been Chairman of the 54 1974 2000
Corporation's Board of Directors since
1983 and its Chief Executive Officer
since 1976 and was the Corporation's
President between 1982 and May 1991.
Mr. Forbes is a director of NFO
Research, Inc.
ROBERT P. RITTEREISER.................... Mr. Rittereiser is Chairman and Chief 58 1982 2000
Executive Officer of Gruntal Financial
Corp., an investment services firm
based in New York City. He is Chairman
of Yorkville Associates Corp., a
private investment and financial
concern formed in April 1989. He served
as a Trustee of the DBL Liquidating
Trust from April 1992 until April 1996.
He served as a director in 1990, as
Chairman in November 1992 and as
President and Chief Executive Officer
from March 1993 until February 1995 of
Nationar Inc., a banking services
corporation.(1) He is a director of
Ferrofluidics Corporation, Interchange
Financial Services Corp. and Wallace
Computer Services, Inc.
</TABLE>
- ------------------------
(1) On February 6, 1995, the Acting Superintendent of Banks of the State of New
York filed a petition to take over the business of Nationar Inc., and the
New York State Banking Department has since been liquidating the assets of
such corporation.
7
<PAGE>
CONTINUING DIRECTORS:
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED OR
PRINCIPAL OCCUPATION AND OTHER ELECTED TO YEAR TERM
NAME DIRECTORSHIPS AGE THE BOARD EXPIRES
- ----------------------------------------- ----------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
ROBERT M. DAVIDSON....................... Mr. Davidson has been a Vice Chairman and 54 1996 1998
a director of the Corporation since
July 1996, when the Corporation
acquired Davidson & Associates, Inc.
("Davidson"). Mr. Davidson served as
Chief Executive Officer of Davidson and
Chairman and Chief Executive Officer of
CUC Software from the date of such
acquisition until January 1997. Prior
to joining the Corporation, Mr.
Davidson was the Chairman of the Board
and Chief Executive Officer of
Davidson. He joined Davidson as an
employee in 1989 and served as
Secretary of Davidson from 1984 to
1996. Mr. Davidson is the husband of
Janice G. Davidson, a director of the
Corporation. Mr. Davidson is also a
director of Nimbus CD International,
Inc.
T. BARNES DONNELLEY...................... Mr. Donnelley is, and has been for at 63 1977 1999
least the past five years, an
independent investor.
STEPHEN A. GREYSER....................... Mr. Greyser is a professor of 62 1984 1998
marketing/communications at the Harvard
Business School, on whose faculty he
has served for over 30 years. He also
serves as a director of Edelman
Worldwide (a public relations firm) and
Opinion Research Corporation, and is a
past Vice Chairman of the Public
Broadcasting Service.
CHRISTOPHER K. MCLEOD.................... Mr. McLeod has been an Executive Vice 41 1995 1999
President of the Corporation since 1986
and a member of the Office of the
President of the Corporation since
1988. Mr. McLeod has been Chief
Executive Officer of CUC Software since
January 1997, and served as President
of the Corporation's Comp-U-Card
Division between 1988 and August 1995.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
BURTON C. PERFIT......................... In 1986, Mr. Perfit retired from Jack 68 1982 1998
Eckerd Corporation after fifteen years
of service. Mr. Perfit became a Senior
Vice President of Eckerd in 1980 and
served as such until 1986.
STANLEY M. RUMBOUGH, JR.................. Mr. Rumbough is, and has been for at 77 1976 1999
least the past five years, an
independent investor and is a director
of International Flavors and
Fragrances, Inc.
E. KIRK SHELTON.......................... Mr. Shelton has been President of the 42 1995 1998
Corporation since May 1991, Chief
Operating Officer of the Corporation
since 1988 and Executive Vice President
of the Corporation from 1984 to 1991.
KENNETH A. WILLIAMS...................... Mr. Williams has been a Vice Chairman and 42 1996 1999
a director of the Corporation since
July 1996, when the Corporation
acquired Sierra-On-Line, Inc
("Sierra"). He is also a member of the
Office of the President of the
Corporation. In addition, Mr. Williams
is the Chief Executive Officer of
Sierra. Prior to joining the
Corporation, Mr. Williams was the
Chairman of the Board and Chief
Executive Officer of Sierra.
</TABLE>
Immediately following the Corporation's acquisitions of Davidson and Sierra
in July 1996, the Corporation increased the size of the Board of Directors by
three directors and caused Janice G. Davidson, Robert M. Davidson and Kenneth A.
Williams to be appointed to the Board for initial terms expiring one year, two
years and three years, respectively, following the date of the Corporation's
first annual meeting of stockholders next following February 19, 1996, and
further caused each of Mr. Davidson and Mr. Williams to be elected as a Vice
Chairman of the Board.
In addition, for so long as Mr. and Ms. Davidson 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 Common Stock received by them in
connection with the Corporation's acquisition of Davidson (the "Davidson
Acquisition"), the Corporation has agreed to cause at least one of Mr. and Ms.
Davidson to be included in the slate of nominees for election to the Board of
Directors at each annual meeting of holders of Common Stock and at any special
meeting of such holders at which directors are to be elected (unless one of the
Davidsons is then a member of a director class whose term does not expire at
such meeting). Ms. Davidson's term on the Board expires on the date of the
Annual Meeting and she is not standing for reelection. Upon the expiration of
her term, the size of the Board will be reduced to eleven members pursuant to a
resolution of the Board.
9
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
During Fiscal Year 1997, the Board of Directors held nine meetings. The
Board has, among other committees: an Executive Committee, an Audit Committee, a
Compensation Committee, and a Nominating Committee. No Director attended fewer
than 75% of the total number of meetings of the Board and all committees thereof
on which such Director served during Fiscal Year 1997.
EXECUTIVE COMMITTEE
The Executive Committee has and may exercise all of the powers of the Board
of Directors when the Board is not in session, usually between regular Board
meetings and when timing is critical, except that the Executive Committee does
not have the power to elect Directors or officers of the Corporation, to alter,
amend or repeal by-laws of the Corporation or any resolution of the Board
relating to the Executive Committee, to declare any dividend or distribution to
the shareholders of the Corporation, to appoint any member of the Executive
Committee, or to take any other action which by law may be taken only by the
Board of Directors.
The Executive Committee is composed of the Chairman of the Board, the
President of the Corporation and three other Directors. The following five
Directors serve on the Executive Committee: Walter A. Forbes (Chairman of the
Board of Directors), E. Kirk Shelton (President of the Corporation), Bartlett
Burnap, Robert P. Rittereiser and Stanley M. Rumbough, Jr. During Fiscal Year
1997, the Executive Committee held two meetings.
AUDIT COMMITTEE
The Audit Committee recommends to the Board of Directors a firm of
independent auditors to conduct the annual audit of the Corporation's financial
statements, reviews with such firm the overall scope and results of the annual
audit, reviews and approves the performance by such independent auditors of
professional services in addition to those which are audit-related, and reviews
the fees charged by the independent auditors for professional services. In
addition, the Audit Committee meets periodically with the independent auditors
and representatives of management to review accounting activities, financial
controls and reporting.
The following three non-employee Directors serve on the Audit Committee: T.
Barnes Donnelley, Stephen A. Greyser, and Burton C. Perfit (Chairman). During
Fiscal Year 1997, the Audit Committee held three meetings. Various members of
management (including the Chief Financial Officer and the Director of Internal
Audit) generally attend the Audit Committee meetings.
COMPENSATION COMMITTEE
The Compensation Committee recommends to the Board of Directors overall
compensation philosophy and policies for the Corporation and determines the
salary range for different executive levels and the specific compensation for
the Corporation's Chief Executive Officer. See "Executive Compensation and Other
Information--Compensation Committee Report on Executive Compensation." The
Compensation Committee reviews and makes recommendations to the Board concerning
plans, programs, and benefits which relate to executive compensation, and makes
incentive compensation and equity-based compensation awards. In addition, the
Compensation Committee reviews and makes recommendations to the Board concerning
selection, recruiting, hiring, and promotion of key executive personnel.
The following four non-employee Directors serve on the Compensation
Committee: Bartlett Burnap, Stephen A. Greyser, Robert P. Rittereiser (Chairman)
and Stanley M. Rumbough, Jr. During Fiscal Year 1997, the Compensation Committee
held eight meetings.
10
<PAGE>
NOMINATING COMMITTEE
The principal functions of the Nominating Committee are to develop and
review criteria for the qualifications of potential Board of Directors members
and to identify and recommend to the Board new candidates for election to the
Board.
The following four non-employee Directors serve on the Nominating Committee:
Bartlett Burnap (Chairman), Stephen A. Greyser, Robert P. Rittereiser and
Stanley M. Rumbough, Jr. During Fiscal Year 1997, the Nominating Committee held
one meeting.
Nominees for Directors may be proposed by shareholders in accordance with
the procedures set forth in the Corporation's By-Laws. Recommendations for the
1998 Annual Meeting must be received by March 13, 1998. Shareholders interested
in recommending nominees for Directors should submit their recommendations in
writing to the Secretary of the Corporation at 707 Summer Street, Stamford,
Connecticut 06901.
EXECUTIVE OFFICERS
The executive officers of the Corporation as of the date of this Proxy
Statement are set forth in the table below. All executive officers are appointed
at the annual meeting or interim meetings of the Board of Directors. Each
executive officer is appointed by the Board to hold office until his or her
successor is duly appointed and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION AND PERIOD SERVED
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
WALTER A. FORBES..................................... 54 Chairman of the Corporation's Board of Directors
since 1983, Chief Executive Officer since 1976 and
President from 1982 to May 1991.
E. KIRK SHELTON...................................... 42 President of the Corporation since May 1991, Chief
Operating Officer since 1988 and Executive Vice
President from 1984 to May 1991.
CHRISTOPHER K. MCLEOD................................ 41 Executive Vice President of the Corporation since
1986 and member of the Office of the President
since 1988. Chief Executive Officer of CUC Software
since January 1997, and President of the
Corporation's Comp-U-Card Division from 1988 to
August 1995.
COSMO CORIGLIANO..................................... 37 Senior Vice President of the Corporation since 1991,
Chief Financial Officer of the Corporation since
February 1, 1995 and Controller of the Corporation
from 1984 through January 1995.
AMY N. LIPTON........................................ 42 Senior Vice President and General Counsel of the
Corporation since 1990, Vice President and General
Counsel of the Corporation since 1987.
</TABLE>
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's Directors and
executive officers, and each person who is the beneficial owner of more than ten
percent of the Corporation's outstanding equity securities, to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
changes in ownership of equity securities of the Corporation. To the
Corporation's knowledge, based solely on review of the copies of reports
furnished to the Corporation and written representations that no other reports
were required, all filing requirements pursuant to Section 16(a) of the Exchange
Act applicable to the Corporation's executive officers, Directors and greater
than ten percent beneficial owners were complied with during Fiscal Year 1997,
except that Robert M. Davidson and Janice G. Davidson each failed to file on a
timely basis one report with respect to their acquisitions of certain employee
stock options granted to them by the Corporation in July 1996.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table shows, for the fiscal years ended January 31, 1997, 1996
and 1995, the compensation awarded to, earned by or paid to each of the
Corporation's Chief Executive Officer and the four other most highly compensated
executive officers of the Corporation earning qualifying compensation in excess
of $100,000 and who served as executive officers of the Corporation during
Fiscal Year 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION
COMPENSATION (1) AWARDS
-------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS AWARD(S)(2) OPTIONS/SARS COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ---------------------------------------- ----------- --------- --------- ----------- ------------- ----------------
Walter A. Forbes........................ 1997 757,228 760,000 5,081,175 225,000 268,513
Chief Executive Officer 1996 732,470 725,000 0 112,500 264,828
and Chairman of the Board 1995 676,249 660,000 0 783,000 263,257
E. Kirk Shelton......................... 1997 480,000 480,000 4,234,313 187,500 131,644
President and Chief Operating 1996 450,000 450,000 0 78,750 131,223
Officer 1995 410,000 410,000 0 753,750 51,239
Christopher K. McLeod................... 1997 480,000 480,000 4,234,313 187,500 125,559
Executive Vice President, Member of 1996 450,000 450,000 0 78,750 122,057
the Office of the President, Chief 1995 410,000 410,000 0 753,750 48,363
Executive Officer of CUC Software
Cosmo Corigliano........................ 1997 189,134 80,000 1,354,980 172,500 15,517
Senior Vice President 1996 160,000 30,000 0 18,000 7,044
and Chief Financial Officer 1995 71,463(4) 0(4) 0 282,519 1,583
Amy N. Lipton........................... 1997 224,211 100,000 1,354,980 172,500 15,637
Senior Vice President 1996 210,000 80,000 0 11,250 7,129
and General Counsel 1995 187,000 0(4) 0 258,750 1,226
</TABLE>
- ------------------------
(1) For each of the Named Executive Officers for each of the fiscal years ended
January 31, 1997, 1996 and 1995, there were no payments of (i) perquisites
over the lesser of $50,000 or 10% of the individual's total salary and bonus
for the year, (ii) above-market preferential earnings on deferred
12
<PAGE>
compensation, (iii) earnings with respect to long-term incentive plans, (iv)
tax reimbursements, or (v) preferential discounts on stock.
(2) Awards of restricted stock were made to each of the Named Executive Officers
on July 24, 1996 pursuant to the Corporation's 1989 Restricted Stock Plan.
The value of the awards set forth in the table above reflects the number of
shares of restricted stock granted to each Named Executive Officer on such
date multiplied by the closing market price of a share of Common Stock on
the New York Stock Exchange, Inc. ("NYSE") on such date, which was $22.583.
As of January 31, 1997 (the end of Fiscal Year 1997): Mr. Forbes owned
225,000 shares of restricted stock (with an aggregate value of $5,596,875,
based on the closing market price of a share of Common Stock on the NYSE on
such date of $24.875); Mr. Shelton owned 187,500 shares of restricted stock
(with an aggregate value on such date of $4,664,063); Mr. McLeod owned
187,500 shares of restricted stock (with an aggregate value on such date of
$4,664,063); Mr. Corigliano owned 60,000 shares of restricted stock (with an
aggregate value on such date of $1,492,500); and Ms. Lipton owned 60,000
shares of restricted stock (with an aggregate value on such date of
$1,492,500). Any dividends payable on outstanding shares of Common Stock
generally will also be payable on the outstanding shares of restricted
stock.
(3) "All Other Compensation" includes: (i) contributions of $1,584 for each of
Messrs. Forbes, Shelton, McLeod and Corigliano and Ms. Lipton to the
Corporation's 401(k) Plan to match Fiscal Year 1997 pre-tax elective
deferral contributions (included under Salary) made by each such individual
to such plan; and (ii) the premiums paid by the Corporation for the term
life component of "split-dollar" life insurance policies (the "Insurance
Program") procured by the Corporation in respect of these executives' lives.
In Fiscal Year 1997, premiums of $30,168, $4,401, $7,196, $685 and $805 were
paid in respect of Messrs. Forbes, Shelton, McLeod and Corigliano and Ms.
Lipton, respectively. "All Other Compensation" also includes the present
dollar value, determined in accordance with SEC regulations, and based on
actuarial computations, as of each of January 31, 1997, 1996 and 1995,
respectively, of the benefit to the Named Executive Officers of the
remainder of the premium payments made by the Corporation in respect of such
Named Executive Officers in each of Fiscal Year 1997, Fiscal Year 1996 and
Fiscal Year 1995, respectively. The present dollar value of such payments as
of January 31, 1997 is as follows: Walter A. Forbes--$236,761; E. Kirk
Shelton--$125,659; Christopher K. McLeod--$116,779; Cosmo
Corigliano--$13,248; and Amy N. Lipton--$13,248.
(4) Mr. Corigliano and Ms. Lipton received stock options for all or a part of
their respective salaries and/ or bonuses during the fiscal year ended
January 31, 1995.
Each participant in the Insurance Program is provided ordinary life
insurance coverage and enters into a split-dollar agreement with the
Corporation. The Corporation pays the full premium of the policy. The
participant is the owner of the policy and is obligated to pay tax on the value
of a portion of the coverage. The Corporation retains an interest in the policy
equal to the accumulated premiums paid. Upon Messrs. Forbes', Shelton's and
McLeod's retirement, and upon the Corporation's termination of their respective
policies in the case of Mr. Corigliano and Ms. Lipton (each a "Termination
Date"), the Corporation is entitled to recover all of its previous premium
payments, and any remaining cash outlays by the Corporation will cease. Any cash
value in the policy in excess of the premiums recovered by the Corporation is
retained by the participant. In the event of the participant's death prior to
the Termination Date, the Corporation is entitled to recover all premium
payments from the death benefit and the balance of the death benefit will be
paid to the participant's estate.
STOCK OPTIONS
The following table contains information concerning the grant of options to
purchase Common Stock under the Corporation's 1987 Stock Option Plan (the "1987
Plan") to the Named Executive Officers of the Corporation during Fiscal Year
1997.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF PERCENT OF GRANT DATE
SECURITIES TOTAL OPTIONS VALUE
UNDERLYING GRANTED TO EXERCISE ------------
OPTIONS EMPLOYEES OR BASE GRANT DATE
GRANTED IN PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SH) DATE VALUE $(2)
- ------------------------------------------------ ----------- ----------------- ---------- ----------- ------------
Walter A. Forbes................................ 225,000(3) 2.9% $ 22.3333 7/24/2006 $ 1,434,375
E. Kirk Shelton................................. 187,500(3) 2.4% $ 22.3333 7/24/2006 $ 1,195,313
Christopher K. McLeod........................... 187,500(3) 2.4% $ 22.3333 7/24/2006 $ 1,195,313
Cosmo Corigliano................................ 150,000(3) 2.0% $ 22.3333 7/24/2006 $ 956,250
22,500(4) 0.3% $ 18.8333 4/11/2006 $ 121,500
Amy N. Lipton................................... 150,000(3) 2.0% $ 22.3333 7/24/2006 $ 956,250
22,500(4) 0.3% $ 18.8333 4/11/2006 $ 121,500
</TABLE>
- ------------------------
(1) Options granted in Fiscal Year 1997 under the 1987 Plan are scheduled to
vest and become exercisable in yearly increments of 20%, with vesting of the
grants made on July 24, 1996 beginning on February 1, 1998, with full
vesting occurring on February 1, 2002, and vesting of the grants made on
April 11, 1996 beginning on February 1, 1997, with full vesting occurring on
February 1, 2001. Options expire ten years after grant. Under the terms of
the 1987 Plan, the Compensation Committee retains discretion to modify the
terms of outstanding options provided that the options, as modified, do not
violate the terms of the 1987 Plan. The vesting of options held by the Named
Executive Officers also accelerates under certain circumstances (including a
change in control of the Corporation), under the terms of their respective
employment agreements. See--"Employment Contracts, Termination of Employment
and Change-in-Control Arrangements."
(2) The values assigned to each reported option on this table are computed using
the Black-Scholes option pricing model. The calculations for options granted
on April 11, 1996 assume a risk-free rate of return of 6.95%, which
represents the ten-year yield of United States Treasury Notes on the option
grant date. The calculations for options granted on July 24, 1996 assume a
risk free rate of return of 6.87%, which represents the ten-year yield of
United States Treasury Notes on the option grant date. The calculations for
both grant dates also assume 28% volatility; however, there can be no
assurance as to the actual volatility of the Common Stock in the future. The
calculations for both grant dates also assume no dividend payout, a
straight-line, five-year vesting schedule and a five year expected life. The
value of these options was discounted by 25% to reflect the fact that the
options are not marketable and are subject to forfeiture. In assessing these
option values, it should be kept in mind that no matter what theoretical
value is placed on a stock option on the date of grant to a Named Executive
Officer, its ultimate value will depend on the market value of the Common
Stock at a future date.
(3) Granted July 24, 1996. The closing market price of Common Stock on the day
preceding such date, upon which the grant was based, was $22.3333. The
closing market price of Common Stock on the grant date was $22.583.
(4) Granted April 11, 1996. The closing market price of Common Stock on the day
preceding such date, upon which the grant was based, was $18.8333. The
closing market price of Common Stock on the grant date was $18.75.
14
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options to purchase Common Stock
during Fiscal Year 1997 and unexercised options to purchase Common Stock held as
of the end of Fiscal Year 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END(#) AT FY-END ($)
VALUE ------------------- -------------------------
SHARES ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE (2)
- ----------------------------- ------------------ ------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
Walter A. Forbes............. 450,053 $ 7,670,627 248,942/1,848,177 $ 3,114,563/$22,549,230
E. Kirk Shelton.............. 478,479 $ 6,887,363 78,049/1,688,672 $ 978,324/$20,743,291
Christopher K. McLeod........ 944,929 $ 13,199,832 8/1,694,998 $ 136/$20,847,231
Cosmo Corigliano............. 167,626 $ 2,853,128 76,597/573,610 $ 972,196/$5,730,123
Amy N. Lipton................ 102,092 $ 1,760,709 82,505/560,624 $ 1,230,386/$5,587,118
</TABLE>
- ------------------------
(1) Amounts reflect the market value of the underlying shares of Common Stock on
the date of exercise less the exercise price.
(2) Amounts reflect the market value of the underlying shares of Common Stock at
the end of Fiscal Year 1997 (the closing price of a share of Common Stock on
the NYSE on January 31, 1997, which was $24.875), less the exercise price.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Corporation has an employment contract with Walter A. Forbes, which was
amended and restated as of May 15, 1996, and which extends until December 31,
2001. This contract is automatically extended as of January 1 of each year for
an additional one-year period, unless prior to any such January 1 renewal date a
notice to the contrary is given. This contract provides that Mr. Forbes' base
salary is to be determined by the Corporation's Board of Directors annually, but
that any annual increases in base salary, once granted, shall not be subject to
revocation. Under this contract, the Corporation may terminate Mr. Forbes'
employment at any time.
In the event of a change in control (as defined in this contract) of the
Corporation, Mr. Forbes may, at any time, immediately resign upon written notice
to the Corporation. In such event, the Corporation is required to pay Mr.
Forbes, in a lump sum, $10 million, along with all earned but unpaid base salary
and incentive compensation on a pro rata basis for the year in which such
termination occurs, along with a lump sum (payable to the escrow agent for the
Forbes Policies, as defined below) in an amount equal to all of the required
premiums on the Forbes Policies that would thereafter be payable if Mr. Forbes'
employment continued through the calendar year in which he turned sixty-one
years of age. In addition, all welfare benefits under this contract would be
continued for a period of five years following any such termination of
employment. In the event of a change in control, and regardless of whether Mr.
Forbes' employment with the Corporation is terminated or not, all options held
by Mr. Forbes otherwise subject to vesting restrictions will become immediately
exercisable and any restrictions on any shares of restricted stock held by him
shall be deemed to lapse fully immediately upon such change in control.
In the event Mr. Forbes' employment with the Corporation is terminated other
than as a result of a change in control or as a result of termination for cause
(but in the case of resignation or retirement, only
15
<PAGE>
if Mr. Forbes shall have given six months prior written notice to the
Corporation and is over the age of 55 at such time), (i) the Corporation shall
pay Mr. Forbes (or his estate, if applicable) all earned but unpaid base salary
and incentive compensation on a pro rata basis for the year in which such
termination occurs, (ii) all stock options granted to Mr. Forbes will
immediately vest, (iii) any restrictions on any shares of restricted stock
issued to Mr. Forbes prior to such termination shall lapse, (iv) the Corporation
shall pay in a lump sum to the escrow agent for the Forbes Policies all required
premiums on the Forbes Policies that would thereafter be payable if Mr. Forbes'
employment continued through the calendar year in which he turned sixty-one
years of age, and (v) all welfare benefits provided under this contract would
continue for five years after such termination. In addition, in the event of Mr.
Forbes' resignation or retirement, the Corporation would be required to pay Mr.
Forbes an amount ranging between $2.5 million and $10 million, depending on Mr.
Forbes' age at such time, in ten installments with accrued interest (provided,
that in the event of a change in control of the Corporation, all such payments
shall become immediately due and payable), and in the event of any other
termination of employment other than resignation, retirement, termination for
cause or as a result of a change in control, the Corporation would be required
to pay Mr. Forbes an amount equal to $10 million. If Mr. Forbes' employment is
terminated for cause, he is to receive in a lump sum any earned but unpaid base
salary and incentive compensation.
The Corporation's employment contract with Mr. Forbes also requires that the
Corporation advance annual premium payments on certain insurance policies
("Forbes Policies") in the aggregate amount of approximately $540,000 per year,
or such other amount as agreed to by the Corporation and Mr. Forbes, through the
calendar year in which Mr. Forbes turns sixty-one years of age, regardless of
whether Mr. Forbes is employed by the Corporation at such time (unless Mr.
Forbes breaches certain covenants not to compete with the Corporation contained
therein). In consideration of such payments, Mr. Forbes agrees to abide by
certain covenants not to compete with the Corporation, to not withdraw any
amount from the Forbes Policies before he turns sixty years of age, and that,
prior to turning sixty years of age, the Forbes Policies will be held in escrow.
Mr. Forbes also assigns to the Corporation an interest in the Forbes Policies
equal to the premiums advanced by the Corporation. See the column "All Other
Compensation" within the Summary Compensation Table in "Executive Compensation
And Other Information--Summary of Cash and Other Compensation."
The Corporation has employment contracts, which commenced on May 15, 1996
and extend until February 1, 2002, with each of E. Kirk Shelton and Christopher
K. McLeod. These contracts are automatically extended as of February 1 of each
year for an additional one-year period, unless prior to any such February 1
renewal date a notice to the contrary is given. These contracts provide that the
employee's base salary is to be reviewed annually, but that any annual increases
in base salary, once granted, shall not be subject to revocation. These
contracts provide that the Corporation may terminate the employment of these
employees at any time.
In the event of a change in control (as defined in these contracts) of the
Corporation, either of these employees may resign at any time upon notice to the
Corporation. In this event, or if either of these employees is terminated
without cause following a change in control, the Corporation is required to pay
the affected individual a lump-sum amount equal to 500% of his then-current
annual base salary, plus the largest annual incentive award paid to such
individual within the previous three year period, along with all earned but
unpaid base salary and incentive compensation awards. In addition, the
Corporation is required in such situation to continue the benefits and
perquisites under such agreement for a period of three years from the date of
such termination of employment. If there is a change of control, all options
held by such individual otherwise subject to vesting restrictions will become
immediately exercisable, whether or not his employment is terminated, and all
restrictions on any shares of restricted stock held by such individual shall be
deemed to lapse fully immediately upon such change in control, whether or not
such individual's employment is terminated. All options which so vest upon a
change of control will be exercisable through the date these options would have
otherwise expired had their vesting not been so accelerated.
16
<PAGE>
If either of these individuals is terminated without cause or constructively
discharged (other than in connection with a change in control), the Corporation
must pay the affected individual a lump sum equal to 300% of his then-current
annual base salary along with all earned but unpaid base salary and incentive
compensation awards, and he will continue to receive the benefits and
perquisites described in his contract for thirty six months following such
termination. Also, if either of these individuals is terminated without cause or
constructively discharged (other than in connection with a change in control),
all stock options owned by such individual which have not yet vested will be
deemed vested on the date of such termination and any restrictions on any shares
of restricted stock held by such individual shall be deemed to lapse fully on
the date of such termination. If either of these individuals resigns (other than
in connection with a change in control) or is terminated for cause, he is to
receive in a lump sum any earned but unpaid base salary and incentive
compensation and all stock options owned by such individual which would have
vested during the thirty-six months following such termination shall be deemed
to vest in full on the date of such resignation or termination. If either of
these individuals dies, his beneficiaries are entitled to a lump sum payment of
earned but unpaid base salary and incentive compensation, continuance of
benefits and perquisites under the agreement for thirty six months, full vesting
and immediate exerciseability of any stock options granted to him and the full
lapse of any restrictions on any shares of restricted stock held by him.
The Corporation's employment contracts with Messrs. Shelton and McLeod also
require that the Corporation advance annual premium payments on certain
insurance policies ("Executive Policies") in the aggregate amount of
approximately $285,000 for Mr. Shelton and approximately $265,000 for Mr. McLeod
per year, or such other amount as agreed to by the Corporation and each of
Messrs. Shelton and McLeod, through the calendar year in which the applicable
individual turns sixty years of age, regardless of whether Messrs. Shelton and
McLeod are employed by the Corporation at such time (unless Messrs. Shelton and
McLeod breach certain covenants not to compete with the Corporation contained
therein). Each of Messrs. Shelton and McLeod agrees to abide by certain
covenants not to compete with the Corporation, to not withdraw any amount from
the Executive Policies before he turns sixty years of age, and that, prior to
turning sixty years of age, the Executive Policies will be held in escrow. Each
of Messrs. Shelton and McLeod also assigns to the Corporation an interest in the
Executive Policies equal to the premiums advanced by the Corporation. See the
column "All Other Compensation" within the Summary Compensation Table in
"Executive Compensation And Other Information--Summary of Cash and Other
Compensation."
The Corporation also has an employment contract with Cosmo Corigliano, which
commenced on February 1, 1994 and which was most recently amended as of January
1, 1997, that extends until January 30, 1999. This contract provides that the
Corporation may terminate Mr. Corigliano's employment at any time. In the event
of a change in control (as defined in this contract) of the Corporation all
unvested options held by Mr. Corigliano shall immediately vest and shall remain
exercisable through the date these options would have otherwise expired had
their vesting not been so accelerated, whether or not his employment is
terminated. If Mr. Corigliano is terminated without cause or is constructively
discharged, the Corporation must pay him his earned but unpaid base salary and
incentive compensation in a lump sum and must pay Mr. Corigliano his
then-current annual base salary for a period of twenty-four months following
such termination. In addition, in such situation, Mr. Corigliano will continue
to receive the benefits and perquisites described in such contract for a period
of twenty four months following such termination, and all stock options held by
Mr. Corigliano which would have vested during the twenty four months following
such termination shall continue to vest in accordance with their terms. If Mr.
Corigliano resigns (other than pursuant to a constructive discharge) or his
employment terminates for cause, he will receive earned but unpaid base salary
and incentive compensation in a lump sum. This contract provides that Mr.
Corigliano's base salary is to be reviewed annually by the Corporation's Board
of Directors. In addition, the Corporation has funded certain split-dollar life
insurance policies for Mr. Corigliano. See the column "All Other Compensation"
within the Summary Compensation Table in "Executive Compensation And Other
Information--Summary of Cash and Other Compensation."
17
<PAGE>
The Corporation also has an employment contract, which commenced on February
1, 1996 and which was most recently amended as of January 1, 1997, with Amy N.
Lipton. The contract provides for an initial term of sixty months and for
automatic extensions as of February 1 of each year thereafter for an additional
one-year period, unless prior to any such February 1 renewal date a notice to
the contrary is given. In the event of a change in control (as defined in this
contract) of the Corporation, all unvested options held by Ms. Lipton shall
immediately vest and shall remain exercisable through the date these options
would have otherwise expired had their vesting not been so accelerated, whether
or not her employment is terminated. If Ms. Lipton is terminated without cause
or is constructively discharged, the Corporation must pay Ms. Lipton her earned
but unpaid base salary and incentive compensation in a lump sum and must pay Ms.
Lipton her annual base salary at such time for a period of twenty four months
following such termination. In addition, in such situation, Ms. Lipton will
continue to receive the benefits and perquisites described in such contract for
a period of twenty four months following such termination, and all stock options
held by Ms. Lipton which would have vested during the twenty four months
following such termination shall continue to vest in accordance with their
terms. If Ms. Lipton resigns (other than pursuant to a constructive discharge)
or her employment terminates for cause, she will receive earned but unpaid base
salary and incentive compensation in a lump sum. If Ms. Lipton dies, the
benefits and perquisites described in such contract will continue for a period
of thirty six months, and any stock options granted to her will become
immediately exercisable and shall remain fully exercisable through the date
these options would have otherwise expired had their vesting not been so
accelerated. In addition, the Corporation has funded certain split-dollar life
insurance policies for Ms. Lipton. See the column "All Other Compensation"
within the Summary Compensation Table in "Executive Compensation And Other
Information--Summary of Cash and Other Compensation."
For the purposes of the Corporation's employment contracts with each of
Messrs. Forbes, Shelton, McLeod and Corigliano and Ms. Lipton, change in control
is defined to include consummation of a tender offer for 51% or more of the
outstanding voting securities of the Corporation, the merger or consolidation of
the Corporation as a result of which less than 75% of the outstanding voting
securities of the resulting entity shall be owned by former shareholders of the
Corporation, a sale of substantially all of the Corporation's assets to another
entity, the acquisition of 25% or more (51% or more, in the case of Ms. Lipton's
and Mr. Corigliano's contracts) of the outstanding voting securities of the
Corporation by any person, or any similar event which the Board of Directors
determines constitutes a change in control.
DIRECTOR COMPENSATION
For their service on the Board of Directors, the Corporation pays each
non-employee Director $30,000 per year, as well as $1,000 for each Board meeting
and each committee meeting attended. Committee Chairmen are paid an additional
$250 per committee meeting. Each member of the Board is reimbursed for expenses
incurred in connection with each Board or committee meeting attended. Non-
employee Directors have also received grants of stock options under the
Corporation's 1990 Directors Stock Option Plan, 1992 Directors Stock Option Plan
and/or 1994 Directors Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Bartlett Burnap, Stephen A. Greyser, Robert P. Rittereiser
(Chairman) and Stanley M. Rumbough, Jr. serve on the Compensation Committee of
the Corporation. Messrs. Burnap, Greyser, Rittereiser and Rumbough were not
employees of the Corporation during Fiscal Year 1997 or before.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
CORPORATION'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE EXCHANGE ACT THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND PERFORMANCE GRAPH SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PROCESS
This is a report submitted by the four-member Compensation Committee (the
"Committee") of the Board of Directors addressing the Corporation's compensation
policies for Fiscal Year 1997 as they affected the executive officers of the
Corporation. Decisions on compensation of the Corporation's executive officers
are made by the Committee. The Committee members are all non-employee Directors
who have considerable experience by way of service on other Boards of Directors;
several members have served on compensation committees of other corporations.
The full Board reviews all decisions of the Committee relating to the
compensation of the Corporation's executive officers, except for decisions about
awards under certain of the Corporation's stock-based compensation plans, which
are made solely by the Committee pursuant to the terms of such plans.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Committee's executive officer compensation philosophy and objectives are
designed to provide competitive levels of compensation that integrate pay with
the Corporation's annual and long-term performance goals, reward executive
officers for above-average corporate performance, recognize individual
initiative and achievements, and assist the Corporation in attracting and
retaining qualified executives. The Committee aims to provide compensation that
is fair and equitable to both the employee and the Corporation.
The Committee believes that stock ownership by management is beneficial in
aligning management's and shareholders' interests in enhancing shareholder
value; therefore, the Committee includes a stock-based element in the
Corporation's compensation packages for its executive officers, although the
Committee does not have specific target ownership levels for Corporation equity
holdings by executives.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, precludes a public corporation from taking a tax
deduction for certain compensation in excess of $1 million paid to its chief
executive officer or any of its four other highest-paid executive officers. This
limitation, however, does not apply to certain performance-based compensation.
Based on regulations issued by the Internal Revenue Service ("IRS") on December
20, 1995 to implement Section 162(m), including detailed descriptions of what
constitutes performance-based compensation under Section 162(m) with respect to
stock option grants, the Corporation will not be precluded as a result of
Section 162(m) of the Code from deducting compensation expense derived in Fiscal
Year 1997 pursuant to the exercise of stock option grants under the
Corporation's 1987 Plan by its executive officers, because these stock options
were granted under and pursuant to a performance-based plan. The Corporation
will be precluded from deducting a portion of the cash compensation (salary and
bonus) paid in Fiscal Year 1997 to certain of its executive officers and certain
expenses derived in Fiscal Year 1997 pursuant to the exercises of stock options
granted other than under the 1987 Plan by certain of such executive officers.
The Committee currently does not plan to make any changes to the Corporation's
compensation programs as a result of Section 162(m) of the Code. The Committee
is aware of and takes into account the deduction limits under Section 162(m)
when making executive compensation decisions, and the Committee recognizes that
part of the annual compensation paid to senior executive officers (including,
without limitation, any compensation that may arise out of the vesting of
restricted stock awarded to certain senior executive officers during Fiscal Year
1997) does not, and may not in the future, qualify for tax deductibility.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
The three primary components of executive officer compensation are:
- Base Salary
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- Annual Bonus
- Equity-Based Compensation
These three elements are structured by the Committee to provide the
Corporation's executive officers with levels of total compensation consistent
with the Committee's executive officer compensation philosophy and objectives
described above.
BASE SALARY
The Corporation's executive officer salary levels are subjectively
determined by the Committee based on the experience of the Committee members and
are intended to be consistent with competitive practices and the executive's
level of responsibility, professional qualifications, business experience,
expertise and their resultant combined value to the Corporation's performance
and growth (with salary increases reflecting competitive and economic trends,
the overall financial performance of the Corporation and the performance of the
individual executive). Salary levels for the Corporation's executive officers
are generally determined annually. The Committee, in calculating the executive
officer's annual salary for each year, takes into consideration the base salary
previously paid to such executive officer and the responsibilities assigned to
such executive. The Committee attempts to keep the Corporation's executive
officer salary increases as low as possible, preferring to emphasize the
importance of the annual bonus and equity-based compensation aspects of an
executive's compensation when considering an increase in overall compensation,
which accords with the Committee's policy of trying to integrate executive pay
with the performance of the Corporation on an annual and long-term basis. These
limitations on salary increases are tied to the Corporation's policy of
emphasizing the incentive-based components of total compensation of executive
officers. Factors considered in gauging the Corporation's overall financial
performance include the Corporation's revenues and profits. Base salary paid to
each of the Corporation's executive officers during Fiscal Year 1997 was
determined by the Committee and the Board in January 1996.
ANNUAL BONUS
Annual bonus amounts paid to each of the Corporation's executive officers in
each fiscal year are determined by the Committee. Factors taken into account in
awarding annual bonuses are described below. Although annual bonuses generally
are not set within a specified percentage range of base salary, they generally
do not exceed 100% of the base salary. For the Named Executive Officers, bonuses
averaged approximately 47.1% of their Fiscal Year 1997 total salary and bonus
compensation. Annual bonuses paid to each of the Corporation's executive
officers during Fiscal Year 1997 were determined by the Committee and the Board
in April 1996.
EQUITY-BASED COMPENSATION
Stock options are periodically granted to the Corporation's executive
officers under the Corporation's 1987 Plan, and grants of restricted stock have
been made to the Corporation's executive officers under the Corporation's 1989
Restricted Stock Plan twice during the past ten years. No specific formulas or
executive officer stock ownership targets are used in determining stock option
or restricted stock grants, which are made to encourage executives to retain
stock-based incentives and to enhance the importance of aligning their interests
with those of the Corporation and its shareholders, as ownership of stock
options and restricted stock rewards executives as well as shareholders as the
price of the Common Stock increases. Factors taken into account in awarding
stock options and shares of restricted stock are generally the same as those
used in awarding annual bonuses and are described below. The numbers of options
and shares of restricted stock previously awarded to and held by executive
officers and the expected contribution of such executives to the Corporation's
future performance are also reviewed in determining the size of current option
and restricted stock grants. The number of stock options and shares of
restricted stock granted to
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each of the Corporation's executive officers during Fiscal Year 1997 were
determined by the Committee in April and July 1996.
RELATIONSHIP OF CORPORATE PERFORMANCE TO EXECUTIVE OFFICER COMPENSATION
The factors which the Committee considers in awarding annual bonuses and
equity-based compensation are based on the Corporation's performance and the
individual executive officer's performance. The evaluation of these factors is
largely subjective and based on the Committee's substantial knowledge of the
Corporation, familiarity with the Corporation's objectives and strategy, and
long-term working relationship with the Corporation's executive officers.
Factors considered include: (1) the Corporation's targeted versus actual annual
operating budget; (2) the individual executive officer's ability to undertake
special projects, facilitate strategic acquisitions and (in the case of certain
of these executive officers) develop new distribution channels for the
Corporation's products; (3) the Corporation's after-tax earnings-per-share
growth over the last fiscal year; and (4) the Corporation's compound annual rate
of total shareholder return over the last five fiscal years. The Committee does
not use any specific formulas or weightings in considering any of these factors.
TARGETED VERSUS ACTUAL OPERATING BUDGET
Targeted versus actual operating performance is a major factor used to
determine the extent to which annual bonuses will be paid and awards made under
the Corporation's stock-based compensation plans to the Corporation's executive
officers. The performance of individual executive officers is generally reviewed
either as to the Corporation as a whole, or, for those executives in charge of
an operating unit, as to such executive's particular operating unit. Performance
targets are based on business plans developed by the Corporation's management
and approved by the Board at the start of each fiscal year. In developing these
business plans, consideration is given to integrating the business of any
recently acquired subsidiaries, divisions or businesses and expanding the
Corporation's mix of services and distribution channels.
In determining annual bonus and stock-based compensation for executive
officers in Fiscal Year 1997, the Committee reviewed, among other things,
targeted versus actual operating performance in the Corporation's fiscal year
ended January 31, 1996 ("Fiscal Year 1996"), and noted that, in virtually all
cases, targeted goals were either met or exceeded.
SPECIAL PROJECTS; STRATEGIC ACQUISITIONS; NEW DISTRIBUTION CHANNELS AND
RESPONSIVENESS TO EVOLVING MARKET CONDITIONS
The Committee also takes into account the executive officers' performance in
special projects undertaken during the past year, contribution to strategic
acquisitions and alliances and development of new distribution channels for the
Corporation's products. The Committee evaluates the executive officers' ability
to exploit new opportunities and respond quickly to evolving marketplace
conditions.
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In determining annual bonus and stock-based compensation for executive
officers in Fiscal Year 1997, the Committee noted the development of the
Corporation's Transfer Plus program as a new channel for distributing the
Corporation's product, the rollout of a number of the Corporation's products in
Europe and other regions of the world, and the growth in online, interactive and
network alliances to expand the scope of the Corporation's interactive services.
The Committee also took notice of the following significant events which took
place in Fiscal Year 1996 and through the date of determination of the executive
officer's annual bonus, stock option or restricted stock grant, as the case may
be: the Corporation's acquisition of Welcome Wagon International, Inc. in
February 1995; the Corporation's acquisitions of CUC Europe Limited and Credit
Card Sentinel (U.K.) in March 1995; the Corporation's acquisition of Getko Group
Inc. in June 1995; the Corporation's acquisition of North American Outdoor
Group, Inc. in September 1995; the Corporation's acquisition of Advance Ross
Corporation in January 1996; the Corporation's entering into agreements in
February 1996 to acquire Davidson and Sierra (which acquisitions were
consummated in July 1996); and the Corporation's entering into an agreement in
April 1996 to acquire Ideon Group, Inc. (which acquisition was consummated in
August 1996).
AFTER-TAX EARNINGS-PER-SHARE GROWTH
In addition, the Committee considers the growth in after-tax earnings per
share of Common Stock in determining the annual bonus and stock-based portions
of executive officer compensation.
In determining annual bonus and stock-based compensation for executive
officers in Fiscal Year 1997, the Committee noted that, before one-time charges,
after-tax earnings per share of Common Stock were $.53 in the most recently
completed full fiscal year of the Corporation at the time of such determination,
Fiscal Year 1996, as compared to $.41 per share in the Corporation's prior
completed fiscal year ended January 31, 1995.
COMPOUND RATE OF TOTAL SHAREHOLDER RETURN
Another consideration in determining the annual bonus and stock-based
portions of executive officer compensation is the compound rate of total
shareholder return over the last five fiscal years. Compound rate of total
shareholder return is determined by comparing the average market value of a
share of Common Stock in the first year of the five-year period with the average
market value of a share of Common Stock in the last year of the period.
In determining annual bonus and stock-based compensation for executive
officers in Fiscal Year 1997, the Committee noted the increase of the average
market value of a share of the Common Stock to an average of $20.04 in the most
recently completed full fiscal year of the Corporation at the time of such
determination, Fiscal Year 1996, from an average of $5.06 in the Corporation's
fiscal year ended January 31, 1992, an increase of 296%.
FISCAL YEAR 1997 COMPENSATION OF CHIEF EXECUTIVE OFFICER
In addition to the factors mentioned above, the Committee's general approach
in setting Mr. Forbes' annual compensation is to reward Mr. Forbes' strategic
management abilities in spearheading the Corporation's global expansion efforts
and its development and exploitation of new distribution channels and
technologies.
Mr. Forbes' annual salary increase in Fiscal Year 1997 (from $732,470 in
Fiscal Year 1996 to $757,228) was based primarily on the Corporation's overall
performance generally and Mr. Forbes' performance in Fiscal Year 1996.
Specifically, in determining Mr. Forbes' annual salary for Fiscal Year 1997, the
Committee considered Mr. Forbes' qualifications, experience and expertise and
his responsibilities as Chief Executive Officer in overseeing the Corporation's
acquisitions and growing interactive and international activities, as well as
the Corporation's overall business and performance.
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<PAGE>
The annual bonus paid to Mr. Forbes during Fiscal Year 1997 ($757,228) was
largely based on the Committee's subjective evaluation of Mr. Forbes'
performance and the performance of the Corporation during Fiscal Year 1996 and
through the date of determination of Mr. Forbes' annual bonus. Specifically, in
determining Mr. Forbes' annual bonus during Fiscal Year 1997, the Committee
noted the development of the Corporation's Transfer Plus program as a new
channel for distributing the Corporation's product, the rollout of a number of
the Corporation's products in Europe and other regions of the world, and the
growth in online, interactive and network alliances to expand the scope of the
Corporation's interactive services. The Committee also considered Mr. Forbes'
role in: the Corporation's acquisition of Welcome Wagon International, Inc. in
February 1995; the Corporation's acquisitions of CUC Europe Limited and Credit
Card Sentinel (U.K.) in March 1995; the Corporation's acquisition of Getko Group
Inc. in June 1995; the Corporation's acquisition of North American Outdoor
Group, Inc. in September 1995; the Corporation's acquisition of Advance Ross
Corporation in January 1996; the Corporation's entering into agreements in
February 1996 to acquire Davidson and Sierra (which acquisitions were
consummated in July 1996); and the Corporation's entering into an agreement in
April 1996 to acquire Ideon Group, Inc. (which acquisition was consummated in
August 1996). The Committee also considered the performance of the Corporation's
Common Stock, which the Committee believes reflects Mr. Forbes' significant
contribution. In assessing the Corporation's overall performance to determine
Mr. Forbes' annual bonus, the Committee considered all of the factors above but
did not use any specific formulas or weightings in considering any of the
factors.
The awards to Mr. Forbes during Fiscal Year 1997 of stock options under the
1987 Plan to acquire 225,000 shares of the Corporation's Common Stock and of
225,000 shares of restricted stock under the 1989 Restricted Stock Plan were
also largely based on the Committee's subjective evaluation of Mr. Forbes'
performance and the performance of the Corporation during Fiscal Year 1996 and
through the date of determination of Mr. Forbes' stock option and restricted
stock grants. In addition to the factors discussed in the preceding paragraph,
which the Committee took into account when determining Mr. Forbes' stock option
and restricted stock awards, the Committee also considered Mr. Forbes'
performance and an informal comparison by Committee members of his overall
compensation package relative to that of other chief executives of
publicly-traded corporations of which the Committee members were aware,
including through their experience by way of service on other Boards of
Directors and through their knowledge of public information (although no
particular corporations were identified for comparative purposes by the
Committee as a whole). This grant epitomizes the Committee's compensation
philosophy and objectives by promoting management retention while further
aligning shareholders' and management's interest in the performance of the
Corporation's Common Stock.
COMPENSATION COMMITTEE:
Bartlett Burnap
Stephen A. Greyser
Robert P. Rittereiser, Chairman
Stanley M. Rumbough, Jr.
PERFORMANCE GRAPH
The following graph assumes $100 invested on January 31, 1992 and compares
(a) the yearly percentage change in the Corporation's cumulative total
shareholder return on the Common Stock (as measured by dividing (i) the sum of
(A) the cumulative amount of dividends, assuming dividend reinvestment during
the five years commencing on the last trading day before February 1, 1992 and
ending on January 31, 1997, and (B) the difference between the Corporation's
share price at the end and the beginning of the periods presented; by (ii) the
share price at the beginning of the periods presented) with (b)(i) the Standard
& Poor's 500 Index (the "S&P 500 Index") and (ii) a Peer Group Index. The Peer
Group consists of H&R Block, Inc.; CPI Corporation; Metromedia International
Group, Inc. (formerly
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The Actava Group Inc. and prior to that Fuqua Industries, Inc.); Rollins,
Incorporated; Service Corporation International (all of which comprise the Dow
Jones Consumer Services Non-Cyclical Index) and, for the period prior to its
acquisition in Fiscal Year 1997 by the Corporation, Ideon Group, Inc. (formerly
SafeCard Services, Inc.), and is weighted by market capitalization. Stock prices
are adjusted for stock splits and stock dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CUC INTERNATIONAL INC., THE S&P 500 INDEX AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUC INTERNATIONAL INC. S&P 500 INDEX PEER GROUP
<S> <C> <C> <C>
Jan-92 $100.00 $100.00 $100.00
Jan-93 130.27 110.58 109.40
Jan-94 229.46 124.82 134.29
Jan-95 248.29 125.48 124.57
Jan-96 396.63 174.00 146.53
Jan-97 401.34 219.83 161.74
</TABLE>
* $100 INVESTED ON 1/31/92 IN STOCK OR INDEX--INCLUDING REINVESTMENT OF
DIVIDENDS.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 19, 1996, the Corporation entered into a merger agreement to
acquire Sierra. Walter A. Forbes, the Chairman of the Board and Chief Executive
Officer of the Corporation, was at such time a director of Sierra and owned
6,020 shares of the common stock of Sierra and had options to purchase up to an
additional 93,000 shares of the common stock of Sierra. Mr. Forbes did not
participate in any meetings or deliberations of Sierra's board of directors
regarding the proposed acquisition of Sierra by the Corporation and abstained
from the vote of the Corporation's Board of Directors regarding this
transaction. As a result of the Corporation's acquisition of Sierra (the "Sierra
Acquisition"), Mr. Forbes received 11,062 shares of Common Stock in exchange for
the common stock of Sierra he owned, and his options to purchase Sierra common
stock were assumed by the Corporation and converted into options to purchase
170,887 shares of Common Stock.
In connection with the Sierra Acquisition, Kenneth A. Williams entered into
employment and non-competition agreements with the Corporation dated as of July
24, 1996. Pursuant to his employment agreement with the Corporation, Mr.
Williams (i) is a member of the Board of Directors and serves as a Vice Chairman
of the Board, (ii) is a member of the Office of the President of the
Corporation, and (iii) continues to serve as a director and the Chief Executive
Officer of Sierra and reports to the President of the Corporation. The term of
his employment continues for a period of thirty-six months from the date of his
employment agreement, subject to extension or termination as provided in that
agreement. Mr. Williams receives a base salary under this agreement, is eligible
for discretionary annual incentive compensation awards and is entitled to
participate in all compensation or employee benefit plans or programs and
receive all benefits and perquisites for which salaried employees of the
Corporation are eligible under any plan or program now in effect or later
established by the Corporation for salaried employees generally. The agreement
with Mr. Williams also provides for certain payments by the Corporation to Mr.
Williams on his disability, death, termination without cause, constructive
discharge, termination for cause or upon a change in control of the Corporation.
The non-competition agreement with Mr. Williams provides, among other
things, that, from the date of such agreement to the third anniversary thereof,
he will not make any statements or perform any acts intended to or which may
have the effect of advancing the interest of any existing or prospective
competitors of Sierra or any of its subsidiaries or in any way injuring the
interests of Sierra or any of its subsidiaries and, without the prior written
approval of the Board of Directors, he will not engage in competition, or
directly or indirectly own or hold a proprietary interest in or be employed by,
or consult with or receive compensation from, any party which competes, in any
way or manner with the business of Sierra or any of its subsidiaries. Mr.
Williams' non-competition agreement also provides that, from the date of such
agreement to the later of the fifth anniversary thereof or the termination of
Mr. Williams' employment with the Corporation, Mr. Williams may not: (i) solicit
any clients of the Corporation or any of its affiliates with respect to, or
discuss with any employee of the Corporation or any of its affiliates regarding,
any business intended to compete with the Corporation or any of its affiliates;
(ii) solicit or induce any employee of the Corporation or any of its affiliates
to terminate such employee's relationship with the Corporation or any of its
affiliates, nor engage, employ or compensate any such person; or (iii) be
involved in certain capacities with any person or entity that competes with
certain businesses of Sierra or its subsidiaries, as such businesses may be
conducted from time to time, or which markets or distributes
entertainment-related software or services on the Internet or any similar
computer network.
In addition, in connection with the Sierra Acquisition, Roberta L. Williams,
the wife of Mr. Williams, entered into an agreement with the Corporation on
February 19, 1996 whereby she agreed to continue to provide to the Corporation
personal services of the nature she had formerly provided to Sierra prior to the
Sierra Acquisition. Mrs. Williams also entered into a non-competition agreement
with the Corporation as of July 24, 1996, the terms of which are substantially
identical to those contained in the Corporation's non-competition agreement with
Mr. Williams described above.
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In connection with the Corporation's acquisition of Davidson, Robert M.
Davidson and Janice G. Davidson each entered into an employment and
noncompetition agreement with the Corporation effective as of July 24, 1996.
Pursuant to his employment agreement with the Corporation, Mr. Davidson
agreed to serve as (i) a Vice Chairman of the Board of Directors, (ii) a
director of Davidson and Davidson's Chief Executive Officer, and (iii) a
director, Chairman and Chief Executive Officer of the Corporation's educational
and entertainment software division, and was to be responsible for the overall
management of Davidson and the Corporation's educational and entertainment
software division. Pursuant to her employment agreement with the Corporation,
Ms. Davidson agreed to serve as (i) a director of the Corporation, (ii) a
director of Davidson and Davidson's President, and (iii) a director of the
Corporation's educational and entertainment software division. The term of each
of the Davidsons' employment agreements was for a period of thirty six months
from the date thereof, subject to extension or termination as provided therein.
Pursuant to such agreements, the Davidsons were each to receive a base salary,
were each eligible for discretionary annual incentive compensation awards and
were each entitled to participate in all compensation or employee benefit plans
or programs and receive all benefits and perquisites for which salaried
employees of the Corporation are eligible under any plan or program now in
effect or later established by the Corporation for salaried employees generally.
The agreements with Mr. and Ms. Davidson each also provided for certain payments
by the Corporation to each of such individuals on their respective disability,
death, termination without cause, constructive discharge, termination for cause
or upon a change in control of the Corporation.
On January 21, 1997, the Corporation announced that each of Mr. and Ms.
Davidson were stepping down from their day-to-day responsibilities with the
Corporation and Davidson. Mr. Davidson remains a director and Vice Chairman of
the Board of Directors with a term expiring in 1998, while Ms. Davidson remains
a director of the Corporation with a term expiring on the date of the Annual
Meeting. See "Proposal 1: Election of Directors."
The non-competition agreements with the Davidsons provide that, until July
24, 2001, the Davidsons must 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 Davidson or any of its
subsidiaries, as such business or businesses may be conducted from time to time,
unless approved in advance in writing by the Board of Directors; (ii) soliciting
any clients of Davidson or any of its subsidiaries for any business of Davidson
or any of its subsidiaries or discussing with any employee of the Corporation or
any of its affiliates information or operations of any business intended to
compete with the Corporation or any of its affiliates, unless approved in
advance in writing by the Board of Directors; and (iii) soliciting or inducing
any person who is an employee of Davidson or any of its subsidiaries to
terminate any relationship such person may have with Davidson or any of its
subsidiaries. In addition, the Davidsons have agreed that during such period,
they will not directly or indirectly engage, employ or compensate, or cause or
permit any person with whom they may be affiliated to engage, employ or
compensate, any employee of the Corporation or any of its affiliates.
Pursuant to a certain agreement dated July 23, 1996, Mr. and Ms. Davidson
sold to a subsidiary of the Corporation, simultaneously with the closing of the
Davidson Acquisition, certain real property then owned by them and leased to
Davidson. The purchase price was paid by delivery of 221,799 shares of Common
Stock.
In connection with the Davidson Acquisition, the Corporation entered into a
registration rights agreement (the "Registration Rights Agreement") on July 24,
1996 with Mr. Davidson, Ms. Davidson and certain related parties (collectively,
the "Registration Shareholders"). The Registration Rights Agreement entitles the
Registration Shareholders to effect the registration of the shares they received
pursuant to the
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<PAGE>
Davidson Acquisition, including those shares received by Mr. and Ms. Davidson in
connection with their sale of certain real property as described above.
As part of the Registration Rights Agreement, the Corporation agreed, among
other things, that at any time, and from time to time, commencing on July 24,
1996 and ending on July 24, 2002, upon the written request of the Registration
Shareholders requesting that the Corporation effect the registration under the
Securities Act of Registrable Securities (as defined in the Registration Rights
Agreement) which, in the aggregate, constitute at least 3 million shares of
Common Stock, the Corporation will use its best efforts to register under the
Securities Act (a "Demand Registration"), as expeditiously as may be
practicable, the Registrable Securities which the Corporation 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
Registration Shareholders; provided that the Registration Shareholders may not
exercise a Demand Registration within three months of the effective date of any
registration statement covering equity securities of the Corporation (other than
on Form S-4 or Form S-8 or any successor or similar registration form).
Pursuant to the demand registration rights of the Registration Shareholders,
the Corporation filed a registration statement covering the resale by certain of
the Registration Shareholders of 16.5 million shares of Common Stock (with an
over-allotment option covering the resale of an additional 2.475 million shares
of Common Stock), which registration statement was declared effective by the SEC
on September 18, 1996. In connection therewith, the Corporation waived the
condition described above in order to allow the Registration Shareholders to
exercise the Demand Registration to which such offering related.
The Corporation may defer the filing or effectiveness of any registration
statement related to a Demand Registration under the Registration Rights
Agreement for a reasonable period of time not to exceed 90 days after such
request if (i) the Corporation is, at such time, conducting an underwritten
public offering of Common Stock and is advised by the managing underwriter(s)
that such offering would be adversely affected by such filing or (ii) the
Corporation 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 the Corporation; PROVIDED, HOWEVER, that the Corporation
is not entitled to postpone such filing or effectiveness if, within the
preceding 12 months, it has 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).
The Corporation has further agreed in the Registration Rights Agreement that
if at any time it proposes to register shares of 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 registration form) in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will promptly give written notice to the Registration
Shareholders of its intention to do so and will use its best efforts to include
in the proposed Corporation registration all Registrable Securities that the
Corporation is requested in writing to register by the Registration
Shareholders.
PROPOSAL 2: APPROVAL OF THE CORPORATION'S 1997 STOCK OPTION PLAN
GENERAL
Shareholders are being asked to approve the Corporation's 1997 Stock Option
Plan, a copy of which is attached hereto as Annex A (the "1997 Plan"). The
following description of the 1997 Plan is qualified in its entirety by reference
to the 1997 Plan.
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The 1997 Plan provides for the grant to key employees of the Corporation and
its present and future subsidiaries, including officers and Directors who are
employees, of options to acquire up to 10,000,0000 shares of Common Stock. The
1997 Plan is designed to provide an incentive to such employees and to offer an
additional inducement in obtaining the services of such individuals. No
participant in the 1997 Plan may be granted options to purchase more than
4,500,000 shares of Common Stock under the 1997 Plan in any five-year period.
Options granted under the 1997 Plan may be incentive stock options (as defined
in the Code) or non-qualified stock options. Options may be granted under the
1997 Plan to one or more of the current Named Executive Officers and to one or
more of the current Directors who are employees of the Corporation or any of its
subsidiaries. The closing price of a share of Common Stock on the NYSE on April
25, 1997 was $20.00.
The 1997 Plan was adopted by the Executive Committee of the Board of
Directors of the Corporation on April 22, 1997. The Executive Committee has
directed that the 1997 Plan be submitted to the shareholders of the Corporation
for their approval. Approval of the 1997 Plan will require the affirmative vote
of a majority of the shares of Common Stock outstanding and entitled to vote at
the Annual Meeting.
The Board of Directors believes that the Corporation's future success
depends upon its ability to attract and retain the highest caliber personnel and
to use their capabilities to the fullest extent possible by encouraging their
dedication to the Corporation's interest and welfare. The Board believes that
one of the best ways to attain these objectives is to give key employees an
opportunity to acquire a proprietary interest in the Corporation by purchasing
shares of Common Stock through the exercise of options granted under
arrangements such as the 1997 Plan.
ADMINISTRATION AND SUMMARY OF THE 1997 PLAN
The 1997 Plan is required to be administered by a committee of the Board of
Directors, such as the Compensation Committee, which must consist of no fewer
than two members of the Board, each of whom shall be both a "Non-Employee
Director" of the Corporation, within the meaning of regulations promulgated by
the SEC, and an "Outside Director" of the Corporation within the meaning of
regulations promulgated under the Code.
The committee has full and final authority, among other things, to (i)
interpret the 1997 Plan, (ii) determine who shall be granted options under the
1997 Plan and when such options shall be granted, (iii) fix the number of shares
of Common Stock for which options are to be granted under the 1997 Plan and the
form and amount of consideration to be received by the Corporation for exercise
of each option, (iv) prescribe, amend and rescind rules and regulations relating
to the 1997 Plan, (v) establish the term and exercise date of options granted
under the 1997 Plan, (vi) determine whether option exercises under the 1997 Plan
will be in installments, (vii) fix any withholding obligations, (viii)
accelerate any exercise date of any option granted under the 1997 Plan, (ix)
determine whether an incentive stock option and/or a non-qualified stock option
shall be granted under the 1997 Plan, (x) with the consent of an optionee,
cancel or modify an option granted under the 1997 Plan, and (xi) make any other
determinations deemed necessary or advisable for the administration of the 1997
Plan. The purchase price for a share of Common Stock under each option granted
under the 1997 Plan may not be less than the fair market value for a share of
Common Stock on the date on which the option is granted. The committee retains
the right, among other things, to determine, in each instance, the exercise
period and the right to accelerate such exercise period. Consideration paid upon
exercise of options (which may in certain cases be paid in installments) may
consist of cash, certified check, shares of previously acquired Common Stock,
withholding of shares of Common Stock issuable upon exercise of such options (if
approved by the committee), or any combination thereof as determined by the
committee.
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Each optionee is provided with an option contract with the Corporation
containing such terms and conditions as may be required by the committee. If the
holder of an option granted under the 1997 Plan ceases to be an employee for any
reason other than death or total disability, an option held by the optionee may
be exercised, to the extent that the option was exercisable on the date
employment was ended, at any time within four months after cessation, but before
the expiration of the term of the option, unless otherwise permitted by the
committee. If the holder of an option dies while an employee of the Corporation,
or within three months after he has ceased to be such an employee, such option
shall become immediately exercisable in full, by the estate of such deceased
holder or by a person or persons who acquired the right to exercise such option
by bequest or by inheritance or otherwise from such holder. Any holder of an
option whose employment has been terminated by reason of a permanent and total
disability (as defined in Section 22(e)(3) of the Code) may exercise his option,
to the extent exercisable upon the effective date of such termination, at any
time after the date of termination, but in no event after the expiration of the
term of the option.
Optionees are protected against dilution, and appropriate changes will be
made to the aggregate number and kind of shares available under the 1997 Plan
and those subject to each outstanding option and to the exercise prices, in the
event of a stock dividend, recapitalization, stock split, merger, consolidation,
combination, exchange of shares or the like. Options granted under the 1997 Plan
may be transferred only: by will or by the laws of descent and distribution;
pursuant to a domestic relations order; or as a gift to family members, trusts
for the benefit of family members or charities or other not-for-profit
organizations; and, additionally, with respect to incentive stock options, only
to the extent permitted under the Code for options to qualify as incentive stock
options. The Board of Directors may, from time to time, adopt amendments to the
1997 Plan. The 1997 Plan may be suspended or terminated at any time by the
Board, but such action shall not affect options previously granted. In the event
an option, for any reason, expires or terminates unexercised, the shares subject
to such option may again become available for option under the 1997 Plan. Unless
sooner terminated, the 1997 Plan will terminate ten years after the date of
adoption by the Executive Committee of the Board, after which no further options
will be granted under the 1997 Plan, but outstanding options at the date of
termination will not be canceled by such termination.
All transactions under the 1997 Plan with respect to optionees subject to
Section 16 of the Exchange Act are intended to comply with Rule 16b-3 under the
Exchange Act, and to the extent any provision of the 1997 Plan or action by the
committee fails to so comply it will be voided to the extent permitted by law
and deemed advisable by the committee.
FEDERAL INCOME TAX TREATMENT
NON-QUALIFIED STOCK OPTIONS
The following is a general summary of the federal income tax consequences
under current tax law of non-qualified stock options ("Non-Qualified Options").
This summary does not purport to cover all of the special rules, including the
state or local income or other tax consequences, inherent in the ownership and
exercise of Non-Qualified Options and the ownership and disposition of the
underlying shares.
An individual who receives a Non-Qualified Option will not recognize any
taxable income upon the grant of such Non-Qualified Option. In general, upon
exercise of a Non-Qualified Option, an individual will recognize ordinary income
in an amount equal to the excess (at the time of exercise) of the fair market
value of the shares of Common Stock received over the aggregate exercise price.
However, if the individual is an executive officer or Director of the
Corporation or the beneficial owner of more than ten percent of any class of
equity securities of the Corporation, the timing of recognition of income (and
the determination of the amount thereof) under certain circumstances possibly
may be deferred for a period following the exercise of a Non-Qualified Option
(the "Deferral Period"), unless the individual files a written election with the
IRS, within 30 days after the date of exercise, to include in income the excess
(on the date of exercise) of the fair market value of the shares of Common Stock
received over the aggregate exercise price.
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An individual's tax basis in the shares of Common Stock received upon the
exercise of a Non-Qualified Option for cash and/or an installment obligation
will be equal to the sum of any cash paid on exercise and the "issue price" of
any installment obligation, plus the amount of ordinary income recognized by the
optionee upon the exercise of such option. The holding period for such shares
would begin just after the receipt of such shares or, in the case of an
executive officer, Director or beneficial owner of more than ten percent of any
class of equity securities of the Corporation, just after the expiration of the
Deferral Period, if any (unless the individual elected to be taxed as of the
date of exercise). A deduction for federal income tax purposes will be allowed
to the Corporation in an amount equal to the ordinary income included by the
optionee, provided that such deduction constitutes an ordinary and necessary
business expense to the Corporation and is reasonable in amount and the
limitations of Section 162(m) of the Code do not apply.
If an individual exercises a Non-Qualified Option by delivering other shares
of Common Stock, the individual will not recognize gain or loss with respect to
the exchanged shares, even if their then fair market value is different from the
individual's tax basis in such shares. The individual, however, will be taxed as
described above with respect to the exercise of the Non-Qualified Option as if
the individual had paid the exercise price in cash, and the Corporation
generally will be entitled to an equivalent tax deduction. Provided the
individual receives a separate identifiable stock certificate therefor, the
individual's tax basis in that number of shares received on such exercise which
is equal to the number of shares surrendered on such exercise will be equal to
the individual's tax basis in the shares surrendered and the individual's
holding period for such number of shares received will include the individual's
holding period for the shares surrendered. The individual's tax basis and
holding period for the additional shares received on exercise of a Non-Qualified
Option paid for, in whole or in part, with shares of Common Stock will be the
same as if the individual had exercised the Non-Qualified Option solely for
cash.
INCENTIVE STOCK OPTIONS
The following is a general summary of the federal income tax consequences
under current tax law of incentive stock options. It does not purport to cover
all of the special rules, including special rules relating to optionees subject
to Section 16(b) of the Exchange Act, and the exercise of an option with
previously acquired shares or the state or local income or other tax
consequences inherent in the ownership and exercise of incentive stock options
and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an incentive stock option. In the case of an
incentive stock option, no taxable income is recognized upon exercise of the
option. If the optionee disposes of the shares of Common Stock acquired pursuant
to the exercise of an incentive stock option more than two years after the date
of grant and more than one year after the transfer of the shares of Common Stock
to the optionee, the optionee will recognize long-term capital gain or loss and
the Corporation will not be entitled to a compensation deduction. However, if
the optionee fails to hold such shares of Common Stock for the required period,
the optionee would realize ordinary income on the excess of the fair market
value of the Common Stock at the time the option was exercised over the exercise
price (with the balance, if any, being long-term capital gain, provided that the
holding period for the shares exceeded one year and the optionee held such
shares as a capital asset at such time), and the Corporation will generally be
entitled to deduct such amount, provided that such amount constitutes an
ordinary and necessary business expense to the Corporation and is reasonable in
amount and the limitations of Section 162(m) of the Code do not apply. In
addition to the federal income tax consequences described above, an optionee may
be subject to the alternative minimum tax, which is payable to the extent it
exceeds the optionee's regular tax. For this purpose, upon the exercise of an
incentive stock option, the excess of the fair market value of the shares over
the exercise price thereof is a tax preference item. If an optionee is required
to pay an alternative minimum tax, the amount of such tax which is attributable
to the incentive stock option preference (and other deferral preferences) is
allowed as
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a credit against the optionee's regular tax liability in subsequent years. To
the extent it is not used, it is carried forward.
SECTION 162(M)
As noted above, Section 162(m) of the Code precludes a public corporation
from taking a tax deduction for certain compensation in excess of $1 million
paid to its chief executive officer or any of its four other highest-paid
executive officers. This limitation, however, does not apply to certain
performance-based compensation. Under Section 162(m) of the Code and the
regulations adopted by the IRS to implement such section, the Corporation
believes that any compensation expense derived from the exercise of stock
options granted under and pursuant to the 1997 Plan will be deductible by the
Corporation for federal income tax purposes pursuant to an exemption for
performance-based plans.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
CORPORATION'S 1997 STOCK OPTION PLAN. UNLESS MARKED TO THE CONTRARY, PROXIES
RECEIVED BY THE CORPORATION WILL BE VOTED IN FAVOR OF APPROVAL OF THE 1997 PLAN.
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders at the Annual Meeting, the Board
of Directors has reappointed Ernst & Young LLP as independent auditors to audit
the financial statements of the Corporation for the current fiscal year ending
January 31, 1998. Ernst & Young LLP were the Corporation's independent auditors
for Fiscal Year 1997 and have been the Corporation's independent auditors since
the Corporation's fiscal year ending January 31, 1982.
Representatives of the firm of Ernst & Young LLP are expected to be present
at the Annual Meeting, with the opportunity to make a statement if such
representatives desire to do so, and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JANUARY 31, 1998.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors does not intend to present, and does not have any
reason to believe that others intend to present, any matter of business at the
meeting other than as set forth above. If any other matter should be presented
properly, it is the intention of the persons named in the enclosed form of proxy
to vote any proxies in accordance with their best judgment with respect to any
such matter.
PROPOSALS FOR ANNUAL MEETING
Shareholder proposals for the next Annual Meeting must be received by the
Office of the Secretary, CUC International Inc., 707 Summer Street, Stamford,
Connecticut 06901, no later than January 5, 1998, for inclusion in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT TO SHAREHOLDERS
The Corporation's Annual Report for Fiscal Year 1997, including financial
statements, is being provided to all shareholders together with this Proxy
Statement. The Annual Report does not constitute a part of the proxy
solicitation materials.
SHAREHOLDERS ARE URGED TO FORWARD THEIR PROXIES WITHOUT DELAY. A PROMPT
RESPONSE WILL BE GREATLY APPRECIATED.
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ANNEX A
AS PROPOSED FOR SHAREHOLDER APPROVAL
1997 STOCK OPTION PLAN OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to
provide an incentive to key employees, including officers and directors who are
employees, of CUC International Inc., a Delaware corporation (the "Company"),
and its present and future Subsidiaries, as defined in Paragraph 16, and to
offer an additional inducement in obtaining the services of such individuals.
The Plan provides for the grant of "incentive stock options," within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and "non-qualified stock options."
2. STOCK SUBJECT TO THE PLAN; LIMITATION ON OPTIONS GRANTED TO ANY ONE
OPTIONEE. Options may be granted under the Plan to purchase in the aggregate not
more than 10,000,000 shares of Common Stock, $.01 par value per share, of the
Company ("Common Stock"), which shares may, in the discretion of the Board of
Directors, consist either in whole or in part of authorized but unissued shares
of Common Stock or shares of Common Stock held in the treasury of the Company.
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of Common Stock as will be sufficient to satisfy
the requirements of the Plan. Subject to the provision of Paragraph 12, any
shares subject to an option which for any reason expires, is canceled or is
terminated unexercised as to such shares shall again become available for option
under the Plan. Notwithstanding anything else to the contrary which may be set
forth herein, no individual optionee shall be granted, in any five-year period,
options under and pursuant to the Plan to purchase more than 4,500,000 shares of
Common Stock.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a Committee
(the "Committee") consisting of not less than two members of the Board of
Directors, each of whom shall be a Non-Employee Director of the Company, within
the meaning of Rule 16b-3 or its successors under the Securities Exchange Act of
1934, as amended ("1934 Act"), and also shall be an Outside Director of the
Company, within the meaning of Treasury Regulation Section 1.162-27(e)(3). A
majority of the members shall constitute a quorum, and the acts of a majority of
the members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall have the
authority, in its sole discretion: to determine the individuals who shall
receive options; the times when they shall receive them; whether an incentive
and/or a non-qualified stock option shall be granted; the number of shares to be
subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments, and if in installments, the number of shares to be subject to
each installment; the date each installment shall become exercisable and the
term of each installment; to accelerate the date of exercise of any installment;
whether shares may be issued on exercise of an option as partly paid, and, if
so, the dates when future installments of the exercise price shall become due
and the amounts of each installments; the exercise price; the form of payment
upon exercise; to require that the individual remain employed in some capacity
with the Company or its Subsidiaries for a period of time from and after the
date the option is granted to him; the amount necessary to satisfy the Company's
withholding obligation; to restrict the sale or other disposition of the shares
of Common Stock acquired upon the exercise of an option and to waive any such
restriction; to construe the respective option agreements and the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to make
all other determinations necessary or advisable for administering the Plan; and,
with the consent of the optionee, to cancel or modify an option, provided such
option as modified does not violate the terms of the Plan. The determinations of
the Committee on the matters referred to in this Paragraph 3 shall be
conclusive.
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No member of the Committee shall be liable for anything whatsoever in
connection with the administration of the Plan except such member's own willful
misconduct. Under no circumstances shall any member of the Committee be liable
for any act or omission of any other member of the Committee. In the performance
of its functions with respect to the Plan, the Committee shall be entitled to
rely upon information and advice furnished by the Company's officers, the
Company's accountants, the Company's counsel and any other party the Committee
deems necessary and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.
4. ELIGIBILITY. The Committee may, consistent with the purposes of the Plan,
grant options from time to time, within 10 years from the date of adoption of
the Plan by the Executive Committee of the Board of Directors, to key employees
(including officers and directors who are employees) of the Company or any of
its Subsidiaries and covering such number of shares of Common Stock as it may
determine; provided, however, that the aggregate market value (determined at the
time the stock option is granted) of the shares for which any eligible person
may be granted incentive stock options under the Plan or any other plan of the
Company, or of a Subsidiary of the Company, which are exercisable for the first
time by such optionee during any calendar year shall not exceed $100,000. Any
option (or the portion thereof) granted in excess of such amount shall be
treated as a non-qualified stock option.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock under
each option shall be determined by the Committee, but in no event shall such
purchase price be less than 100% of the fair market value of the Common Stock on
the date of grant; provided, however, that if, at the time an option is granted,
the optionee owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any of
its Subsidiaries, the exercise price shall not be less than 110% of the fair
market value of the Common Stock subject to the option at the time of the
granting of such option. The fair market value of the Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the closing sale price of the Common Stock on such day as
reported by such exchange or on a consolidated tape reflecting transactions on
such exchange, (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), and
(i) if the Common Stock is quoted on the NASDAQ National Market System, the
closing sale price of the Common Stock on such day, or (ii) if the Common Stock
is not quoted on the NASDAQ National Market System, the average between the
highest bid and the lowest asked prices for the Common Stock on such day on
NASDAQ, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on NASDAQ, the average
between the highest bid and lowest asked prices for the Common Stock on such day
as reported by National Quotation Bureau, Incorporated; provided that if clauses
(a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Committee by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options. The determination of the Committee shall be conclusive in determining
the fair market value of the stock.
6. TERM OF OPTION. The term of each option granted pursuant to the Plan
shall be such term as is established by the Committee, in its sole discretion,
at the time such option is granted; provided, however, that the term of each
incentive stock option granted pursuant to the Plan shall be for a period not
exceeding 10 years from the date of granting thereof, and further, provided,
that if, at the time an option is granted, the optionee owns (or is deemed to
own) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, or of any of its Subsidiaries, the term of the
incentive stock option shall be for a period not exceeding five years. Options
shall be subject to earlier termination as hereinafter provided.
7. EXERCISE OF OPTION. An option (or any part or installment thereof) shall
be exercised by giving written notice to the Company at its principal office (at
present 707 Summer Street, Stamford, Connecticut 06901), stating whether an
incentive stock option or a non-qualified stock option is being exercised,
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specifying the number of shares as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefor (or the
amount due on exercise if the Stock Option Contract permits installment
payments) (i) in cash or by certified check, (ii) with previously acquired
shares of Common Stock having an aggregate fair market value, on the date of
exercise, equal to the aggregate exercise price of all options being exercised,
(iii), if approved by the Committee, by requesting the Company withhold from the
shares of Common Stock issuable upon exercise of such options that number of
shares which have an aggregate fair market value, on the date of exercise, equal
to the aggregate exercise price of all or any portion of the options being
exercised, or (iv) any combination thereof.
The Company shall have the right to deduct and withhold from any cash
otherwise payable to an optionee, or require that an optionee make arrangements
satisfactory to the Company for payment of (including, without limitation, by
withholding shares of Common Stock otherwise issuable upon exercise of options),
such amounts as the Company shall determine for the purpose of satisfying its
liability to withhold Federal, state or local income or FICA taxes incurred by
reason of the grant or exercise of an option.
Certificates representing the shares purchased shall be issued as promptly
as practicable, provided that the Company may postpone issuing certificates for
such shares for such time as the Company, in its sole discretion, may deem
necessary or desirable in order to enable it to comply with any requirements of
the Securities Act of 1933, as amended ("Securities Act"), the 1934 Act, any
Rules or Regulations of the Securities and Exchange Commission promulgated under
either of the foregoing acts, the listing requirements of any securities
exchange on which the Company's Common Stock may now or hereafter be listed, or
any applicable laws of any jurisdiction relating to the authorization, issuance
or sale of securities. With respect to persons subject to Section 16 of the 1934
Act, the Company reserves the right to defer distribution of share certificates
issuable upon exercise of an option by such person until at least six months
have elapsed from the date of grant of the option. The holder of an option shall
not have the rights of a stockholder with respect to the shares covered by his
option until the date of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is issued, any option
holder using previously acquired shares in payment of an option exercise price
shall have the rights of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share be purchased or issued under the
Plan.
8. TERMINATION OF EMPLOYMENT. Any optionee whose employment or relationship
with the Company (and its Subsidiaries) has terminated for any reason other than
death or permanent and total disability (as defined in Section 22(e) (3) of the
Code) may exercise his option, to the extent exercisable on the date of such
termination, at any time within four months after the date of termination,
unless otherwise permitted by the Committee, but in no event after the
expiration of the term of the option. Options granted to an employee under the
Plan shall not be affected by any changes in the status of an optionee so long
as he continues to be employed in some capacity with the Company, or any of its
Subsidiaries, or a Constituent Corporation, as defined in Paragraph 16, unless
the Committee otherwise permits.
Nothing in the Plan or in any option granted under the Plan shall confer on
any individual any right to continue in the employ of the Company or any of its
Subsidiaries, or interfere in any way with the right of the Company or any of
its Subsidiaries to terminate the employee's employment at any time for any
reason whatsoever without liability to the Company or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies while he is
employed by the Company or any of its Subsidiaries, or within three months after
the termination of his employment, or if the optionee's employment has
terminated by reason of a permanent and total disability (as defined in Section
22(e)(3) of the Code), options granted under this Plan shall become immediately
exercisable by his executor, administrator or other person at the time entitled
by law to his rights under the option.
10. STOCK OPTION CONTRACTS. Each option shall be evidenced by an appropriate
Stock Option Contract, and shall contain such terms and conditions not
inconsistent herewith as may be determined by
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the Committee, and which may provide, among other things, (a) that in the event
of the exercise of such option, unless the shares of Common Stock received upon
such exercise shall have been registered under an effective registration
statement under the Securities Act, such shares will be acquired for investment
and not with a view to distribution thereof, and that such shares may not be
sold except in compliance with the applicable provisions of the Securities Act,
and (b) that in the event of any disposition of the shares of Common Stock
acquired upon the exercise of an incentive stock option within two years from
the date of grant of the option or one year from the date of issuance of such
shares to him (a "Disqualifying Disposition") the optionee will notify the
Company thereof in writing within 30 days after such disposition, pay the
Company, on demand, in cash an amount necessary to satisfy its obligation, if
any, to withhold any Federal, state or local income taxes or other taxes by
reason of such Disqualifying Disposition and provide the Company, on demand,
with such information as the Company shall reasonably request to determine such
obligation.
11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and kind of shares
reserved for issuance hereunder may be equitably adjusted, in the discretion of
the Committee, in the event of a stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, extraordinary dividend, split-up,
spin-off, combination, stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below fair market value or
other similar corporate event affecting the stock, in order to preserve the
benefits intended to be made available under the Plan. In the event of any of
the foregoing, the number and kind of shares subject to any outstanding option
granted pursuant to the Plan and the exercise price of any such option shall be
equitably adjusted (including by payment of cash to the holder of such option)
in the discretion of the Committee in order to preserve the benefits or
potential benefits intended to be made available to the holder of an option
granted pursuant to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be final. Unless
otherwise determined by the Committee, such adjustments shall be subject to the
same vesting schedule and restrictions to which the underlying option is
subject. No fractional shares of Company Stock shall be reserved or authorized
or made subject to any outstanding option by any such adjustment.
12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Executive Committee of the Board of Directors on April 22, 1997. No stock
options may be granted under the Plan after April 22, 2007. The Board of
Directors, without further approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable, including, without
limitation, in order that incentive stock options granted hereunder meet the
requirements for "incentive stock options" under the Code, or any comparable
provisions thereafter enacted and conform to any change in applicable law or to
regulations or rulings of administrative agencies. No termination, suspension or
amendment of the Plan shall, without the consent of the holder of an existing
option affected thereby, adversely affect his rights under such option.
13. TRANSFERABILITY OF OPTIONS. Options granted under the Plan shall be
transferable by the optionee only pursuant to the following methods, and, with
respect to incentive stock options, only to the extent permitted under the Code
for options to qualify as incentive stock options: by will or the laws of
descent and distribution; pursuant to a domestic relations order, as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder; or as a gift to family members of the optionee, trusts for the
benefit of family members of the optionee or charities or other not-for-profit
organizations. Except to the extent provided in this Paragraph, Paragraph 9 and
Paragraph 14, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise), shall not be
subject to execution, attachment or similar process, and may be exercised during
the lifetime of the holder thereof only by such holder.
14. DESIGNATION OF BENEFICIARY. The optionee may designate in writing on
forms prescribed by and filed with the Committee prior to the optionee's death a
beneficiary or beneficiaries to receive all or part of the options to be
delivered to the optionee under this Plan in the event of the death of the
optionee
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at any time on forms prescribed by and filed with the Committee. In the event of
the optionee's death, the options to be delivered to the optionee under this
Plan with respect to which a designation of a beneficiary has been made (to the
extent such designation is valid and enforceable under applicable law) shall be
delivered, in accordance with the Plan, to the designated beneficiary or
beneficiaries. Any options to be delivered as to which a designation has not
been made shall be delivered to the optionee's estate. If there is any question
as to the legal right of any beneficiary to receive delivery of the Plan
pursuant to the Plan, the options (and shares issuable upon the exercise
thereof) may be delivered in the sole discretion of the Committee to the estate
of the optionee, in which event neither the Company nor any Subsidiary shall
have any further liability to anyone with respect to such options.
15. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation or assume the prior
options of such Constituent Corporation.
16. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
(b) Parent. The term "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
(c) Constituent Corporation. The term "Constituent Corporation" shall mean
any corporation which engages with the Company or any of its Subsidiaries in a
transaction to which Section 424(a) of the Code applies (or would apply if the
option assumed or substituted were an incentive stock option), or any Parent or
any Subsidiary of such corporation.
17. STOCKHOLDERS' APPROVAL. The Plan shall be subject to approval by a
majority of the Company's outstanding stock entitled to vote thereon at the next
annual or special meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised prior to such
approval, provided that the date of grant of any options granted hereunder shall
be determined as if the Plan had not been subject to such approval.
18. GOVERNING LAW. The Plan and all rights hereunder shall be construed in
accordance with and governed by the internal laws of the State of Delaware.
19. COMPLIANCE WITH RULE 16B-3. With respect to optionees subject to Section
16 of the 1934 Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
A-5
<PAGE>
[LOGO] CUC INTERNATIONAL
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting of Shareholders, you can
ensure your shares are represented at the Meeting by promptly completing,
signing and returning your proxy (attached below) to Boston EquiServe, L.P.
in the enclosed postage-paid envelope. We urge you to return your proxy as
soon as possible. Thank you for your attention to this important matter.
DETACH HERE
CUC INTERNATIONAL INC.
SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 11, 1997
P The undersigned hereby appoints Walter A. Forbes and Cosmo
Corigliano and each or either of them with full power of substitution,
R proxies for the undersigned and authorizes them to represent and vote, as
designated below, all of the shares of common stock of the Corporation
O which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held at the Hyatt Regency Greenwich, 1800 East Putnam
X Avenue, Old Greenwich, Connecticut on June 11, 1997 at 9:15 a.m. and at any
adjournments or postponements of such meeting, for the following purposes,
Y and with discretionary authority as to any other matters that may properly
come before the meeting, all in accordance with, and as described in, the
Notice and accompanyying Proxy Statement. The undersigned acknowledges
receipt of the Notice of Annual Meeting of Shareholders dated May 5, 1997
and the accompanying Proxy Statement. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NAMED NOMINEES AND FOR
PROPOSALS 2 AND 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE. SEE REVERSE
SIDE
<PAGE>
[LOGO] CUC INTERNATIONAL
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting of Shareholders, you can
ensure your shares are represented at the Meeting by promptly completing,
signing and returning your proxy (attached below) to Boston EquiServe, L.P.
in the enclosed postage-paid envelope. We urge you to return your proxy as
soon as possible. Thank you for your attention to this important matter.
DETACH HERE
<TABLE>
<CAPTION>
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
<S> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF THE NAMED NOMINEES AND FOR PROPOSALS 2 AND 3.
1. ELECTION OF DIRECTORS FOR AGAINST ABSTAIN
NOMINEES: Bartlett Burnap, Walter A. Forbes and 2. To approve the Corporation's 1997
Robert P. Rittereiser Stock Option Plan. / / / / / /
FOR WITHHELD 3. To ratify the appointment of Ernst & / / / / / /
/ / / / Young LLP as the Corporation's
Independent Auditors for the fiscal
year ending January 31, 1998.
______________________________________
For all nominees except as noted above MARK HERE
FOR ADDRESS / /
CHANGE AND
NOTE BELOW
Please sign exactly as your name appears and date. When shares
are held jointly, each holder should sign. If signing as attorney,
executor, trustee, guardian, or as officer signing for a
corporation, please give your full title as such.
Signature: ______________________________ Date: ____________ Signature: _______________________________ Date: _____________
</TABLE>
