<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary
[ ] 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 Rule 14a-11(c) or Rule 14a-12
CENDANT CORPORATION
(Name of Registrant as Specified In Its Charter)
.....................................N/A.......................................
(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 Rules 14a-6(i)(4) 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 Rule
0-11(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.
<PAGE>
1) Amount Previously Paid:
...........................................................................
2) Form, Schedule or Registration Statement No.:
...........................................................................
3) Filing Party:
...........................................................................
4) Date Filed:
...........................................................................
<PAGE>
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Cendant Corporation, which will be held at the Ramada Inn and Conference
Center, 130 Route 10 West, East Hanover, New Jersey 07936, on October 30, 1998,
at 10:00 a.m., New York Time. We look forward to greeting as many of our
stockholders as possible.
Details of the business to be conducted at the Annual Meeting are
given in the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the Annual Meeting, it is important that
your shares be represented and voted at the meeting. This year, stockholders of
record can vote their shares by using the telephone. Instructions for using
this new service are set forth on the enclosed proxy card. You may also vote
your shares by marking your votes on the enclosed proxy card, signing and
dating it and mailing it in the enclosed envelope. If you decide to attend the
Annual Meeting and vote in person, you may then withdraw your proxy.
On behalf of the Board of Directors and the employees of Cendant
Corporation, I would like to express my appreciation for your continued
interest in the affairs of the Company.
Sincerely,
Henry R. Silverman
Chairman of the Board, President and Chief Executive Officer
<PAGE>
CENDANT CORPORATION
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054-0278
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
OCTOBER 30, 1998
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Cendant Corporation (the "Company") will be held on Friday, October 30, 1998 at
10:00 a.m., Eastern Standard Time, at the Ramada Inn and Conference Center, 130
Route 10 West, East Hanover, New Jersey 07936 (the "Meeting") for the following
purposes:
1. To elect six directors for a three-year term and until their
successors are duly elected and qualified;
2. To approve and adopt the Company's 1998 Employee Stock
Purchase Plan;
3. To ratify the appointment of Deloitte & Touche LLP as the
auditors of the Company's financial statements for fiscal year 1998;
and
4. To transact such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on Friday,
September 25, 1998 as the record date for the Meeting. Only stockholders of
record at that time are entitled to notice of, and to vote at, the Meeting and
any adjournment or postponement thereof. A list of stockholders entitled to
vote at the Meeting will be available for examination by any stockholders, for
any purpose germane to the Meeting, for 10 days prior to the Meeting during
ordinary business hours at the site of the meeting.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the Meeting. The
Board of Directors urges you to date, sign and return the enclosed proxy
promptly. This will ensure the presence of a quorum at the meeting. PROMPTLY
SIGNING, DATING, AND RETURNING THE PROXY WILL SAVE THE COMPANY THE EXPENSE AND
EXTRA WORK OF ADDITIONAL SOLICITATION. A reply envelope, for which no postage
is required if mailed within the United States, is enclosed for your
convenience. Alternatively, in lieu of returning signed proxy cards, the
Company's stockholders of record can vote their shares by calling a specially
designated telephone number set forth on the enclosed proxy card. You are
cordially invited to attend the Meeting in person. The return of the enclosed
proxy will not affect your right to vote if you attend the Meeting in person,
as your proxy is revocable at your option.
By Order of the Board of Directors
JEANNE M. MURPHY
Secretary
Dated: September 28, 1998
<PAGE>
CENDANT CORPORATION
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054-0278
-----------------
PROXY STATEMENT
-----------------
ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON FRIDAY, OCTOBER 30, 1998
-------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Cendant Corporation, a Delaware
corporation (the "Company"), to be voted at the 1998 Annual Meeting of
Stockholders, and any adjournment or postponement thereof (the "Meeting"), to
be held on the date, at the time and place, and for the purposes set forth in
the foregoing notice. This Proxy Statement, the accompanying notice and the
enclosed proxy card are first being mailed to stockholders on or about
September 30, 1998.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice, nor does the Board of
Directors know of any matters which anyone else proposes to present for action
at the Meeting. However, if any other matters properly come before the Meeting,
the persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with their judgment on such matters.
Shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), represented by proxies received by the Company (whether
through the return of the enclosed proxy card or by telephone), where the
stockholder has specified his or her choice with respect to the proposals
described in this Proxy Statement (including the election of directors), will
be voted in accordance with the specification(s) so made. If your proxy is
properly executed but does not contain voting instructions, or if you use
telephone voting without indicating how you want to vote, your shares will be
voted "For" the election of all six nominees for the Board of Directors, "For"
the Company's 1998 Employee Stock Purchase Plan and "For" the ratification of
the appointment of Deloitte & Touche LLP as auditors of the Company's financial
statements for the year ending December 31, 1998.
Except as provided below, any proxy may be revoked at any time prior
to its exercise by notifying the Secretary in writing, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.
For participants in the Cendant Employee Savings Plan (the "Employee
Savings Plan") and the Cendant Corporation Savings Incentive Plan (the "Savings
Incentive Plan" and together with the Employee Savings Plan, the "Savings
Plans") with shares of Common Stock credited to their accounts, voting
instructions for the trustees of the Savings Plans are also being solicited
through this Proxy Statement. In accordance with the provisions of the Savings
Plans, the trustees will vote shares of Common Stock in accordance with
instructions received from the participants to whose accounts such shares are
credited. To the extent such instructions are not received prior to twelve
o'clock noon, Eastern Standard Time, on October 23, 1998, the trustee of the
Employee Savings Plan will vote the shares with respect to which it has not
received instructions proportionately in accordance with the shares for which
it has received instructions, and the trustee under the Savings Incentive Plan
will abstain from voting such shares. Instructions given with respect to shares
in accounts of the Savings Plans may be changed or revoked only in writing, and
no such instructions may be revoked after twelve o'clock noon, Eastern Daylight
Time, on October 23, 1998. Participants in the Savings Plans are not entitled
to vote in person at the Meeting.
<PAGE>
If a participant in a Savings Plan has shares of Common Stock credited
to his or her account in one of the Savings Plans and also owns other shares of
Common Stock, he or she should receive separate proxy cards for shares credited
to his or her account in the Savings Plans and any other shares that he or she
owns. All such proxy cards should be completed, signed and returned to the
transfer agent to register voting instructions for all shares owned by him or
her or held for his or her benefit in such Savings Plans' Cendant stock fund.
The accompanying form of proxy is being solicited on behalf of the
Board of Directors of the Company. The expenses of solicitation of proxies for
the Meeting will be paid by the Company. In addition to the mailing of the
proxy material, such solicitation may be made in person or by telephone by
directors, officers and employees of the Company, who will receive no
additional compensation therefor. Upon request, the Company will reimburse
brokers, dealers, banks and trustees, or their nominees, for reasonable
expenses incurred by them in forwarding material to beneficial owners of shares
of Common Stock. The Company has retained ChaseMellon Shareholder Services,
L.L.C. to aid in the solicitation of proxies. It is estimated that the fee for
ChaseMellon Shareholder Services, L.C.C. will be approximately $9,500.00 plus
reasonable out-of-pocket costs and expenses. Such fee will be paid by the
Company.
A copy of the Annual Report on Form 10-K/A filed by the Company with
the Securities and Exchange Commission for its latest fiscal year is available
without charge to stockholders upon written request to Cendant Corporation, 6
Sylvan Way, Parsippany, New Jersey 07054, Attention: Investor Relations.
<PAGE>
TABLE OF CONTENTS
Page
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 1
Outstanding Shares and Voting Rights.................................. 1
Security Ownership of Certain Beneficial Owners and Management........ 2
ELECTION OF DIRECTORS [Proposal 1]......................................... 5
General............................................................... 5
Information Regarding the Nominees for Term Expiring in 2001.......... 6
Information Regarding Directors Whose Terms Expire in 1999............ 6
Information Regarding Directors Whose Terms Expire in 2000............ 7
Committees and Meetings of the Board of Directors..................... 9
EXECUTIVE OFFICERS......................................................... 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION............................... 14
Summary Compensation Table for the Named Executive Officers........... 14
Option Grants Table for the Named Executive Officers.................. 16
Option Exercises and Year-End Option Value Table for the Named
Executive Officers.................................................. 18
Supplemental Compensation and Option Information for Certain
Key Executives ..................................................... 19
Employment Contracts and Termination, Severance and
Change of Control Arrangements........................................ 23
PRE-MERGER COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION..................................................... 29
Compensation Committee Interlocks and Insider Participation........... 34
Performance Graph..................................................... 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 35
Relationship with Chartwell........................................... 35
Relationship with Avis Rent A Car, Inc. .............................. 36
Relationship with NRT................................................. 36
Other Relationships................................................... 38
Claims of Certain Current and Former Officers and Directors of the
Company and HFS .................................................... 39
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.......................... 40
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN [Proposal 2]................. 46
RATIFICATION OF APPOINTMENT OF AUDITORS [Proposal 3]....................... 48
STOCKHOLDER PROPOSALS...................................................... 50
ANNEX A - 1998 Employee Stock Purchase Plan
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the Common Stock at the close of business on
September 25, 1998 are entitled to notice of, and to vote at, the Meeting. On
that date, the Company had outstanding 851,531,353 shares of Common Stock, held
of record by 13,768 shareholders.
The presence, in person or by proxy, of the holders of not less than
one-third of the Common Stock entitled to vote at the Meeting will constitute a
quorum. On all matters voted upon at the Meeting and any adjournment or
postponement thereof, the holders of the Common Stock vote together as a single
class, with each record holder of Common Stock entitled to one vote per share.
Directors shall be elected by a plurality of the votes of the shares
of Common Stock present at the Meeting, in person or by proxy, and entitled to
vote in the election of directors. Under applicable Delaware law, in
determining whether such nominees have received the requisite number of
affirmative votes, abstentions and broker non-votes will have no effect on the
outcome of the vote.
Approval of the proposals relating to the 1998 Employee Stock Purchase
Plan and ratification of the appointment of auditors of the Company's financial
statements requires the affirmative vote of a majority of the shares of Common
Stock present or represented by proxy and entitled to vote at the Meeting.
Under applicable Delaware law, in determining whether such proposal has
received the requisite number of affirmative votes, abstentions and broker
non-votes will be counted and will have the same effect as a vote against the
proposals.
In order that your shares of Common Stock may be represented at the
Meeting, you are requested to:
o indicate your instructions on the proxy;
o date and sign the proxy;
o mail the proxy promptly in the enclosed envelope; and
o allow sufficient time for the proxy to be received before the
date of the Meeting.
Alternatively, in lieu of returning signed proxy cards, the Company's
stockholders of record can vote their shares by calling a specially designated
telephone number. This new phone voting procedure is designed to authenticate
stockholders' identities, to allow stockholders to provide their voting
instructions, and to confirm that their instructions have been recorded
properly. Specific instructions for stockholders of record who wish to use the
telephone voting procedure are set forth on the enclosed proxy card. A proxy
may be revoked at any time prior to the voting at the Meeting by submitting a
later dated proxy (including a proxy by telephone), by giving timely written
notice of such revocation to the Secretary of the Company or by attending the
Meeting and voting in person.
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 COMPANY SINCE THE DATE OF THIS PROXY STATEMENT.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth on the following table is furnished as of
September 1, 1998 (unless otherwise specified) with respect to any person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) who is known
to the Company to be the beneficial owner of more than 5% of any class of the
Company's voting securities, and as to those shares of the Company's equity
securities beneficially owned by each of its directors, certain of its
executive officers, and all of its executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF PERCENT OF
NAME COMMON STOCK CLASS(26)
- ---- ------------ ---------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS
Massachusetts Financial Services Company(1) 57,139,820 6.71%
500 Boylston Street
Boston MA 02116-3741
Capital Research and Management Company (2) 50,312,500 5.88%
333 South Hope Street
Los Angeles, CA 90071
DIRECTORS AND EXECUTIVE OFFICERS
Henry R. Silverman(3) 46,300,002 4.96%
Stephen P. Holmes(4) 2,702,801 *
Robert D. Kunisch(5) 1,989,257 *
Christopher K. McLeod(6) 3,066,754 *
Michael P. Monaco(7) 1,802,325 *
James E. Buckman(8) 2,360,713 *
Leonard S. Coleman(9) 120,155 *
Martin L. Edelman (10) 60,155 *
Dr. Carole G. Hankin - *
The Rt. Hon. Brian Mulroney, P.C. LL.D(11) 120,155 *
Robert E. Nederlander(12) 120,155 *
Robert W. Pittman(13) 600,775 *
Robert P. Rittereiser(14) 202,217 *
E. John Rosenwald, Jr.(15) 177,936 *
Leonard Schutzman(16) 124,955 *
Robert F. Smith(17) 124,941 *
John D. Snodgrass(18) 6,830,529 *
Craig R. Stapleton(19) 2,000 *
Walter A. Forbes(20) 9,854,313 1.06%
E. Kirk Shelton(21) 5,064,087 *
Cosmo Corigliano(22,24) 460,343 *
Amy N. Lipton(23,24) 385,821 *
EXECUTIVE OFFICERS AND DIRECTORS
AS A GROUP (26 persons)(25) 86,544,858 9.28%
</TABLE>
- ---------------
* Amount represents less than 1% of the outstanding Common Stock
<PAGE>
(1) Based on a letter dated August 19, 1998 from Massachusetts Financial
Services Company ("MFS"), a registered investment adviser on behalf of
itself and the other mutual funds and institutional clients of MFS,
such persons beneficially own 57,139,820 shares of Common Stock.
(2) Based upon the information contained in a Form 13F dated August 13,
1998 by Capital Research and Management Company, a registered
investment advisor, Capital Research and Management Company
beneficially owned 50,312,500 shares of Common Stock with sole
power to vote 345,000 of such shares and shared power to dispose
all of such shares.
(3) Amount includes options to purchase 46,300,002 shares of Common Stock
which options are currently exercisable or exercisable within 60 days
("Vested Options"). On September 23, 1998, the Compensation Committee
of the Board of Directors of the Company approved an equity incentive
program for senior management which will result in the cancellation of
approximately 8.6 million of such vested options and will result in
approximately 17.2 million of such options becoming unexercisable
within 60 days from the date hereof.
(4) Includes 2,542,481 Vested Options.
(5) Includes 961,240 Vested Options, 167,892 shares of Common Stock held
in a grantor retained annuity trust of which Mr. Kunisch is the income
beneficiary, 9,912 shares of Common Stock held by Mr. Kunisch's spouse
and 78,621 shares of Common Stock held in the Employee Savings Plan.
(6) Amount includes 1,630,941 Vested Options. 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.
(7) Includes 1,802,325 Vested Options.
(8) Includes 2,360,713 Vested Options.
(9) Includes 120,155 Vested Options.
(10) Includes 60,155 Vested Options.
(11) Includes 120,155 Vested Options.
(12) Includes 120,155 Vested Options.
(13) Includes 600,775 Vested Options.
(14) Includes 188,438 Vested Options.
(15) Includes 120,155 Vested Options.
(16) Includes 120,155 Vested Options.
(17) Includes 120,155 Vested Options and 4,806 shares of Common Stock owned
by a Keough plan of which Mr. Smith is the sole beneficiary. Amount
does not include 19,244 shares of Common Stock held in the name of the
Smith Family Foundation of which Mr. Smith is President, as to which
Mr. Smith disclaims beneficial ownership.
(18) Includes 6,337,503 Vested Options. Amount does not include 33,600
shares held by The Snodgrass Foundation of which Mr. Snodgrass and his
spouse are trustees but in which they have no pecuniary interest. Mr.
Snodgrass disclaims beneficial ownership of such shares.
(19) Does not include 500 shares owned by Mr. Stapleton's spouse, 3,093
shares owned by his mother, 1,687 shares in each of two trusts of
which his daughter and son, respectively, are beneficiaries and 2,000
shares owned by his son, as to all of which Mr. Stapleton disclaims
beneficial ownership.
(20) Amount includes 9,452,593 Vested Options. Amount does not include
9,523 shares of Common Stock held by Mr. Forbes' spouse, nor 22,372
shares of Common Stock held by Mr. Forbes' spouse as custodian for
their children, as to which Mr. Forbes disclaims beneficial ownership.
Mr. Forbes resigned his position with the Company as of July 28, 1998.
See "Employment Contracts and Termination, Severance and Change of
Control Arrangements."
<PAGE>
(21) Includes 3,831,563 Vested Options. Effective July 28, 1998, Mr.
Shelton resigned as a director of the Company and purported to resign
as an officer of the Company. On August 27, 1998, Mr. Shelton's
employment was terminated for cause by the Company.
(22) Includes 380,000 Vested Options. Mr. Corigliano's employment with the
Company was terminated for cause as of April 16, 1998.
(23) Amount includes 380,000 Vested Options. Amount does not include 13,612
shares of Common Stock held by Ms. Lipton's spouse, as to which Ms.
Lipton disclaims beneficial ownership. Ms. Lipton is currently in
negotiations with the Company concerning the basis upon which her
employment with the Company will be terminated.
(24) Ms. Lipton and Mr. Corigliano ceased being executive officers of the
Company at the effective time of the Merger.
(25) In addition to shares beneficially owned by executive officers and
directors, share number includes an aggregate of 81,533,598 Vested
Options held by officers and directors. Vested Options are deemed
outstanding for the purpose of computing percent of class.
(26) Based on 851,531,353 shares of Common Stock outstanding on
September 25, 1998.
<PAGE>
ELECTION OF DIRECTORS
[PROPOSAL NO. 1]
GENERAL
The Board of Directors presently consists of eighteen members. As of
December 15, 1997, in connection with the merger of the Company with HFS
Incorporated ("HFS") which was consummated on December 17, 1997 (the "Merger"),
the number of members of the Board of Directors was increased from ten to
twenty-nine and the following individuals were appointed to fill the resulting
vacancies (the "New Directors"):
Henry R. Silverman Martin L. Edelman
Michael P. Monaco Frederick D. Green
Stephen P. Holmes Dr. Carole G. Hankin
Robert D. Kunisch The Rt. Hon. Brian Mulroney, P.C., LL.D
John D. Snodgrass Robert E. Nederlander
James E. Buckman Anthony G. Petrello
Leonard S. Coleman Robert W. Pittman
Christel DeHaan E. John Rosenwald, Jr.
Leonard Schutzman
Robert F. Smith
Craig Stapleton
Robert T. Tucker
Ms. Christel DeHaan resigned from the Board of Directors on January
22, 1998. On July 28, 1998, Messrs. Burnap, Donnelley, Forbes, Greyser, Perfit,
Petrello, Rumbough, Shelton and Tucker resigned from the Board of Directors. On
August 27, 1998, Mr. Green's resignation from the Board of Directors became
effective.
The Board is divided into three classes serving staggered three-year
terms. Directors for each class will be elected at the annual meeting of
stockholders held in the year in which the term for such class expires and will
serve for three years. The Board of Directors has nominated six candidates to
be elected at the Meeting to serve as Class I directors for a three-year term
ending at the 2001 annual meeting of stockholders and when their successors are
duly elected and qualified. All nominees are currently directors of the
Company. The terms of the remaining 12 directors expire at the Company's annual
meeting of stockholders to be held in 1999 and 2000.
Each nominee has consented to being named in this Proxy Statement and
to serve if elected. If, prior to the Meeting, any nominee should become
unavailable to serve, the shares of Common Stock represented by a properly
executed and returned proxy (whether through the return of the enclosed proxy
card or by telephone) will be voted for such additional person as shall be
designated by the Board of Directors, unless the Board of Directors determines
to reduce the number of directors in accordance with the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE. UNLESS
MARKED TO THE CONTRARY, PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THE
ELECTION OF THE SIX NOMINEES LISTED BELOW.
Certain information regarding each nominee and as to each incumbent
director whose term of office extends to 1999 and 2000 and who is, therefore,
not a nominee for election as a director at the Meeting, as of September 15,
1998, is set forth below, including such individual's age and principal
occupation, a brief account of such individual's business experience during at
least the last five years and other directorships currently held.
<PAGE>
INFORMATION REGARDING THE NOMINEES FOR TERM EXPIRING IN 2001
Robert D. Kunisch Dr. Carole G. Hankin
John D. Snodgrass The Rt. Hon. Brian Mulroney, P.C., LL.D
Robert W. Pittman E. John Rosenwald, Jr.
MR. KUNISCH, age 56, has been a Vice Chairman and a Director of the
Company since December 1997. Mr. Kunisch was a Vice Chairman of HFS from April
1997 to December 1997 and Chairman of the Board (since 1989), Chief Executive
Officer (since 1988) and President (since 1984) of PHH Corporation. He is a
director of the following corporations which file reports pursuant to the
Exchange Act: CSX Corporation and GenCorp, Inc.
MR. SNODGRASS, age 41, has been a Director of the Company since
December 1997. Mr. Snodgrass was a Director, President and Chief Operating
Officer of HFS from February 1992 until December 1997 and was Vice Chairman of
HFS from September 1996 until December 1997. From December 1997 until June 30,
1998, Mr. Snodgrass served as a consultant to the Company. From November 1994
through January 1996, Mr. Snodgrass served as Vice Chairman of the Board of
Chartwell Leisure Inc. ("Chartwell"). Since December 1997, Mr. Snodgrass has
been an independent investor. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Other Relationships."
DR. HANKIN, age 56, has been a Director of the Company since December
1997. Dr. Hankin is Superintendent of Schools in Syosset, New York, a suburban
K-12 school district; she has served in that district since 1990.
MR. MULRONEY, age 58, has been a Director of the Company since
December 1997. Mr. Mulroney was a Director of HFS from April 1997 until
December 1997. Mr. Mulroney was Prime Minister of Canada from 1984 to 1993 and
is currently Senior Partner in the Montreal-based law firm, Ogilvy Renault. He
is a director of the following corporations which file reports pursuant to the
Exchange Act: Archer Daniels Midland Company Inc., Barrick Gold Corporation,
Petrofina, S.A, Trizechahh Corporation Ltd. and Quebecor Printing Inc. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Other Relationships."
MR. PITTMAN, age 44, has been a Director of the Company since December
1997. Mr. Pittman was a Director of HFS from July 1994 until December 1997.
Since February 1998, Mr. Pittman has been President and Chief Operating Officer
of America Online, Inc., a provider of internet online services. From October
1996 to February 1998, Mr. Pittman was President and Chief Executive Officer of
AOL Networks, a unit of America Online, Inc. From September 1995 through
October 1996, Mr. Pittman served as the Chief Executive Officer and Managing
Partner of the Company's subsidiary, Century 21 Real Estate Corporation. From
1990 until September 1995, Mr. Pittman served as President and Chief Executive
Officer of Time Warner Enterprises, a business development unit of Time Warner
Inc. and, from 1991 to September 1995, additionally, as Chairman and Chief
Executive Officer of Six Flags Entertainment Corporation, the parent of Six
Flags Theme Parks Inc. Mr. Pittman serves as a director of America Online,
Inc., which files reports pursuant to the Exchange Act. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Other Relationships."
MR. ROSENWALD, age 67, has been a Director of the Company since
December 1997. Mr. Rosenwald was a Director of HFS from September 1996 until
December 1997. Mr. Rosenwald has been, since 1988, Vice Chairman of The Bear
Stearns Companies Inc., an investment banking firm. Mr. Rosenwald also serves
as a director of the following corporations which file reports pursuant to the
Exchange Act: The Bear Stearns Companies Inc. and Hasbro, Inc. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Other Relationships."
<PAGE>
INFORMATION REGARDING DIRECTORS WHOSE TERMS EXPIRE IN 1999
Christopher K. McLeod Leonard S. Coleman
Robert E. Nederlander Robert F. Smith
Craig R. Stapleton Leonard Schutzman
MR. MCLEOD, age 42, has been a Vice Chairman of the Company since
December 1997 and a Director of the Company since 1995. Mr. McLeod also serves
as a director and officer of several subsidiaries of the Company. Mr. McLeod
was an Executive Vice President of the Company from 1986 to December 1997. He
has been Chief Executive Officer of Cendant Software since January 1997. Mr.
McLeod was a member of the Office of the President of the Company from 1988 to
December 1997 and served as President of the Company's Comp-U-Card Division
between 1988 and August 1995.
MR. COLEMAN, age 49, has been a Director of the Company since December
1997. Mr. Coleman was a Director of HFS from April 1997 until December 1997.
Mr. Coleman has served as President of The National League of Professional
Baseball Clubs since 1994, having previously served since 1992 as Executive
Director, Market Development of Major League Baseball. Mr. Coleman is a
director of the following corporations which file reports pursuant to the
Exchange Act: Avis Rent A Car, Inc., Owens Corning, The Omnicom Group and New
Jersey Resources. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Relationship with Avis Rent A Car Inc."
MR. NEDERLANDER, age 65, has been a Director of the Company since
December 1997. Mr. Nederlander was a Director of HFS from July 1995 to December
1997. Mr. Nederlander has been President and Director since November 1981 of
the Nederlander Organization, Inc., owner and operator of one of the world's
largest chains of legitimate theaters. Mr. Nederlander has been Chairman of the
Board of Riddell Sports Inc. since April 1988 and was the Chief Executive
Officer of such corporation from 1988 through April 1, 1993. From February
until June 1992, Mr. Nederlander was also Riddell Sports Inc.'s interim
President and Chief Operating Officer. He served as the Managing General
Partner of the New York Yankees from August 1990 until December 1991, and has
been a limited partner since 1973. Mr. Nederlander has been President since
October 1985 of Nederlander Television and Film Productions, Inc.; Chairman of
the Board and Chief Executive Officer since January 1988 of Mego Financial
Corp. ("Mego") and Vice Chairman of the Board since February 1988 to early 1993
of Vacation Spa Resorts, Inc., an affiliate of Mego. Mr. Nederlander was a
director of Mego Mortgage Corp. from September 1996 until June 1998. Mr.
Nederlander also served as Chairman of the Board of Allis-Chalmers Corp. from
May 1989 to 1993 and as Vice Chairman of Allis-Chalmers Corp. from 1993 through
October 1996. He is currently a Director of Allis-Chalmers Corp. In October
1996, Mr. Nederlander became a director of New Communications, Inc., a
publisher of community oriented free circulation newspapers. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS-Other Relationships."
MR. SCHUTZMAN, age 52, has been a Director of the Company since
December 1997. Mr. Schutzman was a Director of HFS from August 1993 until
December 1997. Mr. Schutzman is a professor at the William E. Simon Graduate
School of Business at the University of Rochester in Rochester, New York. Mr.
Schutzman was Senior Vice President of PepsiCo Inc. from February 1987 to April
1995.
MR. SMITH, age 65, has been a Director of the Company since December
1997. Mr. Smith was a Director of HFS from February 1993 until December 1997.
From November 1994 until August 1996, Mr. Smith also served as a Director of
Chartwell. Mr. Smith is the retired Chairman and Chief Executive Officer of
American Express Bank, Ltd. ("AEBL"). He joined AEBL's parent company, the
American Express Company, in 1981 as Corporate Treasurer before moving to AEBL
and serving as Vice Chairman and Co-Chief Operating Officer and then President
prior to becoming Chief Executive Officer. Mr. Smith is currently a Partner in
Car Component Technologies, Inc., an automobile parts remanufacturer, located
in Bedford, New Hampshire.
MR. STAPLETON, age 53, has been a Director of the Company since
December 1997. Mr. Stapleton has been President of Marsh & McLennan Real Estate
Advisors, Inc. since 1983. Mr. Stapleton is also a director of the following
corporations which file reports pursuant to the Exchange Act: Alleghany
Properties, Inc.(a subsidiary of Alleghany Corp.), Cornerstone Properties, T.B.
Woods Inc. and Vacu Dry Co.
<PAGE>
INFORMATION REGARDING DIRECTORS WHOSE TERMS EXPIRE IN 2000
Henry R. Silverman James E. Buckman
Michael P. Monaco Martin Edelman
Stephen P. Holmes Robert P. Rittereiser
MR. SILVERMAN, age 58, has been President and Chief Executive Officer
and Director of the Company since December 1997 and Chairman of the Board of
Directors and Chairman of the Executive Committee of the Board of Directors
since July 28, 1998. Mr. Silverman is also an officer and/or director of a
number of subsidiaries of the Company. Mr. Silverman was Chairman of the Board,
Chairman of the Executive Committee and Chief Executive Officer of HFS from May
1990 until December 1997. From November 1994 until February 1996, Mr. Silverman
also served as Chairman of the Board and Chief Executive Officer of Chartwell.
MR. MONACO, age 50, has been a Vice Chairman, the Chief Financial
Officer and a Director of the Company since December 1997. Mr. Monaco was Vice
Chairman and Chief Financial Officer of HFS from October 1996 until December
1997 and was a Director of HFS from January 27, 1997 until December 1997. Mr.
Monaco also serves as a director and officer of several subsidiaries of the
Company. Mr. Monaco served as Executive Vice President and Chief Financial
Officer of the American Express Company, a financial services company, from
September 1990 to June 1996. Mr. Monaco serves as a director of Avis Rent A
Car, Inc., which files reports pursuant to the Exchange Act. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Relationship with Avis Rent A Car,
Inc." and "- Relationship with NRT."
MR. HOLMES, age 41, has been a Vice Chairman and Director of the
Company since December 1997. Mr. Holmes was Vice Chairman of HFS from September
1996 until December 1997 and was a Director of HFS from June 1994 until
December 1997. From July 1990 through September 1996, Mr. Holmes served as
Executive Vice President, Treasurer and Chief Financial Officer of HFS. Mr.
Holmes also serves as a director and officer of several subsidiaries of the
Company. Mr. Holmes is a director of the following corporations that file
reports pursuant to the Exchange Act: Avis Rent A Car, Inc. and PHH
Corporation, a wholly owned subsidiary of the Company. Mr. Holmes is also a
Director of Avis Europe PLC. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Relationship with Avis Rent A Car, Inc."
MR. BUCKMAN, age 53, has been the Senior Executive Vice President,
General Counsel and a Director of the Company since December 1997. Mr. Buckman
was the Senior Executive Vice President and General Counsel and Assistant
Secretary of HFS from May 1997 to December 1997, a Director of HFS since June
1994 and was Executive Vice President, General Counsel and Assistant Secretary
of HFS from February 1992 to May 1997. Mr. Buckman also serves as a director
and officer of several subsidiaries of the Company. From November 1994 to
February 1996, Mr. Buckman served as the Executive Vice President, General
Counsel and Secretary of Chartwell and until August 1996 he served as a
director of Chartwell. He was a partner with Troutman, Sanders, Lockersman &
Ashmore, an Atlanta, Georgia law firm, from January 1990 to February 1992. Mr.
Buckman also serves as a Director of PHH Corporation, a wholly owned subsidiary
of the Company, which files reports pursuant to the Exchange Act.
MR. EDELMAN, age 57, has been a Director of the Company since December
1997. Mr. Edelman was a Director of HFS from November 1993 until December 1997.
He has been a partner with Battle Fowler, a New York City law firm, from 1972
through 1993 and since January 1, 1994 has been Of Counsel to that firm. Mr.
Edelman is also a partner of Chartwell Hotels Associates, Chartwell Leisure
Associates L.P., Chartwell Leisure Associates L.P. II, and of certain of their
respective affiliates. Mr. Edelman also serves as a director of the following
corporations which file reports pursuant to the Exchange Act: Avis Rent A Car,
Inc., Capital Trust and Mark Centers Trust. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Relationship with Chartwell", "-Relationship with Avis
Rent A Car, Inc." and "- Other Relationships."
MR. RITTEREISER, age 59, has been a Director of the Company since 1982
and is Chairman and Chief Executive Officer of Gruntal Financial L.L.C., an
investment services firm based in New York City. He is Chairman of Yorkville
Associates Corp., a private investment and financial concern, since its
formation in April 1989. He served as a Trustee of the DBL Liquidating Trust
from April 1992 through 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, a New York banking services company
which was taken over on February 6, 1995 by the Acting Superintendent of Banks
of New York State. He is a Director of the following corporations which file
reports pursuant to the Exchange Act: Ferrofluidics Corporation, Interchange
Financial Services Corp. and Wallace Computer Services, Inc.
<PAGE>
Messrs. Holmes and Pittman were directors and Mr. Snodgrass was
Chairman of the Board of Directors of AMRE, Inc. ("AMRE") within two years
prior to January 20, 1997, the date on which AMRE filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Although the Company had a minor
investment in AMRE, AMRE is not an affiliate of or otherwise related to the
Company.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors held 10 meetings during 1997. In 1997, all
incumbent directors attended at least 75% of the aggregate number of meetings
of the Board and committees of the Board on which they served that were held
after their appointment.
EXECUTIVE COMMITTEE
Prior to the effective time of the Merger, the Executive Committee was
composed of Walter A. Forbes, E. Kirk Shelton, Bartlett Burnap, Robert P.
Rittereiser and Stanley M. Rumbough, Jr. (the "Pre-Merger Executive
Committee"). The Pre-Merger Executive Committee had all of the powers of the
Board of Directors when the Board was not in session, usually between regular
Board meetings and when timing was critical, except that the Pre-Merger
Executive Committee did not have the power to elect Directors or officers of
the Company, to alter, amend or repeal by-laws of the Company or any resolution
of the Board relating to the Pre-Merger Executive Committee, to declare any
dividend or distribution to the shareholders of the Company, to appoint any
member of the Pre-Merger Executive Committee, or to take any other action
specifically reserved by law to the Board of Directors. The Pre-Merger
Executive Committee held one meeting during 1997.
At the effective time of the Merger (the "Effective Time"), a new
Executive Committee of the Board of Directors (the "Post-Merger Executive
Committee") was appointed. The Post-Merger Executive Committee (which also acts
as the nominating committee) was composed of Walter A. Forbes (Chairman), Henry
R. Silverman, E. Kirk Shelton, Christopher K. McLeod, Robert P. Rittereiser,
Michael P. Monaco, Stephen P. Holmes and Martin L. Edelman. On July 28, 1998, a
new Executive Committee of the Board of Directors was appointed which is
composed of Messrs. Silverman (Chairman), Monaco, Holmes and Edelman (the
"Executive Committee"). On August 27, 1998, James E. Buckman and Robert D.
Kunisch were appointed to the 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, including the power to authorize the issuance of stock, except
that the Executive Committee has no power to (a) alter, amend or repeal the
By-Laws or any resolution or resolutions of the Board of Directors, (b) declare
any dividend or make any other distribution to the stockholders of the Company,
(c) appoint any member of the Executive Committee, or (d) take any other action
which legally may be taken only by the full Board of Directors. The Chairman of
the Board will serve as Chairman of the Executive Committee. The Post-Merger
Executive Committee did not meet in 1997.
Pursuant to the Amended and Restated By-Laws (the "By-Laws"), the
Executive Committee acts as the nominating committee of the Board of Directors,
nominating persons for election as directors. Under the By-Laws until such time
as all claims and causes of actions relating to the accounting issues at the
former CUC businesses as disclosed in a press release dated July 14, 1998 and a
Current Report on Form 8-K of the Company, dated August 13, 1998 (the
"Accounting Issues") have been settled, adjudicated or otherwise disposed of
pursuant to a final determination that is no longer subject to appeal or
review, (i) the Executive Committee is required to nominate for election as
directors Craig R. Stapleton and Robert P. Rittereiser or such alternate
candidates as designated by Messrs. Stapleton and Rittereiser who are not
reasonably objected to by the Executive Committee and (ii) in the event that
any one or more of Mr. Stapleton, Mr. Rittereiser or Dr. Carole Hankin are not
elected, resign or are removed as directors, the Board of Directors is required
to replace those individual(s) with an alternate director as designated by the
remaining individuals specified above who are not reasonably objected to by the
Board of Directors. Prior to the Merger, the nominating committee consisted of
Messrs. Burnap (Chairman), Greyser, Rittereiser and Rumbough. The pre-merger
nominating committee held one meeting in 1997.
<PAGE>
AUDIT COMMITTEE
Prior to the Effective Time, the Audit Committee (the "Pre-Merger
Audit Committee") was composed of T. Barnes Donnelley, Stephen A. Greyser and
Burton C. Perfit (Chairman). The Pre-Merger Audit Committee recommended to the
Board a firm of independent auditors to conduct the annual audit of the
Company's financial statements, reviewed with such firm the overall scope and
results of the annual audit, reviewed and approved the performance by such
independent auditors of professional services in addition to those which were
audit-related, and reviewed the fees charged by the independent auditors for
professional services. In addition, the Audit Committee met periodically with
the independent auditors and representatives of management to review accounting
activities, financial controls and reporting. During 1997, the Audit Committee
held two meetings.
At the Effective Time, the Board of Directors appointed a new Audit
Committee (the "Post-Merger Audit Committee") composed of Frederick D. Green
(Chairman), Robert P. Rittereiser, E. John Rosenwald, Jr. and Robert E.
Nederlander. The Audit Committee reviews and evaluates the Company's internal
accounting and auditing procedures; recommends to the Board of Directors the
firm to be appointed as independent accountants to audit the Company's
financial statements; reviews with management and the independent accountants
the Company's year-end operating results; reviews the scope and results of the
audit with the independent accountants; reviews with management the Company's
interim operating results; and reviews the non-audit services to be performed
by the firm of independent accountants and considers the effect of such
performance on the accountants' independence. The Post-Merger Audit Committee
did not meet in 1997.
On July 28, 1998, Mr. Green tendered his irrevocable resignation to
the Board of Directors of the Company which became effective on August 27,
1998. On August 27, 1998, the Audit Committee was reconstituted and now is
comprised of Leonard Schutzman (Chairman), The Rt. Hon. Brian Mulroney, Robert
F. Smith and Robert W. Pittman.
COMPENSATION COMMITTEE
Prior to the Effective Time, the Compensation Committee (the
"Pre-Merger Compensation Committee") was composed of Bartlett Burnap, Stephen
A. Greyser, Robert P. Rittereiser (Chairman) and Stanley M. Rumbough, Jr. The
Pre-Merger Compensation Committee recommended to the Board of Directors overall
compensation philosophy and policies for the Company and determined the salary
range for different executive levels and the specific compensation for the
Company's Chief Executive Officer. See "Executive Compensation and Other
Information--Compensation Committee Report on Executive Compensation." The
Pre-Merger Compensation Committee reviewed and made recommendations to the
Board concerning plans, programs, and benefits which related to executive
compensation, and made incentive compensation and stock option awards. In
addition, the Pre-Merger Compensation Committee reviewed and made
recommendations to the Board concerning selection, recruiting, hiring, and
promotion of key executive personnel. During 1997, the Pre-Merger Compensation
Committee held eight meetings.
At the Effective Time, the Board of Directors appointed a new
Compensation Committee (the "Post-Merger Compensation Committee") composed of
Robert F. Smith (Chairman), Leonard Schutzman, Anthony G. Petrello and Robert
T. Tucker. On July 28, 1998, a new Compensation Committee was appointed which
is composed of Messrs. Smith (Chairman), Schutzman, Mulroney and Coleman (the
"Compensation Committee"). The Compensation Committee has the following powers
and authority: (i) determining and fixing the compensation for all senior
officers of the Company and those of its subsidiaries that the Compensation
Committee shall from time to time consider appropriate, as well as all
employees of the Company and its subsidiaries compensated at a rate in excess
of such amount per annum as may be fixed or determined from time to time by the
Board; (ii) performing the duties of the committees of the Board provided for
in any present or future stock option, incentive compensation or employee
benefit plan of the Company or, if the Compensation Committee shall so
determine, any such plan of any subsidiary; and (iii) reviewing the operations
of and policies pertaining to any present or future stock option, incentive
compensation or employee benefit plan of the Company or any subsidiary that the
Compensation Committee shall from time to time consider appropriate. Each
resolution of the Compensation Committee requires approval by at least three
members of such committee. The Post-Merger Compensation Committee did not meet
in 1997.
<PAGE>
LITIGATION COMMITTEE
On July 28, 1998, the Board of Directors appointed a Litigation
Committee composed of Robert P. Rittereiser, Craig R. Stapleton, E. John
Rosenwald and Robert E. Nederlander (the "Litigation Committee"). The
Litigation Committee has the following powers and authority: (i) full and
exclusive power and authority to determine whether the prosecution of any
pending or threatened stockholder derivative actions arising from or related to
the Accounting Issues are or would be in the best interests of the Company and
(ii) full and exclusive power and authority to initiate, maintain or settle on
behalf of the Company any direct action by the Company against any present or
former director (whether sued as a director or as an officer) arising from or
related to the Accounting Issues.
DIRECTOR COMPENSATION
Non-Employee Directors (as defined in Rule 16b-3(b)(3) of the Exchange
Act) of the Company receive an annual retainer of $30,000, plus $4,000 for
chairing a committee and $2,000 for serving as a member of a committee other
than Chairman. On September 23, 1998, the Compensation Committee approved a
requirement that 50% of the annual $30,000 stipend is to be paid to each
Director in Common Stock of the Company. Non-Employee Directors also are paid
$1,000 for each Board meeting attended and $500 ($1,000 for committee chair)
for each Board committee meeting if held on the same day as a Board meeting and
$1,000 ($2,000 for committee chair) for each Board committee meeting attended
on a day on which there is no Board meeting. Non-Employee Directors are
reimbursed for expenses incurred in attending meetings of the Board of
Directors and committees.
The Company provides $100,000 of term life insurance coverage for each
Non-Employee Director to the beneficiary designated by such Non-Employee
Director. In addition, the Company has purchased joint life insurance contracts
in the amount of $1 million for each Director. Upon the death of such Director,
while still in office, the Company will donate an aggregate of $1 million to
one or more charitable organizations designated by such Director from the
proceeds of such insurance policy. With the exception of such joint life
insurance contracts, members of the Board of Directors who are officers or
employees of the Company or any of its subsidiaries do not receive compensation
or reimbursement of expenses for serving in such capacity.
Non-Employee Directors have also received grants of stock options
under one or more of the following plans: 1990 Directors Stock Option Plan,
1992 Directors Stock Option Plan, 1994 Director Stock Option Plan, the 1997
Stock Incentive Plan and the HFS Incorporated 1993 Stock Option Plan.
Directors shall be elected by the affirmative vote of a plurality of
the shares of Common Stock present at the Meeting, in person or by proxy, and
entitled to vote in the election of directors. Pursuant to applicable Delaware
law, abstentions and broker non-votes will have no effect on the outcome of the
vote.
ACCOUNTING ISSUES, CLASS ACTION LITIGATION AND MANAGEMENT AND CORPORATE
GOVERNANCE CHANGES
Accounting Issues. On April 15, 1998, the Company announced that in
the course of transferring responsibility for the Company's accounting
functions from the former CUC personnel to former HFS accounting personnel and
preparing for the reporting of first quarter 1998 results, it had discovered
the Accounting Issues in the CUC business units. As a result, upon discovering
the Accounting Issues, the Company together with its counsel and assisted by
auditors, immediately began an intensive investigation. In addition, the Audit
Committee of the Board of Directors engaged Willkie, Farr & Gallagher ("Willkie
Farr") as special legal counsel and Willkie Farr engaged Arthur Andersen LLP to
perform an independent investigation. On July 14, 1998, the Company announced
that the accounting irregularities were greater than those initially discovered
in April and that the irregularities affected the accounting records of all
major business units of CUC. On August 13, 1998, the Company announced that its
investigation of accounting irregularities and errors in the CUC business units
was complete. On August 27, 1998, the Company announced that the Audit
Committee of the Board of Directors had submitted its report (the "Report") to
the Board of Directors on the investigation into the accounting irregularities
and its conclusions regarding responsibility for those actions. A copy of the
Report has been filed as an exhibit to the Company's Current Report on Form 8-K
dated August 28, 1998. As a result of the investigation, the Company has
restated its previously reported financial results for 1997, 1996 and 1995.
<PAGE>
Class Action Litigation and Government Investigation. As a result of
the aforementioned Accounting Issues, numerous purported class action lawsuits,
two purported derivative lawsuits and an individual lawsuit have been filed
against the Company and, among others, its predecessor, HFS, and certain
current and former officers and directors of the Company and HFS, asserting
various claims under the federal securities laws and certain state statutory
and common laws. In addition, the staff of the Securities and Exchange
Commission (the "SEC") and the United States Attorney for the District of New
Jersey are conducting investigations relating to the Accounting Issues. The SEC
staff has advised the Company that its inquiry should not be construed as an
indication by the SEC or its staff that any violations of law have occurred.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Claims of Certain Current
and Former Officers and Directors of the Company and HFS."
Management and Corporate Governance Changes. On July 28, 1998, Walter
A. Forbes resigned as Chairman of the Company and as a member of the Board of
Directors. Henry R. Silverman, President and Chief Executive Officer of the
Company, was unanimously elected by the Board of Directors to be Chairman and
will continue to serve as Chief Executive Officer and President of the Company.
Ten members of the Board formerly associated with CUC also resigned, leaving
the Company with 18 directors.
On July 28, 1998, the Board also approved the adoption of Amended and
Restated By-Laws of the Company and voted to eliminate the governance plan
adopted as part of the Merger, resulting in the elimination of 80%
super-majority vote requirement provisions of the By-Laws relating to the
composition of the Board and the limitations on the removal of the Chairman and
the Chief Executive Officer.
Stock Option Repricing. On July 28, 1998, the Compensation Committee
approved a program to reprice certain Company stock options granted to middle
management of the Company, other than executive officers, during December 1997
and the first quarter of 1998. On September 23, 1998, the Compensation
Committee approved an equity incentive program for the Company's senior
management (the "Senior Management Program"). The Senior Management Program
will modify the terms of certain options held by the executive and senior
management of the Company. With respect to approximately 25.8 million options
held by Mr. Silverman, (a) 33% will be cancelled (b) 33% will be reset to an
exercise price 50% above the market price at the time of repricing (the "New
Price") but in no case less than $20 per share and (c) 33% will be reset at the
New Price. Although all of Mr. Silverman's options were vested, the 17.2
million options that will be repriced will now become unvested and will vest at
25% per year over the next four years. With respect to an aggregate of
approximately 10.3 million options held by Messrs. Buckman, Holmes, Monaco and
Kunisch (the "Executive Directors") (a) 25% will be cancelled, (b) 25% will be
reset to an exercise price 50% above the New Price but in no case less than $20
per share; and (c) 50% will be reset at the New Price. With respect to
approximately 25 million options held by other senior management (approximately
40 persons) (the "Senior Management"), other than the Executive Directors, (a)
10% will be cancelled, (b) 40% will be reset to an exercise price 25% above
the New Price, and (c) 50% will be reset at the New Price.
The New Price for such stock options is to be the market price of the
Company's common stock as reported on the New York Stock Exchange shortly after
the filing of the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997 and the Company's Quarterly Reports on Form 10-Q/A for the
quarters ending March 31, 1998 and June 30, 1998, respectively.
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company 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:
NAME OFFICE OR POSITIONS HELD
Henry R. Silverman Chairman of the Board, President and
Chief Executive Officer
Michael P. Monaco Vice Chairman and Chief Financial
Officer
Stephen P. Holmes Vice Chairman
Robert D. Kunisch Vice Chairman
Christopher K. McLeod Vice Chairman
James E. Buckman Senior Executive Vice President, General
Counsel and Assistant Secretary
Richard A. Smith Chairman and Chief Executive Officer,
Cendant Real Estate Services
Anthony L. Menchaca Co-Chair and Co-Chief Executive Officer,
Alliance Marketing
John H. Fullmer Co-Chair and Co-Chief Executive Officer,
Alliance Marketing and Chief Marketing
Officer
Scott E. Forbes Executive Vice President and Chief
Accounting Officer
Other than as set forth below, for biographical information
concerning the Executive Officers of the Company, see "Election of Directors."
Richard A. Smith Mr. Smith, age 45, has been Chairman and
Chief Executive Officer of the Real
Estate Division of the Company since
December 17, 1997. Mr. Smith was
President of the Real Estate Division of
HFS from October 23, 1996 to December
17, 1997 and Executive Vice President of
Operations for HFS Incorporated from
February 1992 to October 23, 1996. See
"CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Relationship with NRT."
Anthony L. Menchaca Mr. Menchaca, age 41, has been
Co-Chairman and Co-Chief Executive
Officer of the Alliance Marketing
Division of the Company since April 15,
1998. Mr. Menchaca was Executive Vice
President of the Alliance Marketing
Division of the Company from December
17, 1997 to April 15, 1998. From July 1,
1995 to December 17, 1997, Mr. Menchaca
was President of the Comp-U-Card
Division of CUC. From July 1992 to July
1, 1995, Mr. Menchaca was President of
CUC Travel Services Division of CUC.
<PAGE>
John H. Fullmer Mr. Fullmer, age 52, has been
Co-Chairman and Co-Chief Executive
Officer of the Alliance Marketing
Division of the Company and Chief
Marketing Officer of the Company since
April 15, 1998. Mr. Fullmer was
Executive Vice President of the Alliance
Marketing Division from December 17,
1997 to April 15, 1998. From April 1996
to December 17, 1997, Mr. Fullmer was
Senior Vice President and Chief
Marketing Officer of CUC. From March
1991 to April 1996, Mr. Fullmer was
Senior Vice President of the Comp-U-Card
Division of CUC.
Scott E. Forbes Mr. Forbes, age 41, has been Executive
Vice President-Finance and Chief
Accounting Officer of the Company since
April 15, 1998. Mr. Forbes was Senior
Vice President-Finance of the Company
from December 17, 1997 to April 15,
1998. From August 24, 1993 to December
17, 1997, Mr. Forbes was Senior Vice
President-Finance of HFS. Mr. Forbes is
not related to Walter A. Forbes.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE OF THE NAMED EXECUTIVE OFFICERS
The following table sets forth the 1995, 1996 and 1997 cash and
noncash compensation awarded to or earned by each person who served as Chief
Executive Officer of the Company during 1997 and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for each year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(2) Long Term Compensation
---------------------------------------------------------------------------------------
Securities
Restricted Underlying All Other
Name and Year Stock Award(s) Options/ Compensation
Principal Position (1) Salary($) Bonus($) (3)($) SARs (#) ($)(4)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Silverman 1997 60,672.00 0 0 14,500,980(6)(11) 0
Chairman of the Board, 1996 0 0 0 0 0
President and Chief 1995 0 0 0 0 0
Executive Officer(5)
Christopher K. McLeod 1997 514,769.84 520,000.00 0 2,200,000 7,841,112.00
Vice Chairman 1996 480,000.00 480,000.00 4,234,313 125,559.00
1995 450,000.00 450,000.00 0 187,500 122,057.00
78,750
Walter A. Forbes(5)(7) 1997 782,772.66 780,000.00 0 8,283,244.00
1996 757,228.00 760,000.00 5,081,175 4,400,000 268,513.00
1995 732,470.00 725,000.00 0 225,000 264,828.00
112,500
E. Kirk Shelton(8) 1997 514,769.84 520,000.00 0 2,200,000 7,913,005.00
1996 480,000.00 480,000.00 4,234,313 131,644.00
1995 450,000.00 450,000.00 0 187,500 131,223.00
78,750
Cosmo Corigliano(9) 1997 216,520.64 100,000.00 0 830,000 3,607,999.00
1996 189,134.00 80,000.00 1,354,980 172,500 15,517.00
1995(10) 160,000.00 30,000.00 0 18,000
7,044.00
Amy N. Lipton(9) 1997 246,898.33 120,000.00 0 830,000 3,608,119.00
1996 224,211.00 100,000.00 1,354,980 172,000 15,637.00
1995(10) 210,000.00 80,000.00 0 11,250 7,129.00
</TABLE>
- -------------------
(1) As of the Effective Time, the Company changed its fiscal year end from
year ended January 31 to year ended December 31. The compensation provided
for Messrs. Forbes, Shelton, McLeod and Corigliano and for Ms. Lipton for
1995 and 1996 is based on the fiscal years ended January 31, 1996 and
January 31, 1997, respectively.
(2) For each of the Named Executive Officers for the year ended December 31,
1997 and for each of the fiscal years ended January 31, 1997 and 1996,
there were no payments by the Company 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 earnings on deferred compensation, (iii) earnings with
respect to long-term incentive plans, (iv) tax reimbursements, or (v)
preferential discounts on stock.
<PAGE>
(3) Awards of restricted stock were made to Messrs. Forbes, Shelton, McLeod
and Corigliano and Ms. Lipton on July 24, 1996 pursuant to the Company'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 such
Named Executive Officer on that date multiplied by the closing market
price of a share of Common Stock on the New York Stock Exchange, Inc.
("NYSE") on that date, which was $22.583. The restrictions on these shares
lapsed at the Effective Time.
(4) "All Other Compensation" includes: (i) contributions of $1,584 for each of
Messrs. Forbes, Shelton, McLeod and Corigliano and Ms. Lipton and
contributions of $1,577 for Mr. Forbes to the Company's 401(k) Plan to
match 1997 pre-tax elective deferral contributions (included under Salary)
made by each such individual to such plan; and (ii) the premiums paid by
the Company for the term life component of "split-dollar" life insurance
policies (the "Insurance Program") procured by the Company in respect of
these executive's lives. In 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 December 31, 1997
and each of January 31, 1997 and January 31, 1996, respectively, of the
benefit to the Named Executive Officers of the remainder of the premium
payments made by the Company in respect of such Named Executive Officers
on December 31, 1997 and each of January 31, 1997 and January 31, 1996,
respectively. The present dollar value of such payments as of December 31,
1997 is as follows: Walter A. Forbes--$751,499; E. Kirk Shelton--$482,020;
Christopher K. McLeod--$407,332; Cosmo Corigliano--$5,730; and Amy N.
Lipton--$5,730. "All Other Compensation" also includes amounts payable to
Messrs. Forbes, Shelton, McLeod, Corigliano and Ms. Lipton under the
previously adopted CUC Executive Retirement Plan (the "SERP"), which
became payable upon the consummation of the Merger, as follows: Walter A.
Forbes - $7,500,000; E. Kirk Shelton - $7,425,000; Christopher K. McLeod -
$7,425,000; Cosmo Corigliano - $3,600,000; and Amy N. Lipton - $3,600,000.
The payments under the SERP were in full settlement of all benefits under
the SERP.
(5) At the Effective Time, Mr. Silverman became President and Chief Executive
Officer of the Company and Mr. Forbes became Chairman of the Board of the
Company. Prior to the Effective Time, Mr. Forbes served as Chief Executive
Officer of the Company. On July 28, 1998, Mr. Forbes resigned as Chairman
of the Board and as a director of the Company and Mr. Silverman became
Chairman of the Board and continued as President and Chief Executive
Officer of the Company. The compensation shown in the table above reflects
only the compensation received by Mr. Silverman from the Company, not HFS.
See "Supplemental Compensation and Option Information for Certain Key
Executives" for Mr. Silverman's aggregate compensation from the Company
and HFS during 1997.
(6) Represents only option grants to Mr. Silverman by the Company, not HFS.
See "Supplemental Compensation and Option Information for Certain Key
Executives" for Mr. Silverman's aggregate option grants from the Company
and HFS during 1997.
(7) The annual compensation of Mr. Forbes does not include certain expense
account items that currently are being investigated by the Company.
(8) At the Effective Time, Mr. Shelton became a Vice Chairman of the Company.
Effective on July 28, 1998, Mr. Shelton resigned as a director of the
Company and purported to resign as an officer of the Company. On August
27, 1998, Mr. Shelton's employment was terminated for cause by the Company.
(9) Ms. Lipton and Mr. Corigliano ceased being executive officers of the
Company at the Effective Time. Mr. Corigliano's employment with the
Company was terminated for cause on April 16, 1998. Ms. Lipton is
currently in negotiations with the Company concerning the basis upon which
her employment with the Company will be terminated.
(10) Ms. Lipton and Mr. Corigliano received stock options for all or part of
their respective salaries and/or bonuses during 1995.
(11) On September 23, 1998, the Compensation Committee restructured
approximately 25.8 million options held by Mr. Silverman as follows: (i)
33% will be cancelled, (ii) 33% will be reset to an exercise price 50%
above the New Price but in no case less than $20 per share and (iii) 33%
will be reset at the New Price.
Each participant in the Insurance Program is provided ordinary life
insurance coverage and enters into a split-dollar agreement with the Company.
The Company pays the full premium of the policy. The participant is the owner
of the policy and is obligated to pay tax on the value of a portion of the
coverage. The Company retains an interest in the policy equal to the
accumulated premiums paid. Upon Messrs. Forbes', Shelton's and McLeod's
retirement, and upon the Company's termination of their respective policies in
the case of Mr. Corigliano and Ms. Lipton (each a "Termination Date"), the
Company is entitled to recover all of its previous premium payments, and any
remaining cash outlays by the Company will cease. Any cash value in the policy
in excess of the premiums recovered by the Company is retained by the
participant. In the event of the participant's death prior to the Termination
Date, the Company is entitled to recover all premium payments from the death
benefit and the balance of the death benefit will be paid to the participant's
estate.
<PAGE>
OPTION GRANTS TABLE FOR THE NAMED EXECUTIVE OFFICERS
The following tables summarize option grants during the last fiscal
year made to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Grant Date
Number of % of Total Value
Securities Options/SARs Exercise ----------
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted(#)(1) Fiscal Year ($/Sh) Date Value $(2)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Henry R. Silverman(3) 14,500,980(4,9,12) 18.69% 31.375 12/17/2007 223,460,100
Christopher K. McLeod 400,000(4,8) 0.52% 20.50 04/21/2007 4,028,000
1,800,000(6,7,9) 2.32% 31.375 12/17/2007 27,738,000
Walter A. Forbes* 400,000(4,8) 0.52% 20.50 04/21/2007 4,028,000
4,000,000(5,7,9) 5.16% 31.375 12/17/2007 61,640,000
E. Kirk Shelton* 400,000(4,8) 0.52% 20.50 04/21/2007 4,028,000
1,800,000(6,7,9,10) 2.32% 31.375 12/17/2007 27,738,000
Cosmo Corigliano* 230,000(4,8) 0.30% 20.50 04/21/2007 2,316,100
600,000(11) 0.77% 31.375 12/17/2007 9,246,000
Amy N. Lipton* 230,000(4,8) 0.30% 20.50 04/21/2007 2,316,100
600,000(6,7,9) 0.77% 31.375 12/17/2007 9,246,000
</TABLE>
- -------------------
* Effective July, 28, 1998, Mr. Forbes resigned as an officer and
director of the Company and Mr. Shelton resigned as a director of the
Company and purported to resign as an officer of the Company. On
August 27, 1998, Mr. Shelton's employment was terminated for cause by
the Company. Mr. Corigliano's employment with the Company was
terminated for cause on April 16, 1998. Ms. Lipton is currently in
negotiations with the Company concerning the basis upon which her
employment with the Company will be terminated.
(1) Options granted to the Named Executive Officers expire ten years after
grant. The new Compensation Committee retains discretion to modify the
terms of outstanding options provided that the options, as modified,
do not violate the terms of the respective plan under which they were
granted.
(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 21, 1997, April 30, 1997 and December 17, 1997
each assume a risk-free rate of return of 5.6%, which represents the
ten-year yield of United States Treasury Notes on the option grant
date. The calculations for all option grant dates also assume a 32.5%
volatility; however, there can be no assurance as to the actual
volatility of the Common Stock in the future. The calculations for all
grant dates also assume no dividend payout, a straight-line, and a 7.8
year expected life. 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) This table represents only the option grants to Mr. Silverman by the
Company, not HFS. See "Option Grants Table for the Key Executives" for
Mr. Silverman's aggregate option grants from the Company and HFS
during 1997.
(4) Options were immediately exercisable upon grant (in the case of Mr.
Silverman) or (in the case of the other Named Executive Officers)
became exercisable at the Effective Time.
(5) Options are scheduled to vest and become exercisable in yearly
increments of 33 1/3%, commencing on January 1, 1999.
(6) Options are scheduled to vest and become exercisable in yearly
increments of 25%, commencing on January 1, 1999.
<PAGE>
(7) The vesting of these options also accelerates under certain
circumstances (including a change of control of the Company occurring
after the Effective Time) under the terms of the Named Executive
Officers' respective employment agreements. See "Employment Contracts
and Termination, Severance and Change of Control Arrangements."
(8) Granted April 21, 1997. The fair market value of Common Stock on the
date of grant, in accordance with the applicable stock option plan,
was $20.50.
(9) Granted December 17, 1997. The fair market value of Common Stock on
the date of grant, in accordance with the applicable stock option
plan, was $31.375.
(10) On August 27, 1998, 450,000 of these options were cancelled in
connection with Mr. Shelton's termination.
(11) These options were cancelled in connection with the termination of
Mr. Corigliano's employment on April 16, 1998.
(12) On September 23, 1998, the Compensation Committee restructured
approximately 25.8 million options held by Mr. Silverman as follows:
(i) 33% will be cancelled, (ii) 33% will be reset to an exercise price
50% above the New Price but in no case less than $20 per share and
(iii) 33% will be reset at the New Price. Although all of Mr.
Silverman's options were vested, the 17.2 million options that will be
repriced will now become unexercisable and will vest at 25% per year
over the next four years.
<PAGE>
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE FOR THE NAMED EXECUTIVE
OFFICERS
The following table summarizes the exercise of options by the Named
Executive Officers during the last fiscal year and the value of unexercised
options held by such executives as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Options/SARs Options/SARs
On Exercise Value Realized at FY-End (#) at FY-End ($)(1)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry R. Silverman 0 0 46,300,002(2)/ 0 832,972,289 / 0
Christopher K. McLeod 464,065 8,575,428 1,630,941 / 1,800,000 29,351,738 / 4,162,500
Walter A. Forbes* 11,026 289,828 2,486,093 / 4,000,000 49,078,122 / 9,250,000
E. Kirk Shelton* 282,658 5,970,340 1,884,063 / 1,800,000(3) 34,687,560 / 4,162,500
Cosmo Corigliano* 0 0 880,207 / 600,000(4) 15,465,391 / 1,387,500
Amy N. Lipton* 57,192 917,921 815,937 / 600,000 14,096,276 / 1,387,500
</TABLE>
- -------------------
* Effective July, 28, 1998, Mr. Forbes resigned as an officer and director
of the Company and Mr. Shelton resigned as a director of the Company and
purported to resign as an officer of the Company. On August 27, 1998, Mr.
Shelton's employment was terminated for cause by the Company. Mr.
Corigliano's employment with the Company was terminated for cause on April
16, 1998. Ms. Lipton is currently in negotiations with the Company
concerning the basis upon which her employment with the Company will be
terminated.
(1) Based upon the closing price of the Common Stock on the NYSE on December
31, 1997, and applicable option exercise prices.
(2) On September 23, 1998, the Compensation Committee restructured
approximately 25.8 million options held by Mr. Silverman as follows: (i)
33% will be cancelled, (ii) 33% will be reset to an exercise price 50%
above the New Price but in no case less than $20 per share and (iii) 33%
will be reset at the New Price. Although all of Mr. Silverman's options
were vested, the 17.2 million options that will be repriced will now
become unexercisable and will vest at 25% per year over the next four
years.
(3) On August 27, 1998, 450,000 of such options were cancelled in connection
with Mr. Shelton's termination.
(4) On April 16, 1998, all of such options were cancelled in connection with
Mr. Corigliano's termination.
<PAGE>
SUPPLEMENTAL COMPENSATION AND OPTION INFORMATION FOR CERTAIN KEY EXECUTIVES
SUMMARY COMPENSATION TABLE FOR CERTAIN KEY EXECUTIVES
The following table sets forth the 1995, 1996 and 1997 cash and
noncash compensation awarded to or earned by certain key executive officers of
the Company (the "Key Executive Officers") for each year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation (2)
---------------------------------------------------------------------------------------
Securities
Underlying
Restricted Options/ All Other
Name and Stock Award(s) SARs (#) Compensation
Principal Position Year Salary($) Bonus($) ($) (3) ($) (4)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Silverman 1997 1,577,472 2,366,208 0 19,307,180 6,760
Chairman of the Board, 1996 1,501,903 2,250,000 0 0 39,804
President and Chief 1995 1,000,000 434,000 0 0 6,666
Executive Officer
Stephen P. Holmes 1997 499,980 299,988 0 1,025,620
Vice Chairman 1996 417,305 215,621 0 100,000 22,903
1995 356,406 150,000 0 231,720 4,103
3,173
Michael P. Monaco 1997 499,980 299,988 0 2,347,325 16,514
Vice Chairman and Chief 1996 105,766 0 0 0 0
Financial Officer 1995 0 0 0 0 0
James E. Buckman 1997 499,980 299,988 0 1,075,620 6,258
Senior Executive Vice 1996 417,305 215,621 0 100,000 3,940
President and General 1995 356,406 150,000 0 231,720 3,173
Counsel
</TABLE>
- ------------------------
(1) All cash compensation represents compensation paid by HFS, the Company's
predecessor, prior to the Merger and compensation paid by the Company
after the Merger.
(2) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which will modify the terms of certain options held by
the Key Executive Officers. With respect to approximately 25.8 million
options held by Mr. Silverman, (a) 33% will be cancelled, (b) 33% will be
reset to an exercise price 50% above New Price but in no case less than
$20 per share and (c) 33% will be reset at the New Price. Although all of
Mr. Silverman's options were vested, the 17.2 million options that will
be repriced will now become unexercised and will vest at 25% per year
over the next four years. With respect to an aggregate of approximately
10.3 million options held by the Executive Directors: (a) 25% will be
cancelled, (b) 25% will be reset to an exercise price 50% above the New
Price but in no case less than $20 per share; and (c) 50% will be reset
at the New Price.
(3) All option information reflects option grants by HFS and the Company in
1997.
<PAGE>
(4) Payments included in these amounts for the fiscal year ended December 31,
1997 consist of (i) HFS contributions to the Employee Savings Plan, which
is a defined contribution salary reduction 401(k) plan qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") and under a non-qualified deferred compensation plan established
by HFS in 1996 ("Defined Contribution Match"); and (ii) insurance premiums
paid by the Company for supplemental life insurance coverage. The payments
with respect to the Defined Contribution Match and life insurance premiums
were as follows:
<TABLE>
<CAPTION>
Defined Life
Contribution Insurance
Year Match ($) Premium ($)
----------------------------------
<S> <C> <C> <C>
Mr. Silverman ............ 1997 0 3,910
1996 35,094 4,410
1995 2,310 4,356
Mr. Holmes ............... 1997 21,468 1,435
1996 2,648 1,305
1995 2,310 863
Mr. Monaco ............... 1997 14,999 1,515
1996 0 0
1995 0 0
Mr. Buckman .............. 1997 0 3,045
1996 2,375 1,415
1995 2,310 863
</TABLE>
<PAGE>
OPTION GRANTS TABLE FOR CERTAIN KEY EXECUTIVES
The following tables summarize option grants during the last fiscal
year made to the Key Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------
Grant Date
Number of % of Total Exercise Value
Securities Underlying Options/SARs or Base -----
Options/SARs Granted to Employees Price Expiration Grant Date
Name Granted(#)(1) in Fiscal Year ($/Sh) Date Present Value $(2)
- ---- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Henry R. Silverman 4,806,200(3,4,9) 6.20% 23.88 04/30/2007 56,376,724
14,500,980(3,5,9) 18.69% 31.375 12/17/2007 223,460,100
Stephen P. Holmes 480,620(3,4,9) 0.62% 23.88 04/30/2007 5,637,672
545,000(5,6,7,9) 0.70% 31.375 12/17/2007 8,398,450
Michael P. Monaco 1,441,860(3,8,9) 1.86% 25.44 01/16/2007 18,008,831
360,465(3,4,9) 0.46% 23.88 04/30/2007 4,228,454
545,000(5,6,7,9) 0.70% 31.375 12/17/2007 8,398,450
James E. Buckman 480,650(3,4,9) 0.62% 23.88 04/30/2007 5,638,024
595,000(5,6,7,9) 0.77% 31.375 12/17/2007 9,168,950
</TABLE>
- --------------
(1) Options granted to the Key Executive Officers expire ten years after
grant. 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 respective plan under which they were granted.
(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 January 16, 1997, April 30, 1997 and December 17, 1997
each assume a risk-free rate of return of 5.6%, which represents the
ten-year yield of United States Treasury Notes on the option grant date.
The calculations for all option grant dates assume a 32.5% volatility;
however, there can be no assurance as to the actual volatility of the
Common Stock in the future. The calculations for all grant dates also
assume no dividend payout, a straight-line, and a 7.8 year expected life.
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 Key Executive Officer, its ultimate value will depend on the
market value of the Common Stock at a future date.
(3) Options were immediately exercisable upon grant (in the case of Mr.
Silverman) or (in the case of the other Key Executive Officers) became
exercisable at the Effective Time.
(4) Granted April 30, 1997 by HFS. The fair market value of HFS Common Stock
on the date of grant, in accordance with the applicable stock option
plan, was $23.88. At the Effective Time, each of the Key Executive
Officers' options were adjusted to reflect the conversion of each share
of HFS Common Stock into 2.4031 shares of the Company's Common Stock.
(5) Granted December 17, 1997. The fair market value of the Common Stock on
the date of grant in accordance with the applicable stock option plan
was $31.375.
(6) Options are scheduled to vest and become exercisable in yearly increments
of 25%, commencing on January 1, 1999.
(7) The vesting of these options also accelerates under certain circumstances
(including a change of control of the Company occurring after the
Effective Time) under the terms of the Key Executive Officers' respective
employment agreements. See "Employment Contracts and Termination,
Severance and Change of Control Arrangements."
(8) Granted January 16, 1997. The fair market value of HFS Common Stock on
the date of grant, in accordance with the applicable stock option plan,
was $25.44. At the Effective Time, Mr. Monaco's options were adjusted to
reflect the conversion of each share of HFS Common Stock into 2.4031
shares of the Company's Common Stock.
<PAGE>
(9) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which will modify the terms of certain options held by
the Key Executive Officers. With respect to approximately 25.8 million
options held by Mr. Silverman, (a) 33% will be cancelled, (b) 33% will be
reset to an exercise price 50% above New Price but in no case less than
$20 per share and (c) 33% will be reset at the New Price. Although all of
Mr. Silverman's options were vested, the 17.2 million options that will
be repriced will now become unexercised and will vest at 25% per year
over the next four years. With respect to an aggregate of approximately
10.3 million options held by the Executive Directors: (a) 25% will be
cancelled, (b) 25% will be reset to an exercise price 50% above the New
Price but in no case less than $20 per share and (c) 50% will be reset at
the New Price.
<PAGE>
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE FOR CERTAIN KEY EXECUTIVES
The following table summarizes the exercise of options by the Key
Executive Officers during the last fiscal year and the value of unexercised
options held by such executives as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST
<TABLE>
<CAPTION>
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Options/SARs Options/SARs
On Exercise Value Realized at FY-End (#) at FY-End ($) (2) (3)
Name (#) (1) ($) (1) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry R. Silverman 1,123,449 27,058,239 46,300,002 / 0 832,972,289 / 0
Stephen P. Holmes 350,853 8,241,128 2,542,481 / 545,000 60,036,877 / 1,260,312
Michael P. Monaco 0 0 1,802,325 / 545,000 15,427,000 / 1,260,312
James E. Buckman 243,194 5,866,035 2,660,713 / 595,000 63,175,048 / 1,375,937
</TABLE>
- -------------------
(1) Represents the exercise of HFS options prior to the Merger.
(2) Based upon the closing price of the Common Stock on the NYSE on December
31, 1997, and applicable exercise prices.
(3) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which will modify the terms of certain options held by
the Key Executive Officers. With respect to approximately 25.8 million
options held by Mr. Silverman, (a) 33% will be cancelled, (b) 33% will be
reset to an exercise price 50% above New Price but in no case less than
$20 per share and (c) 33% will be reset at the New Price. Although all of
Mr. Silverman's options were vested, the 17.2 million options that will
be repriced will now become unexercised and will vest at 25% per year
over the next four years. With respect to an aggregate of approximately
10.3 million options held by the Executive Directors: (a) 25% will be
cancelled, (b) 25% will be reset to an exercise price 50% above the New
Price but in no case less than $20 per share; and (c) 50% will be reset
at the New Price.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL
ARRANGEMENTS
Each Named Executive Officer is and/or was employed by the Company
pursuant to a written employment agreement.
Walter A. Forbes. From December 17, 1997 to July 28, 1998, Mr. Forbes
served as Chairman of the Board pursuant to an amended and restated employment
agreement (the "Forbes Employment Agreement"), which became effective at the
Effective Time and replaced and superseded his former employment agreement (the
"Old Forbes Employment Agreement"). Under the Forbes Employment Agreement, Mr.
Forbes was to be employed for a five-year period (the "Period of Employment"),
beginning on the Effective Time, which term would have been extended
automatically on each anniversary of the Effective Time for an additional year
unless either the Company or Mr. Forbes gave written notice that the Period of
Employment would end at the end of the then-existing Period of Employment.
During the Period of Employment through December 31, 1999, Mr. Forbes was to
serve as Chairman of the Board and as Chairman of the Executive Committee, and
from and after January 1, 2000, as President and Chief Executive Officer.
During the Period of Employment, Mr. Forbes was to be paid an annual base
salary of not less than $1,250,000 and an annual bonus equal to the lesser of
(i) 0.75% of the Company's "EBITDA" (as defined in the Old Forbes Employment
Agreement) or (ii) 100% of his annual base salary. Under the Forbes Employment
Agreement, at the Effective Time, Mr. Forbes received a grant of stock options
with respect to four million shares of Common Stock with an exercise price
equal to $31.375 per share, vesting in three equal installments on each of the
first three anniversaries of the Effective Time. Mr. Forbes was eligible to
participate in the Company's other compensation and employee benefit plans or
programs, and to receive perquisites no less favorable than those provided to
the Chief Executive Officer of the Company (or, at such times as Mr. Forbes
served as Chief Executive Officer, those provided to the Chairman of the
Board).
The Forbes Employment Agreement provided for the continuation of
certain provisions of the Old Forbes Employment
<PAGE>
Agreement, including an arrangement for split dollar life insurance; provisions
for death, disability and retirement; certain restrictive covenants, including
a covenant not to compete with the Company; and a provision that, in the event
of a "Change of Control" (as defined in the Old Forbes Employment Agreement),
all then unvested stock options and restricted stock held by Mr. Forbes would
have vested. The arrangement for split dollar life insurance provided that the
Company is to pay premiums of approximately $538,000 per year until Mr. Forbes
reaches the age of 60.
Pursuant to the separation agreement entered into on July 28, 1998,
between the Company and Mr. Forbes, Mr. Forbes' resignation of his positions
with the Company was deemed to be a termination of his employment with the
Company without cause. Accordingly, under the Forbes Employment Agreement, the
Company was obligated to pay Mr. Forbes $25,000,000 in cash, and grant him
stock options to acquire Common Stock having a Black-Scholes value of
$12,500,000 (such options were fully vested upon grant and will remain
exercisable for their term notwithstanding the termination of Mr. Forbes'
employment). In addition, under the Forbes Employment Agreement, as a result of
his resignation then unvested stock options and restricted stock held by Mr.
Forbes vested and his stock options will remain exercisable for the remainder
of their terms.
Under the Forbes Employment Agreement, upon termination of Mr. Forbes'
employment on July 28, 1998, in addition to the payments described in the
preceding paragraph, Mr. Forbes received $10,000,000 as a cash retirement
benefit, together with $753,205 in respect of earned but unpaid base salary and
incentive compensation awards on a pro rata basis for 1998; all then unpaid
premiums with respect to the split dollar life insurance maintained on his
behalf by the Company were contributed to an escrow agent; and health and
welfare benefits for Mr. Forbes and his spouse continue for five years. These
benefits would have been payable to Mr. Forbes upon termination of his
employment following consummation of the Merger under the Old Forbes Employment
Agreement.
The Forbes Employment Agreement provided that Mr. Forbes would be made
whole on an after-tax basis with respect to certain excise taxes which may in
certain cases be imposed upon payments under the agreement.
In addition, pursuant to his separation agreement with the Company,
the Company provided a limited release for Mr. Forbes from liability to the
Company relating to the Accounting Issues which release is predicated on
representations by Mr. Forbes to the Company that Mr. Forbes has no knowledge
of or participation in the Accounting Issues. The Company retains the right to
bring, or to assert, any other claims or causes of action against Mr. Forbes.
Henry R. Silverman. Mr. Silverman serves as President and Chief
Executive Officer of the Company pursuant to an amendment (the "Silverman
Amendment") to the employment agreement between HFS and Mr. Silverman, as
amended and restated as of June 30, 1996 and further amended as of January 27,
1997 (the "Silverman Employment Agreement"), which amendment became effective
at the Effective Time.
The Silverman Amendment provides for the employment of Mr. Silverman
by the Company from and after the consummation of the Merger. The Silverman
Amendment provides that Mr. Silverman will be employed for the Period of
Employment, which term will be extended automatically on each anniversary of
December 17, 1997 (the "Closing Date") for an additional year unless either the
Company or Mr. Silverman gives written notice that the Period of Employment
will end at the end of the then-existing Period of Employment. During the
Period of Employment through December 31, 1999, Mr. Silverman was to serve as
President and Chief Executive Officer of the Company, and thereafter to serve
as Chairman of the Board and Chairman of the Executive Committee of the
Company. However, as of July 28, 1998, Mr. Silverman was also appointed
Chairman of the Board of the Company.
The Silverman Employment Agreement provides for Mr. Silverman to
receive an annual base salary of not less than $1,500,000 and an annual bonus
equal to the lesser of (i) 0.75% of the Company's "EBITDA" (as defined in the
Silverman Employment Agreement) for the applicable fiscal year or (ii) 150% of
his annual base salary. Under the Silverman Employment Agreement, upon the
occurrence of the Change of Control (as defined in the Silverman Employment
Agreement) in which shareholders receive consideration substantially in the
form of stock or other equity securities, Mr. Silverman would receive a lump
sum amount, payable, in the case of the Merger, in cash or shares of Common
Stock, equal to the value of any such options that have not yet been granted
(the "Remaining Options"). The Merger constituted a Change of Control giving
rise to such payment under the Silverman Employment Agreement. In consideration
of Mr. Silverman's waiver of his right to such payment, the Silverman Amendment
provided for the grant of options to acquire 14,500,000 shares of Common Stock.
In addition, the Silverman Amendment contains a provision consistent with the
Silverman Employment Agreement that, in the event of a Change of Control other
than the Merger, Mr. Silverman would receive, in cancellation of any such
options then held, cash in an amount (or in certain stock transactions, stock
or other equity securities having a value) equal to the value of such options,
if that value were to exceed the excess of the aggregate value of the
underlying shares over the aggregate exercise price under the options.
<PAGE>
The Silverman Amendment provides that if Mr. Silverman resigns his
employment in connection with a breach by the Company of the Silverman
Agreement (as amended by the Silverman Amendment), or if he is terminated by
the Company without Cause (as defined below), he will be entitled to receive a
lump sum cash payment equal to (i) the lesser of (a) 150% of his annual base
salary or (b) the sum of his annual base salary plus 0.75% of "EBITDA" (as
defined in the Silverman Employment Agreement) for the 12 months preceding the
date of termination, times (ii) the number of years and partial years remaining
in the Period of Employment. In addition, Mr. Silverman would be entitled to
continued health and welfare benefits during the remaining Period of Employment
and the vesting of any options and restricted stock. Under the Silverman
Amendment, if the Company were to fail to comply with the requirement that Mr.
Silverman serve as Chairman of the Board and Chairman of the Executive
Committee of the Company from and after January 1, 2000 for any reason other
than Mr. Silverman's death, disability or resignation, or if Mr. Silverman's
employment is terminated before January 1, 2002 by the Company other than for
Cause or by Mr. Silverman in connection with a breach by the Company of the
Silverman Employment Agreement (as amended by the Silverman Amendment), the
Company has agreed to pay Mr. Silverman $25,000,000 in cash, and grant him
stock options to acquire Common Stock having a Black-Scholes value $12,500,000
(such options to be fully vested upon grant and to remain exercisable for their
term notwithstanding the termination of Mr. Silverman's employment). For these
purposes, "Cause" means (i) the willful and continued failure by Mr. Silverman
substantially to perform his duties under the Silverman Employment Agreement
(as amended by the Silverman Amendment) (other than any such failure resulting
from Mr. Silverman's incapacity due to physical or mental illness); (ii) any
act of fraud, misappropriation, dishonesty, embezzlement or similar conduct
against the Company, as finally determined through arbitration or final
judgment of a court of competent jurisdiction (which arbitration or judgment,
due to the passage of time or otherwise, is not subject to further appeal); or
(iii) conviction of a felony or any crime involving moral turpitude (which
conviction, due to the passage of time or otherwise, is not subject to further
appeal).
The Silverman Amendment further provides that Mr. Silverman will be
made whole on an after-tax basis with respect to certain excise taxes which may
in certain cases be imposed upon payments under the Silverman Employment
Agreement (as amended by the Silverman Amendment) and other compensation and
benefit arrangements.
Messrs. Shelton, McLeod, Corigliano and Ms. Lipton. At the Effective
Time, the Company entered into employment arrangements with Messrs. Shelton,
McLeod and Corigliano, and Ms. Lipton (such agreements, respectively, the "New
Shelton Employment Agreement," the "New McLeod Employment Agreement," the "New
Corigliano Employment Agreement," and the "New Lipton Employment Agreement,"
and collectively, the "New Employment Agreements"). Like the Forbes Employment
Agreement, each New Employment Agreement with the Company became effective at
the Effective Time and replaced and superseded the executive's prior employment
agreement with the Company upon the consummation of the Merger, and provides
for a Period of Employment beginning on the Closing Date with automatic
one-year extensions unless a notice of nonrenewal is given.
Each New Employment Agreement specifies the position and duties of the
executive during the Period of Employment. Mr. Shelton was to serve as Vice
Chairman of the Company, and President and Chief Executive Officer of its
Cendant Membership Services, Inc. subsidiary. Mr. McLeod will serve as Vice
Chairman of the Company and President of its Cendant Software subsidiary. Mr.
Corigliano was to serve as Chief Financial Officer of Cendant Membership
Services, Inc. through December 31, 1999, and thereafter, as Chief Financial
Officer of the Company. Ms. Lipton was to serve as General Counsel of Cendant
Membership Services, Inc. and Deputy General Counsel of the Company through
December 31, 1999, and thereafter as General Counsel of the Company. Effective
as of July 28, 1998, Mr. Shelton resigned as a director of the Company and
purported to resign as an officer of the Company. On August 27, 1998, Mr.
Shelton's employment was terminated for cause by the Company. On April 16,
1998, Mr. Corigliano's employment with the Company was terminated for cause by
the Company. Ms. Lipton is currently in negotiations with the Company
concerning the basis upon which her employment with the Company will be
terminated.
Each New Employment Agreement specifies the compensation and benefits
provided to the executive during the respective Period of Employment. Mr.
Shelton would have been, and Mr. McLeod will be, paid annual base salaries of
not less then $650,000 and will be eligible for annual bonuses based on a
target bonus of $650,000; they each received a grant of stock options with
respect to 1.8 million shares of Common Stock with an exercise price equal to
$31.375 per share at the Effective Time, vesting in four equal installments on
each of the first four anniversaries of the Closing Date. Mr. Corigliano would
have been, and Ms. Lipton would have been, paid annual base salaries of not
less than $300,000, and would have been eligible for an annual bonus based on a
target bonus of $200,000 and $150,000, respectively; they each received a grant
of stock options with respect to 600,000 shares of Common Stock on the same
terms and conditions as the grants to Messrs. Shelton and McLeod. The New
Employment Agreements provided that all four executives would have been
eligible to participate in all of the Company's other compensation and employee
benefit plans or programs.
<PAGE>
The New Employment Agreements provide for continuation of certain
provisions of the executive's respective corresponding prior employment
agreements, including the arrangement with respect to split dollar life
insurance for Messrs. Shelton and McLeod which requires the Company to pay
premiums of approximately $270,000 per year for each of Messrs. Shelton and
McLeod until they reach the age of 60; provisions for death, disability and
retirement; certain restrictive covenants, including a covenant not to compete
with the Company; and certain provisions entitling the executives to certain
benefits upon a Change of Control (as defined in the applicable agreement),
which provisions have been amended in the New Employment Agreements to refer to
any Change of Control other than in connection with the Merger. Under these
amended Change of Control provisions, in the event of a Change of Control
(other than the Merger) all then-unvested stock options and restricted stock
held by each of the four executives would have vested.
Each New Employment Agreement provides for certain payments in the
event of termination of the executive's employment under various circumstances.
The New Shelton Employment Agreement provided that if, before January 1, 2002,
Mr. Shelton's employment were to be terminated by the Company other than for
Cause (as defined below) or by Mr. Shelton in a Constructive Discharge (as
defined below), the Company agreed to pay Mr. Shelton $12,500,000 in cash, and
grant him stock options to acquire Common Stock having a Black-Scholes value of
$7,500,000 (such options to be fully vested upon grant and to remain
exercisable for their term notwithstanding the termination of Mr. Shelton's
employment). In addition, if Mr. Shelton's employment were to be terminated by
the Company other than for Cause or by Mr. Shelton in a Constructive Discharge,
regardless of when such termination occurs, or if Mr. Shelton were to resign
for any reason, he would have been entitled to receive a lump sum cash payment
equal to 500% of the sum of (i) his annual base salary and (ii) the highest
annual bonus he has received for any of the three preceding years (or $520,000,
if higher) plus any earned but unpaid base salary and incentive compensation,
and his benefits and perquisites would continue 36 months. In the case of a
termination without Cause or a Constructive Discharge, all stock options and
restricted stock previously granted to him would vest; in the case of a
resignation, any options and restricted stock that would have vested in the 36
months following such resignation would have vested. For these purposes, Cause
and Constructive Discharge are defined in substantially the same manner as in
the Forbes Employment Agreement, except that Mr. Shelton would have also been
considered to have grounds for Constructive Discharge if Mr. Forbes' employment
was terminated by either the Company or Mr. Forbes for any reason before
January 1, 2002; if the Company failed to maintain Mr. Forbes as Chief
Executive Officer of the Company for the whole of the years 2000 and 2001; if
Mr. Shelton fails to be assigned, from and after January 1, 2000, duties and
responsibilities with respect to the Company that are substantially the same as
Mr. Shelton's prior duties and responsibilities with respect to the operations
of the Company; or any individual other than Mr. Shelton, Mr. Forbes or, prior
to January 1, 2000, Mr. Silverman was appointed President or Chief Operating
Officer of the Company or to any other position reporting directly to the Chief
Executive Officer of the Company, which position has a rank or status higher
than that of Mr. Shelton's.
The New McLeod Employment Agreement provides that if Mr. McLeod's
employment were to be terminated by the Company other than for Cause or by Mr.
McLeod in a Constructive Discharge, or if Mr. McLeod were to resign for any
reason, he would be entitled to receive a lump sum cash payment equal to 500%
of the sum of (i) his annual base salary and (ii) the highest annual bonus he
received for any of the three preceding years (or $520,000, if higher), plus
any earned but unpaid base salary and incentive compensation, and his benefits
and perquisites for would continue for 36 months. In addition, all stock
options and restricted stock previously granted to him would vest. For these
purposes, Cause and Constructive Discharge are defined in the same manner as in
the Forbes Employment Agreement.
The New Corigliano Employment Agreement and the New Lipton Employment
Agreement contained substantially similar severance provisions as the New
McLeod Employment Agreement with multiples of base salary and bonus ranging
from 200% to 500% becoming payable, depending upon the circumstances giving
rise to the termination, and providing for vesting of stock awards, and
continuation of benefits for a specified period of up to 60 months.
Each of the New Employment Agreements further provides that the
executive will be made whole on an after-tax basis with respect to certain
excise taxes which may in certain cases be imposed upon payments under the
agreement.
As described above, the New Employment Agreements replaced and
superseded the corresponding employment agreements at the Effective Time. These
prior employment agreements contained, among other things, provisions under
which, as a result of the consummation of the Merger, each of the executives
would have been entitled to terminate his or her own employment and receive
specified severance benefits, if he or she had not entered into a New
Employment Agreement.
<PAGE>
Messrs. Monaco, Holmes and Buckman. At the Effective Time, the Company
entered into new employment agreements with Messrs. Monaco, Holmes and Buckman
(such agreements, respectively, the "New Monaco Employment Agreement," the "New
Holmes Employment Agreement" and the "New Buckman Employment Agreement," and
collectively, the "New Cendant Employment Agreements"). Like the New Employment
Agreements, each New Cendant Employment Agreement became effective at the
Effective Time and replaced and superseded the executive's employment agreement
with HFS upon the consummation of the Merger, and provides for a Period of
Employment beginning on the Closing Date with automatic one-year extensions
unless a notice of nonrenewal is given.
Each New Cendant Employment Agreement specifies the position and
duties of the executive during the Period of Employment. Mr. Monaco will serve
as Vice Chairman and Chief Financial Officer of the Company. Mr. Holmes will
serve as Vice Chairman of the Company. Mr. Buckman will serve as Senior
Executive Vice President and General Counsel of the Company.
Each New Cendant Employment Agreement specifies the compensation and
benefits provided to the executive during the Period of Employment. Messrs.
Monaco and Holmes will be paid annual base salaries of not less that $650,000
and will be eligible for annual bonuses based on a target bonus of $650,000;
they each received a grant of stock options with respect to 545,000 shares of
Common Stock with an exercise price equal to $31.375 per share at the Effective
Time, vesting in four equal installments on each of the first four
anniversaries of the Closing Date. Mr. Buckman will be paid an annual base
salary of not less than $500,000, and will be eligible for an annual bonus
based on a target bonus of $500,000; he received a grant of stock options with
respect to 595,000 shares of Common Stock with an exercise price equal to
$31.375 per share at the Effective Time, vesting in four equal installments on
each of the first four anniversaries of the Closing Date. All three executives
will be eligible to participate in all of the Company's other compensation and
employee benefit plans or programs and to receive specified perquisites.
The New Cendant Employment Agreements contain certain provisions that
are substantially the same as the corresponding provisions in the New
Employment Agreements, including provisions for death, disability and
retirement; certain restrictive covenants, including a covenant not to compete
with the Company; and a provision that in the event of a Change of Control all
then-unvested stock options held by each of the executives would vest.
Each New Cendant Employment Agreement provides for certain payments in
the event of termination of the executive's employment under various
circumstances, consisting of a lump sum in cash equal to a multiple ranging
from 300% to 500% (or, in the case of Mr. Buckman, 200% to 400%) of the sum of
(i) his annual base salary and (ii) the highest annual bonus he received for
any of the three preceding years, or $520,000, if higher ($500,000 in the case
of Mr. Buckman), plus any earned but unpaid base salary and incentive
compensation. In addition, the executive's benefits and perquisites would
continue for a specified period and all then-unvested stock options held by him
would vest.
For purposes of the New Cendant Employment Agreements, Cause and
Constructive Discharge are defined in substantially the same manner as in the
New Forbes Employment Agreement, except that (i) the "relocation" basis for
Constructive Discharge is triggered by a relocation more than 15 miles from the
city limits of Parsippany, New Jersey, and (ii) the executives will also be
considered to have grounds for Constructive Discharge if Mr. Silverman's
employment is terminated by either the Company or Mr. Silverman for any reason
before January 1, 2001 or if the Company fails to maintain Mr. Silverman as
Chairman of the Board and Executive Committee of the Company for the whole of
the year 2000.
Notwithstanding anything to the contrary set forth in any of the
Company'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.
<PAGE>
PRE-MERGER COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
COMPENSATION PROCESS
This is a report submitted by the four member Pre-Merger Compensation
Committee of the Board of Directors addressing the Company's compensation
policies for 1997 as they affected the Named Executive Officers (other than Mr.
Silverman). Decisions on compensation during 1997 of the Company's Named
Executive Officers (other than Mr. Silverman) were made by the Pre-Merger
Compensation Committee. The Pre-Merger Compensation Committee members were 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 reviewed all decisions of the
Pre-Merger Compensation Committee relating to the compensation of the Company's
executive officers prior to the Effective Time, except for decisions about
awards under certain of the Company's stock-based compensation plans, which
were made solely by the Pre-Merger Compensation Committee pursuant to the terms
of such plans.
As noted above, at the Effective Time, the Company changed its fiscal
year end from year ended January 31 to year ended December 31. All references
in this Pre-Merger Compensation Committee Report to "1997" shall refer to the
fiscal year ended December 31, 1997; "1996" shall refer to the fiscal year
ended January 31, 1997; all references to "1995" shall refer to the fiscal year
ended January 31, 1996, and so forth.
Also, at the Effective Time, Mr. Forbes ceased serving as the
Company's Chief Executive Officer and Mr. Silverman then began serving as such.
From the Effective Time until July 28, 1998, Mr. Forbes served as Chairman of
the Company's Board of Directors and also served as Chairman of the Post-Merger
Executive Committee. On July 28, 1998, Mr. Forbes resigned from each of his
various positions within the Company and Mr. Silverman became Chairman of the
Board and serves as Chairman of the Executive Committee as well as continuing
as President and Chief Executive Officer of the Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Pre-Merger Compensation Committee's executive officer compensation
philosophy and objectives were designed to provide competitive levels of
compensation that linked pay with the Company's annual and long-term
performance goals, rewarded executive officers for above-average corporate
performance, recognized individual initiative and achievements, and assisted
the Company in attracting and retaining qualified executives. The Pre-Merger
Compensation Committee sought to provide compensation fair and equitable to
both the employee and the Company.
The Pre-Merger Compensation Committee members believe that stock
ownership by management is beneficial in aligning management's and
shareholders' interests in enhancing shareholder value; therefore, the
Pre-Merger Compensation Committee included a stock-based element in the
Company's compensation packages for its executive officers, although the
Pre-Merger Compensation Committee did not have specific target ownership levels
for Company 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 Company will not be precluded as a result
of Section 162(m) of the Code from deducting compensation expense derived in
1997 pursuant to the exercise of stock option grants under the Company's 1987
Stock Option Plan by the Named Executive Officers, because these stock options
were granted under and pursuant to a performance-based plan. The Company will
be precluded, however, from deducting a portion of the cash compensation
(salary and bonus) paid in 1997 to certain of its executive officers and
certain expenses derived in 1997 pursuant to the exercises of stock options
granted other than under the 1987 Stock Option Plan by certain of such
executive officers. Also, compensation expense arising out of the vesting
during 1997 (upon the Effective Time) of restricted stock held by certain of
the Named Executive Officers does not qualify for tax deductibility.
<PAGE>
The Pre-Merger Compensation Committee is aware of and has taken into
account the deduction limits under Section 162(m) when making executive
compensation decisions.
The Company anticipates that the compensation philosophy and
objectives of the New Compensation Committee will not differ materially from
the philosophy and objectives of the Pre-Merger Compensation Committee.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
The three primary components of executive officer compensation have
been:
- - Base Salary
- - Annual Bonus
- - Equity-Based Compensation
These three elements were structured by the Pre-Merger Compensation
Committee to provide the Company's executive officers with levels of total
compensation consistent with the Pre-Merger Compensation Committee's executive
officer compensation philosophy and objectives described above.
The Company does not anticipate that the Compensation Committee will
materially change the primary components of executive officer compensation.
BASE SALARY
The Company's executive officer salary levels were subjectively
determined by the Pre-Merger Compensation Committee based on the experience of
the Pre-Merger Compensation Committee members and were 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 Company's performance and growth (with
salary increases reflecting competitive and economic trends, the overall
financial performance of the Company and the performance of the individual
executive). Salary levels for the Company's executive officers have generally
been determined annually. The Pre-Merger Compensation Committee, in calculating
the executive officer's annual salary for each year, has taken into
consideration the base salary previously paid to such executive officer and the
responsibilities assigned to such executive.
The Pre-Merger Compensation Committee has attempted to keep the
Company'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 Pre-Merger Compensation Committee's policy
of trying to integrate executive pay with the performance of the Company on an
annual and long-term basis. These limitations on salary increases are tied to
the Company's policy of emphasizing the incentive-based components of total
compensation of executive officers. Factors considered in gauging the Company's
overall financial performance include the Company's revenues and profits. Base
salary paid to each of the Named Executive Officers (other than Mr. Silverman)
during 1997 was determined by the Pre-Merger Compensation Committee and the
Board in January 1997.
ANNUAL BONUS
Annual bonus amounts paid to each of the Company's executive officers
(other than those individuals who became executive officers at the Effective
Time) have been determined by the Pre-Merger Compensation 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% of their 1997
total salary and bonus compensation. Annual bonuses paid to each of the
Company's executive officers during 1997 were determined by the Pre-Merger
Compensation Committee and the Board in 1997.
<PAGE>
EQUITY-BASED COMPENSATION
Stock options are periodically granted to the Company's executive
officers under the Company's 1987 Stock Option Plan, the 1997 Stock Incentive
Plan and the 1997 Stock Option Plan, and grants of restricted stock have been
made to the Company's executive officers (other than those individuals who
became executive officers at the Effective Time) under the Company'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 Company 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 have generally been 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
Company's future performance were also reviewed in determining the size of
current option grants.
The number of stock options granted to the Company's executive
officers during 1997 was determined by the Pre-Merger Compensation Committee in
April and May 1997 (for executive officers other than those individuals who
became executive officers at the Effective Time). In awarding options to the
Named Executive Officers at the Effective Time, the Pre-Merger Compensation
Committee also considered the Named Executive Officers' efforts in negotiating
and consummating the Merger and the responsibilities the Named Executives
Officers would have with respect to the merged entity, a larger and more
diversified company than CUC.
RELATIONSHIP OF CORPORATE PERFORMANCE TO EXECUTIVE OFFICER COMPENSATION
The factors which the Pre-Merger Compensation Committee considered in
awarding annual bonuses and equity-based compensation have been based on the
Company's performance and the individual executive officer's performance. The
evaluation of these factors has been largely subjective and based on the
Pre-Merger Compensation Committee's substantial knowledge of the Company,
familiarity with the Company's objectives and strategy, and long-term working
relationship with the Company's executive officers. Factors considered have
included: (1) the Company'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 Company's
products; (3) the Company's after-tax earnings-per-share growth over the last
fiscal year; and (4) the Company's compound annual rate of total shareholder
return over the last five fiscal years. The Pre-Merger Compensation Committee
did not use any specific formulas or weightings in considering any of these
factors.
TARGETED VERSUS ACTUAL OPERATING BUDGET
Targeted versus actual operating performance has been a major factor
used to determine the extent to which annual bonuses were paid and awards made
under the Company's stock-based compensation plans to the Company's executive
officers (other than those individuals who became executive officers at the
Effective Time). The performance of individual executive officers has generally
been reviewed either as to the Company as a whole, or, for those executives in
charge of an operating unit, as to such executive's particular operating unit.
Performance targets have been based on business plans developed by the
Company's management and approved by the Board at the start of each fiscal
year. In developing these business plans, the Pre-Merger Compensation Committee
considered the challenges posed by integrating the business of any recently
acquired subsidiaries, divisions or businesses and expanding the Company's mix
of services and distribution channels.
In determining annual bonus and stock-based compensation for the Named
Executive Officers in 1997 (other than Mr. Silverman) the Pre-Merger
Compensation Committee reviewed, among other things, targeted versus actual
operating performance in 1997, 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 Pre-Merger Compensation Committee took into account the executive
officers' (other than Mr. Silverman's) performance in special projects
undertaken during the past year, contribution to strategic acquisitions and
alliances and development of new distribution channels for the Company's
products. The Pre-Merger Compensation Committee evaluated the executive
officers' ability to exploit new opportunities and respond quickly to evolving
marketplace conditions.
<PAGE>
In determining annual bonus and stock-based compensation for executive
officers in 1997, the Pre-Merger Compensation Committee noted particularly the
Company's acquisitions of Davidson & Associates, Inc., Sierra On-Line, Inc. and
Ideon Group, Inc. in 1996; the 1996 expansion of offerings available from the
Company to Internet shoppers; the rapid growth in 1996 of the Company's
innovative Transfer Plus program (which links consumers to a Company service
for which they have an affinity); the successful launch in 1996 of the
Entertainment Gold Awards program; and expansion of the Company's international
business through new partnerships with major European banks, the renegotiation
of the Company's Japanese license; the launch of the Company's Global Refund
memberships and the rapid growth, generally, of international memberships. The
Pre-Merger Compensation Committee also took notice of the following significant
events which took place in 1997 and through the date of determination of the
executive officer's annual bonus or stock option award, as the case may be: the
Company's acquisition of Knowledge Adventure, Inc. and Berkeley Systems,
Incorporated (each a subsidiary of Cendant Software Corporation); and certain
acquisitions in the heritage products and interactive personal introduction
areas.
AFTER-TAX EARNINGS-PER-SHARE GROWTH*
In addition, the Pre-Merger Compensation Committee considered 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 1997 (other than those individuals who became executive officers at
the Effective time), the Pre-Merger Compensation Committee noted that, before
one-time charges, after-tax earnings per share of Common Stock were $.70 in the
most recently completed full fiscal year of the Company at the time of such
determination (1996), as compared to $.53 per share in the Company's prior
completed fiscal year (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 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 1997, the Pre-Merger Compensation Committee noted the increase of
the average market value of a share of the Common Stock to an average of $23.70
in 1996, the most recently completed full fiscal year of the Company at the
time of such determination, from an average of $6.69 in 1992, an increase of
254%.
The Company anticipates that the New Compensation Committee's view on
the relationship of corporate performance to executive officer compensation
will not differ materially from the view of the Pre-Merger Compensation
Committee on this matter.
1997 COMPENSATION OF CHIEF EXECUTIVE OFFICER
As noted above, Mr. Forbes was Chief Executive Officer of the Company
until the Effective Time, at which time Mr. Silverman became Chief Executive
Officer. In addition to the factors mentioned above, the Pre-Merger
Compensation Committee's general approach in setting Mr. Forbes' annual
compensation was to reward Mr. Forbes' strategic management abilities in
spearheading the Company's global expansion efforts and its development and
exploitation of new distribution channels and technologies.
Mr. Forbes' annual salary increase in 1997 (from $757,228 in 1996 to
$782,773 in 1997) was based primarily on the Company's overall performance
generally and Mr. Forbes' performance in 1996. Specifically, in determining Mr.
Forbes' annual salary for 1997, the Pre-Merger Compensation Committee
considered Mr. Forbes' qualifications, experience and expertise and his
responsibilities as Chief Executive Officer in overseeing the Company's
acquisitions and growing interactive and international activities, as well as
the Company's overall business and performance.
- --------------
* The earnings per share information has not been adjusted to reflect the
restatement of such earnings as a result of the Accounting Issues. See the
Company's Annual Report on form 10-K/A for the year ending December 31,
1997 for a restatement of the Company's financial statements for 1997, 1996
and 1995.
<PAGE>
The annual bonus paid to Mr. Forbes during 1997 ($780,000) was largely based on
the Pre-Merger Compensation Committee's subjective evaluation of Mr. Forbes'
performance and the performance of the Company during 1997 and through the date
of determination of Mr. Forbes' annual bonus. Specifically, in determining Mr.
Forbes' annual bonus during 1997, the Pre-Merger Compensation Committee noted
the Company's acquisitions of Davidson & Associates, Inc., Sierra On-Line, Inc.
and Ideon Group, Inc. in 1996; the 1996 expansion of offerings available from
the Company to Internet shoppers; the rapid growth in 1996 of the Company's
Transfer Plus program; the successful launch in 1996 of the Entertainment Gold
Awards program; and the expansion of the Company's international business
through new partnerships with major European banks, the renegotiation of the
Company's Japanese license, the launch of the Company's Europe Tax-Free
Shopping memberships and the rapid growth, generally, of international
memberships. The Pre-Merger Compensation Committee also considered the
performance of the Common Stock, which the Pre-Merger Compensation Committee
believes reflects Mr. Forbes' significant contribution. In assessing the
Company's overall performance to determine Mr. Forbes' annual bonus, the
Pre-Merger Compensation 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 1997 of stock options to acquire an
aggregate of 4,400,000 shares of Common Stock were also largely based on the
Pre-Merger Compensation Committee's subjective evaluation of Mr. Forbes'
performance and the performance of the Company during 1996 and through the
dates of determination of Mr. Forbes' stock option grants. In awarding options
to Mr. Forbes at the Effective Time, the Pre-Merger Compensation Committee also
considered Mr. Forbes' efforts in negotiating and consummating the Merger and
the responsibilities Mr. Forbes would have with respect to the merged entity, a
larger and more diversified company than CUC.
In addition to the factors discussed in the preceding paragraphs,
which the Pre-Merger Compensation Committee took into account when determining
Mr. Forbes' stock option awards, the Pre-Merger Compensation Committee also
considered Mr. Forbes' performance and an informal comparison by Pre-Merger
Compensation Committee members of his overall compensation package relative to
that of other chief executives of publicly-traded corporations of which the
Pre-Merger Compensation Committee members are 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 Pre-Merger Compensation Committee as
a whole). This grant epitomizes the Pre-Merger Compensation Committee's
compensation philosophy and objectives by promoting management retention while
further aligning shareholders' and management's interest in the performance of
the Company's Common Stock.
The Pre-Merger Compensation Committee
Robert P. Rittereiser, Chair
Bartlett Burnap Stephen A. Greyser
Stanley M. Rumbough, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Barlett Burnap, Stephen A. Greyser, Robert P. Rittereiser
(Chairman) and Stanley M. Rumbough, Jr. served on the Pre-Merger Compensation
Committee of the Company. Messrs. Burnap, Greyser, Rittereiser and Rumbough
were not employees of the Company during 1997 or before. Directors Robert F.
Smith (Chairman), Anthony Petrello, Leonard Schutzman and Robert T. Tucker
served on the Post-Merger Compensation Committee of the Company. Messrs. Smith,
Petrello and Schutzman were not employees of the Company during 1997 or before.
From the Effective Time until July 28, 1998, Mr. Tucker served as a Vice
Chairman and Secretary of the Company. During 1997, Mr. Tucker provided legal
services to the Company for which he received aggregate compensation of
$181,240.
<PAGE>
PERFORMANCE GRAPH
The following graph assumes $100 invested on December 31, 1992, and
compares (a) the yearly percentage change in the Company'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 January 1, 1993, and
ending on December 31, 1997, and (B) the difference between the Company'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"), (ii) the Standard & Poor's Services
(Commercial & Consumer) Index (the "S&P SVCS Index"), and (iii) a Peer Group
Index. The Peer Group consists of H&R Block, Inc.; CPI Corporation; Metromedia
International Group, Inc. (formerly 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 1996 by the
Company, Ideon Group, Inc. (formerly SafeCard Services, Inc.), and is weighted
by market capitalization. Stock prices are adjusted for stock splits and stock
dividends. The Company is changing the comparison of the Common Stock
performance from the Peer Group to the S&P SVCS Index as a result of the Merger
and the composition of the Company's business units resulting therefrom.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CENDANT CORPORATION, THE S&P 500 INDEX,
THE S&P SVCS INDEX AND A PEER GROUP
EDGAR REPRESENTATION OF DATAPOINTS USED IN PRINTED GRAPHIC
Cendant** S&P 500 Index S&P SVCS Index Peer Group
--------- ------------- -------------- ----------
Dec-92 $100.00 $100.00 $100.00 $100.00
Dec-93 186.20 110.08 96.90 114.37
Dec-94 171.98 111.53 88.71 111.15
Dec-95 264.75 153.45 119.82 141.21
Dec-96 282.21 188.68 123.74 143.52
Dec-97 400.03 251.64 169.79 194.52
- ------------------------------
* Assumes $100 invested on December 21, 1992 in the Common Stock, the S&P
SVCS Index, Peer Group and the S&P 500 Index.
** The performance of the Company's stock on the above performance graph does
not reflect the decline in the Company's stock since the announcement of
the Accounting Issues on April 15, 1998.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH CHARTWELL
On November 22, 1994 (the "Chartwell Effective Date"), HFS (the
Company's predecessor) distributed to its stockholders one (1) share of the
common stock of Chartwell, then a wholly owned subsidiary of HFS, for every ten
(10) shares of HFS Common Stock held of record as of November 14, 1994 (the
"Distribution"). On the Chartwell Effective Date, HFS also transferred the
assets and liabilities of its business of financing and developing casino
gaming and entertainment facilities (the "Casino Development Business") to
Chartwell and made (and agreed to make) cash capital contributions to Chartwell
aggregating $50 million. As a result of the Distribution, Chartwell became an
independent publicly traded corporation and ceased to be a subsidiary of HFS.
In connection with the Distribution and for purposes of (i) governing
certain of the ongoing relationships between HFS and Chartwell after the
Distribution, (ii) providing mechanisms for an orderly transition and (iii)
providing HFS with a means of participating in the economic benefits of future
gaming projects, HFS and Chartwell entered into certain agreements, including
the Distribution Agreement, the Financing Agreement, the Marketing Services
Agreement, the Advisory Agreement, the Corporate Services Agreement, the
Facility Lease and the Tax Sharing Agreement on the Chartwell Effective Date.
Copies of such agreements were filed with the Securities and Exchange
Commission as exhibits to Chartwell's Current Report on Form 8-K dated December
2, 1994. As indicated herein under the captions "ELECTION OF DIRECTORS -
Information Regarding Nominees for the Term Expiring in 2001; Information
Regarding Directors Whose Terms Expire in 2000," certain of the Company's
directors and executive officers served during 1997, as directors and executive
officers of Chartwell. Each of these directors and executive officers also
owned certain options to purchase shares of common stock of Chartwell, which,
except for the options which were granted to Mr. Edelman and Mr. Smith, were
cancelled on or before February 1, 1996.
On December 20, 1995, Chartwell Leisure Associates L.P. II, a general
partnership affiliated with the Fisher Brothers and Gordon Getty ("Chartwell
Leisure II") acquired approximately 17% of the outstanding common stock of
Chartwell. Mr. Edelman is a partner in Chartwell Leisure II, owning in the
aggregate a 4.8% beneficial interest in that partnership. On January 23, 1996,
the Company acquired the Travelodge(R) and Thriftlodge(R) lodging franchise
system (the "Travelodge System") and the related trademarks and trade names in
North America from Forte Hotels, Inc. and Forte Plc and immediately subsequent
to such acquisition, Chartwell acquired Forte Hotels, Inc., including in such
purchase approximately 16 hotels and joint venture interests in 96 hotels,
which are now licensed as part of the Travelodge System. As a result, Chartwell
was the largest franchisee of the Travelodge System. Under the applicable
franchise agreements, Chartwell was required to pay to Travelodge Hotels, Inc.
("THI"), a wholly owned subsidiary of the Company, annual franchise fees equal
to four percent of gross room revenues for the owned hotel properties plus four
percent of gross room revenues of such properties as marketing and reservation
fees. In addition, Chartwell was required to pay to THI a license fee equal to
four percent of gross room revenues multiplied by Chartwell's percentage
interest in each of the hotel properties owned by joint ventures in which
Chartwell acquired an interest. In connection with such acquisition, in
accordance with the Financing Agreement, the Company guaranteed $75 million of
borrowings by Chartwell under a $125 million revolving credit facility with
certain banks. The Company received an annual guaranty fee of 2% of the $75
million credit extension. In connection with the Travelodge acquisition, the
Advisory Agreement and the Marketing Services Agreement were terminated, and
the Corporate Services Agreement was modified to provide for a fixed fee of
$1.5 million per year, the provision of certain corporate services only through
September 1996 and the requirement of the Company to provide corporate
transaction advisory services. The Company also received an advisory fee of
approximately $2 million from Chartwell for advisory services in connection
with the acquisition by Chartwell of Forte Hotels, Inc. as described above.
In November 1996, HFS and Chartwell agreed to terminate the Corporate
Services Agreement in return for the payment by Chartwell to HFS of $9,265,000.
$2,500,000 of such amount was paid in cash and the balance was paid by delivery
of a promissory note in the principal amount of $7 million, payable over seven
years commencing on January 1, 1999, bearing interest at the per annum rate of
6%, and payable in semi-annual installments commencing July 1, 1997. The
promissory note was repaid in full on March 20, 1998 in anticipation of the
sale of Chartwell as described below.
As a result of the sale of Chartwell to Whitehall Street Real Estate
Limited Partnership IX on March 25, 1998, Mr. Edelman is no longer affiliated
with Chartwell or the successor to Chartwell.
<PAGE>
In 1996, HFS and affiliates of Chartwell entered into master license
relationships with respect to the Travelodge brands in Mexico under which such
affiliates assumed responsibility for providing services to the Mexican
franchisees other than reservation services, which will continue to be provided
by the Company. The Company will receive royalties and fees for providing
certain marketing and reservation services under the master license agreements.
Rio Grande Associates LLC (with which Mr. Edelman is affiliated) replaced
Chartwell under the foregoing agreements in connection with the sale of
Chartwell on March 25, 1998.
RELATIONSHIP WITH AVIS RENT A CAR, INC.
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS (the Company's predecessor) announced its strategy to dilute
its interest in Avis's ("Avis") car rental operations while retaining assets
associated with the franchise business, including trademarks, reservation
system assets and franchise agreements. In September 1997, HFS completed an
initial public offering ("IPO") of Avis Rent A Car, Inc. ("ARAC"), the company
that operated the car rental operations of Avis, which diluted the Company's
equity interest in such subsidiary to approximately 27.5%. The Company received
no proceeds from the IPO. However, the Company licenses the Avis trademark to
ARAC pursuant to a 50-year master license agreement and receives royalty fees
based upon 4% of ARAC revenue, escalating to 4.5% of ARAC revenue over a 5-year
period. In addition, the Company operates the telecommunications and computer
processing system which services ARAC for reservations, rental agreement
processing, accounting and fleet control for which the Company charges ARAC at
cost. Messrs. Monaco, Holmes, Coleman and Edelman currently serve on the Board
of Directors of ARAC. On March 23, 1998, the Company sold 1,000,000 shares of
ARAC which diluted the Company's equity interest to 20.4%.
RELATIONSHIP WITH NRT
Formation. NRT Incorporated ("NRT") was incorporated in August 1997 by
Apollo Management, L.P. ("Apollo") and the Company. Concurrent with its
formation, NRT acquired the real estate brokerage business and operations of
National Realty Trust (the "Trust") which included the brokerage offices
formerly owned by Coldwell Banker Corporation. In connection with the formation
of NRT, the Company acquired $182.0 million of preferred stock of NRT.
Franchisee Status. NRT is the largest franchisee for each of the
Company's real estate franchise systems. NRT's status as a franchisee is
governed by franchise agreements (the "Franchise Agreements") with wholly owned
subsidiaries of the Company pursuant to which NRT has the non-exclusive right
to operate as part of the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) real
estate franchise systems at locations specified in the Franchise Agreements and
under the tradenames and trademarked operating names acquired by the Company in
acquisitions pursuant to the arrangements specified below. During 1996 (from
May 31, 1996), 1997 and 1998 (through June 30, 1998), NRT paid an aggregate of
approximately $24.0 million, $59.5 million and $54.2 million, respectively, in
franchise royalties to the Company. The Company and NRT are currently
discussing certain amendments to the franchise agreements which would underline
certain additional royalties.
Acquisition Arrangements. The Company has an agreement with NRT that
reduces NRT's effective purchase price for brokerage acquisitions in which the
Company agrees to participate. In such brokerage acquisitions, the Company
purchases the tradenames, trademarked operating names and mortgage operations
(if any) of the brokerages being acquired by NRT, thereby paying a substantial
portion of the total purchase price that otherwise would be payable by NRT. All
other assets of the acquired brokerage are purchased by NRT. Through June 30,
1998, with the exception of the Trust, the assets of which were purchased
solely with NRT's funds, the Company has provided between 35% and 90% of the
total purchase price for each of the Company's brokerage acquisitions involving
a total purchase price in excess of $1 million, and has provided an average of
68% of the total purchase price for all of NRT's brokerage acquisitions. At the
time of NRT's formation, the Company committed to provide up to approximately
$445 million in connection with NRT's brokerage acquisitions, of which
approximately $360 million had been provided through June 30, 1998. To date,
the Company has participated in each of the brokerage acquisitions completed by
NRT. As with all of NRT's existing brokerage offices, all future acquired
offices are required to be operated under the COLDWELL BANKER(R), ERA(R) or
CENTURY 21(R) brand name.
<PAGE>
The Company acquired $216.1 million of certain intangible assets
including trademarks associated with real estate brokerage firms acquired by
NRT in 1997. Through June 30, 1998, the Company participated in each of NRT's
17 acquisitions of multi-office brokerages and 19 acquisitions of single-office
brokerages. Through June 30, 1998, the Company has paid NRT or the seller an
aggregate of approximately $359.3 million, and NRT has paid an aggregate of
$173.7 million, in such transactions.
The Company and NRT are currently discussing certain amendments to the
acquisition arrangement, including a commitment by the Company to provide up to
an additional $1 billion for future brokerage acquisitions by NRT in which the
Company agrees to participate and to effect a change in the calculation of the
purchase price payable by the Company in such brokerage acquisitions. Of such
additional $1 billion commitment, $500 million would become immediately
available and the next $500 million would become available upon the later to
occur of (i) five years from the date of the new arrangement and (ii) such time
as the first $500 million has been paid in connection with brokerage
acquisitions. In connection with the amendments to the acquisition
arrangements, it is contemplated that the Company will make an upfront payment
of $30 million to NRT for services to be provided by NRT to the Company related
to the identification of potential acquisition candidates, the negotiation of
agreements and other services in connection with future brokerage acquisition
by NRT. Such fee is refundable in the event the services are not provided.
Lease Agreements. NRT leases from the Company an aggregate of
approximately 42,500 square feet of office space for its offices in Parsippany,
New Jersey and Mission Viejo, California pursuant to two leases dated August
11, 1997 (the "Leases"). Each Lease has an initial term of five years
commencing on September 1, 1997, with an option exercisable by NRT to extend
the term thereof for an additional five years upon 30 days' written notice to
the Company. Under the Leases, the Company is responsible for property taxes,
maintenance and insurance as well as various ancillary services. Rent is
payable under each Lease at a rate equal to the Company's total annual actual
costs of operating the leased premises. In addition, under each Lease, NRT is
permitted to amend the lease to increase or reduce the square footage of the
premises as needed and as space becomes available, provided that NRT gives 60
days' advance notice to the Company of its intent to do so and the rental
amount is adjusted accordingly. Each Lease is terminable by either party, with
or without cause, upon 180 days' written notice to the other party. During 1997
and 1998 (through June 30, 1998), an aggregate of $529,000 and $426,000,
respectively, was paid by NRT to the Company under the Leases.
Marketing Agreement. NRT and Cendant Mortgage Corporation ("Cendant
Mortgage") are parties to a Marketing Agreement (the "Marketing Agreement"),
pursuant to which NRT has agreed to assist Cendant Mortgage in the marketing of
its various mortgage programs and products through NRT's real estate brokerage
offices. Cendant Mortgage is required to pay NRT a marketing fee each quarter
based on NRT's total number of closed real estate transactions and the average
sales price of homes sold by NRT during such quarter. The term of the Marketing
Agreement is 40 years unless earlier terminated by Cendant Mortgage with or
without cause or, at NRT's option, in the event of Cendant Mortgage's material
breach or if a nationwide third party provider of mortgage services meeting
certain conditions offers NRT a comparable marketing arrangement and Cendant
Mortgage declines to match the economic terms. During the term of the Marketing
Agreement, NRT may not enter into any similar arrangement with another party.
During 1997, over the four-month period in which the Marketing Agreement was in
effect, an aggregate of $699,000 was paid to NRT under the Marketing Agreement.
During 1998 (through June 30, 1998), an aggregate of $2,500,000 was paid to NRT
under the Marketing Agreement. For each of the first four quarters of its term,
the Marketing Agreement provides for the payment of less than the otherwise
applicable marketing fee for the quarter to account for the phase-in of the
arrangement throughout NRT's offices.
The Company expects to replace the Marketing Agreement in 1999 with a
joint venture between Cendant Mortgage and NRT, which will provide the services
currently provided by Cendant Mortgage.
Relocation Management. NRT has an arrangement with Cendant Mobility
Services Corporation, a wholly owned subsidiary of the Company ("Cendant
Mobility"), pursuant to which NRT provides its brokerage services to relocating
employees of the clients of Cendant Mobility, which are typically large
corporations and governmental agencies. Pursuant to such arrangement, when
receiving a referral from Cendant Mobility, NRT receives a commission on the
purchase or sale of the property but is obligated to pay Cendant Mobility a
portion of such commission as a referral fee. During 1997 and 1998 (through
June 30, 1998), NRT paid an aggregate $6,435,000 and $4,811,000, respectively,
in referral fees to Cendant Mobility. The arrangement with NRT is not embodied
in a written agreement and, accordingly, may be subject to termination or
modification at any time.
Support Agreement. NRT and the Company are parties to a Support
Agreement, dated as of August 11, 1997 (the "Support Agreement"), pursuant to
which the Company has agreed to furnish NRT with certain computer and data
related information services. In consideration of the provision of such
services, NRT has agreed to reimburse the Company directly for certain actual
costs incurred by the Company on behalf of NRT. In addition, NRT was required
to pay the Company a monthly fee of $77,500 during 1997 and is required to pay
a monthly fee of $41,667 during 1998 and $12,500 during 1999. During 1997 and
1998 (through June 30, 1998), an aggregate of $1,448,000 and $809,000,
respectively, was paid to the Company under the Support Agreement. The Support
Agreement terminates on December 31, 1999, unless earlier terminated by either
party.
<PAGE>
Development Advance. On January 14, 1997, the Company made an advance
of $20 million (the "Development Advance") to the Trust and CB Residential
Affiliates, Inc. The Development Advance was assumed by NRT in August 1997, at
which time the term of the Development Advance was amended from 10 years to 40
years. Under the terms of the Development Advance, so long as there is no
material default under any of the Franchise Agreements, $39,000 of the
principal amount of the Development Advance will be forgiven on a monthly basis
over a 40-year period.
Other. In addition to the above-mentioned agreements, NRT is party to
various other agreements and arrangements with the Company and its affiliates,
including an outsourcing agreement pursuant to which the Company acts as NRT's
exclusive agent in negotiating arrangements on behalf of NRT with third party
service and product providers, a stockholders agreement relating to the voting,
transfer and registration of shares of NRT's capital stock owned by Apollo and
the Company and certain other agreements and arrangements. Pursuant to these
agreements and arrangements, the Company, among other things, provides services
to NRT and receives revenues, directly or indirectly, in respect thereof. The
Company and NRT are currently discussing certain amendments to these agreements
and arrangements.
Messrs. Monaco and Smith serve on the Board of Directors of NRT.
OTHER RELATIONSHIPS
Mr. Edelman is of counsel to Battle Fowler, a New York City law firm.
Battle Fowler represented HFS (the Company's predecessor) in certain
transactions in 1997. It is expected that Battle Fowler will continue to
represent the Company in connection with certain matters from time to time in
the future.
Mr. Edelman is also a partner in Chartwell Hotels Associates
("Chartwell Hotels"), a general partnership affiliated with the Fisher Brothers
and Gordon Getty, and its affiliate Chequers Investment Associates, which have
acquired certain hotels and mortgages secured by hotels from the Resolution
Trust Corporation. In two transactions with Chartwell Hotels, entered into in
November 1992 and May 1993, and each amended in December 1994, which have
resulted in and will result in the addition of properties to the Company's
franchise systems, the Company has advanced approximately $10 million, and has
agreed to advance up to an additional $4 million if certain additional property
conversions and other requirements are met, in return for Chartwell Hotels
agreeing to franchise the properties with one of the Company's brands. All
Chartwell Hotels properties will pay royalties once they become part of the
Company's franchise systems and these royalties will be credited toward the
recovery of the advance. Certain properties which cannot be converted to
Company brands will also pay a percentage of gross room sales in lieu of
royalties as specified in the agreements. Each advance is required to be fully
recovered over a maximum five year period following the advance. In addition,
as individual properties convert to Company brands, the Company will make
additional advances to the franchisee of such properties to fund costs incurred
in connection with such conversion. Such advances are required to be repaid
with interest by the franchisee over a three year period and such repayment has
been guaranteed by Chartwell Hotels.
Mr. Edelman is also a partner in Chartwell Leisure II. Chartwell
Leisure II has contracted with Funtricity Vicksburg Family Entertainment Park,
Inc., a wholly-owned subsidiary of Six Flags Theme Parks, Inc., to develop a
high quality family entertainment center (the "Project") on land which is
ground leased by Chartwell Leisure II from affiliates of Rainbow Casino
Corporation (collectively, "Rainbow"). As an inducement to Chartwell Leisure II
to provide the financing for the Project, commencing May 1, 1995, the opening
of the Project, Chartwell shares principal and interest payments on a loan to
Rainbow with Chartwell Leisure II ranging from 14% to 27% of such payments
adjusted annually in accordance with a schedule to the agreement. The Company
shares marketing fees from Rainbow with Chartwell Leisure II based on the same
scheduled percentages. Chartwell Leisure II has agreed to share with the
Company 50% of the net cash flow payable to Chartwell Leisure II in respect of
the Project and the Company has agreed to share such amounts pro-rata with
Chartwell based on the relative amounts paid by the Company and Chartwell,
respectively, to Chartwell Leisure II each year. Mr. Pittman was the Chairman
and Chief Executive Officer of Six Flags Entertainment Corporation, the parent
of Six Flags Theme Parks, Inc. until September 12, 1995. During 1997, the
Company paid Chartwell Leisure II $625,102 and received from Chartwell Leisure
II (net of payments to Chartwell) $3,032,545 under this agreement. In July,
1997, Rainbow purchased the Company's interest in the marketing services
agreement for $19 million. Pursuant to an agreement with Chartwell Leisure II,
the Company paid Chartwell Leisure II 20% of the sale proceeds, or $3.8 million.
<PAGE>
On March 31, 1995, the Company acquired a 1% general partnership
interest in a limited partnership which develops, promotes and franchises the
Wingate Inn franchise system, a new construction hotel brand. Through December
31, 1995, an additional $15 million of capital was invested in the partnership
through a private placement of limited partnership unit interests, which units
were sold for $50,000 each. The Company has an option to acquire the limited
partner investment at a 30% compounded annual rate of return plus additional
outstanding capital loans and an additional call premium equal to approximately
1.5 times annual royalty revenue, as defined. The limited partners may require
the Company to acquire the limited partner interest on August 29, 2001. The
Company also agreed to finance additional limited partner capital contributions
up to $60 million at the prime lending rate, upon the occurrence of certain
events, including the addition of open and operating Wingate Inn properties.
Certain executives of the Company purchased limited partnership units, as
follows: Messrs. Silverman, Pittman and Snodgrass, 10 units each; and Messrs.
Buckman and Holmes, 2 units each and Mr. Smith, 1 unit. In addition, the
Company has agreed to guarantee up to $36 million of borrowings by a subsidiary
of the Partnership, which borrowings will be used to provide financing for
franchises to develop Wingate Inn facilities. The Company exercised its option
to acquire the limited partnership interests on April 1, 1998 for approximately
$114,750 per unit.
In April 1995, the Company and Ramada Franchise Systems, Inc. ("RFS"),
a wholly-owned subsidiary of the Company ("RFS"), entered into a license
agreement with Preferred Equities Corporation ("PEC"), the owner, developer and
operator of interval ownership resort facilities, pursuant to which PEC was
licensed to use certain Ramada servicemarks in connection with its facilities
in the United States. PEC has paid RFS $1 million in initial fees and will pay
a percentage of Gross Sales (as defined) of interval ownership interests during
the term of the agreement. Mr. Nederlander is the Chairman and a significant
shareholder of MEGO Financial Corp., of which PEC is a wholly-owned subsidiary.
The Company entered into an agreement with PEC during the second quarter of
1998 whereby RCI Travel, Inc. a subsidiary of the Company, will provide
corporate and leisure travel services to PEC, including its owners, members and
employees in exchange for fees payable by PEC to the Company.
As part of Mr. Snodgrass's former employment agreement with HFS, the
Company arranged to make available to Mr. Snodgrass a one-quarter interest in a
Hawker 1000 aircraft. Mr. Snodgrass has indicated that he will exercise his
right to purchase such interest from the Company. Such sale is expected to
close by mid-October.
Mr. Rosenwald serves as Vice Chairman of The Bear Stearns Companies,
Inc., an investment banking firm. During 1997, The Bear Stearns Companies, Inc.
provided underwriting and advisory services to the Company, including services
to HFS in connection the Merger.
During 1997, Mr. Tucker provided legal services to the Company for
which he received aggregate compensation of $181,240.
Mr. Pittman is the President and Chief Operating Officer of American
Online, Inc. ("AOL"). Century 21 Real Estate Corporation, an indirect
wholly-owned subsidiary of the Company, is party to an agreement with AOL
pursuant to which the National Advertising Fund for the CENTURY 21 System is
committed to pay a $1,000,000 annual advertising fee to AOL for a period of
five years relating to exclusive advertising rights for the CENTURY 21 System
and for the CENTURY 21 Communities(SM) Website on the AOL network. AOL also
serves as the exclusive on-line home of the CENTURY 21 System intranet site,
Century 21 Online(R). It is expected that AOL and the Company and its
subsidiaries will enter into advertising arrangements and internet marketing
arrangements from time to time in the ordinary course of business in the
future.
On June 3, 1997, the Company entered into a Master Marketing Agreement
with AOL pursuant to which the Company markets its netMarket(R) online product
and its automobile, shopping, travel and information/privacy individual
membership programs through prominent placement and promotions on the AOL
online services and AOL's Internet website, and also markets these products to
AOL subscribers through various other marketing mechanisms, including inbound
telemarketing, outbound telemarketing and direct mail. Pursuant to such
agreement, the Company makes commission payments to AOL with respect to
membership fees and certain other transaction related revenue received by the
Company under this arrangement. The Company made an initial payment to AOL of
$45 million upon execution of the agreement, which will primarily be credited
against future membership commissions payable by the Company to AOL under such
agreement.
<PAGE>
CLAIMS OF CERTAIN CURRENT AND FORMER OFFICERS AND DIRECTORS OF THE COMPANY AND
HFS
In connection with the Merger, certain officers and directors of HFS
exchanged their shares of HFS common stock and options exercisable for HFS
common stock for shares of the Company's Common Stock and options exercisable
for the Company's Common Stock, respectively. As a result of the Accounting
Issues, such officers and directors (some of whom are officers and directors of
the Company) have advised the Company that they believe they have claims
against the Company in connection with such exchange. In addition, certain
current and former officers and directors of the Company would consider
themselves to be members of any class ultimately certified in the federal
securities actions now pending in which the Company is named as a defendant by
virtue of their having been HFS stockholders at the time of the Merger.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and
the New York Stock Exchange. Officers, directors and greater than ten percent
owners are required to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it
has received and written representations from certain reporting persons that
they were not required to file Forms 5 for a specified fiscal year, except as
set forth below, the Company believes that all its officers, directors, and
greater than ten percent beneficial owners complied with all filing
requirements applicable to them with respect to transactions during 1997.
On March 4, 1998, the New Directors filed an amendment to their Forms
3 correcting a typographical error in the exercise price of certain option
grants. On March 4, 1998, Ken Williams, a former director of the Company,
filed a Form 5, which was late. On January 9, 1998, Mr. Snodgrass filed an
amendment to Form 3 correcting a typographical error in his share holdings. On
December 31, 1997, Mr. Rosenwald filed an amendment to Form 3 correcting a
typographical error in his share holdings. On March 31, 1998, Mr. Kunisch filed
an amendment to a Form 4 correcting a typographical error in his share
holdings. On April 8, 1998, Mr. Burnap filed a Form 4 correcting certain
arithmetic errors in prior filings.
<PAGE>
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PROGRAM
[PROPOSAL NO. 2]
GENERAL
The 1998 Employee Stock Purchase Plan (a "Section 423 Plan") for the
Company was unanimously adopted by the Board on July 28, 1998, subject to
approval by stockholders. The Company's Section 423 Plan is designed to
encourage the purchase by participants of shares of Common Stock. The Section
423 Plan is intended to comply with the requirements of Section 423 of the
Code, and to assure the participants of the tax advantages provided thereby
(and described below in the section entitled "Certain Federal Income Tax
Consequences"). In order for the transfer of stock under the Section 423 Plan
to qualify for this treatment, the Section 423 Plan must be approved by
stockholders of the Company within 12 months of the plan's adoption. A total of
2,500,000 shares of Common Stock will be authorized for issuance under the
Section 423 Plan.
The number of shares of Common Stock initially authorized for issuance
under the related Section 423 Plan are subject to adjustment by the Committee
in the event of a recapitalization, stock split, stock dividend or similar
corporate transaction.
Subject to certain procedural requirements, all employees of the
Company who have at least one year of service and work more than 20 hours per
week will be eligible to participate in the Section 423 Plan, except that
employees who are "highly compensated" within the meaning of Section 414(q) of
the Code and employees who are five percent or more stockholders of the Company
or any subsidiary of the Company will not be eligible to participate.
Pursuant to the Section 423 Plan, each eligible employee will be
permitted to purchase shares of the Common Stock through regular payroll
deductions (and/or cash payments) in an amount equal to 2% to 10% of the
employee's base pay (as elected by the employee) for each payroll period.
Participating employees will be able to purchase shares of Common Stock with
such accumulated payroll deductions (and/or cash payments) at the end of a
quarter-annual cycle at a purchase price equal to the lesser of: (i) 85 percent
of the fair market value of the Common Stock on the date the quarter-annual
cycle begins or (ii) 85 percent of the fair market value of Common Stock on the
date the quarter-annual cycle ends. Under the Section 423 Plan, the fair market
value of the shares of the Common Stock which may be purchased by any employee
during any calendar year may not exceed $25,000.
The Company estimates that there are approximately 29,000 employees
who are potential participants in the Section 423 Plan, none of whom are
currently executive officers or directors of the Company.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS AT THE MEETING
APPROVE THE SECTION 423 PLAN.
The full text of the Section 423 Plan is set forth in Annex A to this
Proxy Statement, and the description of the Section 423 Plan set forth herein
is qualified in its entirety by reference to the text of such plan.
ADDITIONAL INFORMATION REGARDING THE SECTION 423 PLAN
Since the amount of benefits to be received by each participant is
determined by his or her elections, the amount of future benefits to be
allocated to any individual or group of individuals under each Section 423 Plan
is not determinable. Similarly, the amount of benefits which would have been
received by or allocated to any individual or group of individuals for fiscal
1997 if the Section 423 Plan had been in effect is not determinable.
<PAGE>
DESCRIPTION OF SECTION 423 PLAN
The following summary describes the Section 423 Plan which is
submitted to stockholders for approval by this Proposal.
PURPOSE. The purpose of the Section 423 Plan is to align employee and
shareholder long-term interests by facilitating the purchase of Common Stock by
employees and to enable employees to develop and maintain significant ownership
of Common Stock. An additional purpose of the Section 423 Plan is to comply
with the requirements of Section 423 of the Code, and thus to obtain for the
participants the tax advantages provided thereby (described below in the
section entitled "Certain Federal Income Tax Consequences").
ADMINISTRATION. The Section 423 Plan will be administered by the
Compensation Committee, which is comprised solely of non-employee directors who
are not eligible to participate in the Section 423 Plan. The Compensation
Committee may make such rules and regulations and establish such procedures for
the administration of the Section 423 Plan as it deems appropriate.
PARTICIPATION. Subject to certain procedural requirements, all
employees of the Company who have at least one year of service and work more
than 20 hours per week will be eligible to participate in the Section 423 Plan,
except that employees who are "highly compensated" within the meaning of
Section 414(q) of the Code and employees who are five percent or more
stockholders of the Company or any subsidiary of the Company will not be
eligible to participate. Designations of corporations participating in the
Section 423 Plan may be made from time to time by the Compensation Committee
from among the subsidiary corporations of the Company, including corporations
which become subsidiaries after the adoption and approval of such Section 423
Plan.
PURCHASE OF SHARES. Pursuant to the Section 423 Plan, each eligible
employee will be permitted to purchase shares of the Common Stock through
regular payroll deductions (and/or cash payments) in an aggregate amount equal
to 2% to 10% of the employee's base pay (as elected by the employee) for each
payroll period. Under the Section 423 Plan, the fair market value of the shares
of the relevant series of Common Stock which may be purchased by any employee
during any calendar year may not exceed $25,000.
STOCK PURCHASE PRICE. Participating employees will be able to purchase
shares of Common Stock with payroll deductions (and/or cash payments) at the
end of a quarter-annual cycle at a purchase price equal to the lesser of: (i)
85 percent of the fair market value of Common Stock on the date the
quarter-annual cycle begins or (ii) 85 percent of the fair market value of
Common Stock on the date the quarter-annual cycle ends.
NONTRANSFERABLE RIGHT TO PURCHASE. A right to purchase shares of a
series which is granted to a participant under the Section 423 Plan is not
transferable otherwise than by will or the laws of descent and distribution,
and is exercisable, during the participant's lifetime, only by the participant.
TERM. No right to purchase shares may be granted under the Section 423
Plan with respect to any fiscal year after fiscal 2008. Rights to purchase
shares which are granted before or during fiscal 2008, however, may extend
beyond the end of fiscal 2008, and the provisions of the Section 423 Plan will
continue to apply thereto.
AMENDMENTS TO OR DISCONTINUANCE OF THE SECTION 423 PLAN. The Board may
from time to time amend or terminate the Section 423 Plan; provided, however,
that (i) no such amendment or termination may adversely affect the rights of
any participant without the consent of such participant and (ii) to the extent
required by Section 423 of the Code or any other law, regulation or stock
exchange rule, no such amendment shall be effective without the approval of
stockholders entitled to vote thereon. Additionally, the Compensation Committee
may make such amendments as it deems necessary to comply with applicable laws,
rules and regulations.
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
THE FOLLOWING DISCUSSION ADDRESSES ONLY THE GENERAL FEDERAL INCOME TAX
CONSEQUENCES OF AWARDS. IT DOES NOT ADDRESS THE IMPACT OF STATE AND LOCAL
TAXES, THE FEDERAL ALTERNATIVE MINIMUM TAX, AND SECURITIES LAWS RESTRICTIONS,
AND IS NOT INTENDED AS TAX ADVICE TO PARTICIPANTS IN THE SECTION 423 PLAN, WHO
SHOULD CONSULT THEIR OWN TAX ADVISORS.
The Section 423 Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423 of the Code. Assuming such
qualification, a participant will not recognize any taxable income as a result
of participating in the Section 423 Plan, exercising options granted pursuant
to the Section 423 Plan or receiving shares of Common Stock purchased pursuant
to such options. A participant may, however, be required to recognize taxable
income as described below.
If a participant disposes of any share of Common Stock purchased
pursuant to the Section 423 Plan after the later to occur of (i) two years from
the grant date for the related option and (ii) one year after the exercise date
for the related option (such disposition, a "Qualifying Transfer"), or if he or
she dies (whenever occurring) while owning any share purchased under the
Section 423 Plan, the participant generally will recognize compensation income,
for the taxable year in which such disposition or death occurs, in an amount
equal to the lesser of (i) the excess of the market value of the disposed share
at the time of such disposition over its purchase price, and (ii) 15% of the
market value of the disposed share on the grant date for the option to which
such disposed share relates. In the case of a Qualifying Transfer, (a) the
basis of the disposed share will be increased by an amount equal to the amount
of compensation income so recognized, and (b) the participant will recognize a
capital gain or loss, as the case may be, equal to the difference between the
amount realized from the disposition of the shares and the basis for such
shares.
If the participant disposes of any share other than by a Qualifying
Transfer, the participant generally will recognize compensation income in an
amount equal to the excess of the market value of the disposed share on the
date of disposition over its purchase price. In such event, the Company will be
entitled to a tax deduction equal to the amount of compensation income
recognized by the participant. Otherwise, the Company will not be entitled to
any tax deduction with respect to the grant or exercise of options under the
Section 423 Plan or the subsequent sale by participants of shares purchased
pursuant to the Section 423 Plan. A transfer by the estate of the participant
of shares purchased by the participant under the Section 423 Plan has the same
federal income tax effects on the Company as a Qualifying Transfer.
Approval of the Section 423 Plan will require the affirmative vote of
a majority of the shares of Common Stock be present or represented by proxy and
entitled to vote at the Meeting. Under applicable Delaware law, in determining
whether such proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against this proposal.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY
THE COMPANY WILL BE VOTED IN FAVOR OF THE EMPLOYEE STOCK PURCHASE PLAN.
RATIFICATION OF APPOINTMENT OF AUDITORS
[PROPOSAL NO. 3]
Deloitte & Touche LLP has been appointed by the Board of Directors as
the auditors for the Company's financial statements for 1998. A representative
of Deloitte & Touche LLP is expected to be present at the Meeting and will have
the opportunity to make a statement if he desires to do so and will be
available to respond to appropriate questions of stockholders.
On January 20, 1998, in connection with the Company's previously
announced plan to name a successor independent accountant following the Merger
with HFS Incorporated, the Company engaged Deloitte & Touche LLP, the auditor
of HFS Incorporated prior to the Merger, as its new principal independent
accountants. Ernst & Young LLP, the Company's former principal independent
accountants, reported on the results of operations of the Company's former CUC
businesses for the year ended December 31, 1997. The reports of Ernst & Young
LLP on the financial statements for the past two fiscal years of the Company
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Audit
Committee of the Company's Board of Directors participated in and approved the
decision to change independent accountants. In connection with its audit for
the two most recent fiscal years and through May 11, 1998, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Ernst & Young LLP
would have caused Ernst & Young LLP to make reference thereto in their report
on the financial statements for such years. During the two most recent fiscal
years and through May 11, 1998, there were no reportable events, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K. However, as previously
reported, the Audit Committee of the Board of Directors of the Company
conducted an investigation into accounting irregularities at former CUC
business units which were audited by Ernst & Young LLP. The results of such
investigation required a restatement of previously reported financial
statements of the Company. Such investigation may result in disagreements by
the Company with Ernst & Young LLP in the future with respect to previously
reported financial statements of the Company which were audited by Ernst &
Young LLP. The Company requested that Ernst & Young LLP furnish it with letters
addressed to the Commission stating whether or not it agrees with the above
statements. A copy of a letter, dated January 22, 1998, is filed as Exhibit 16
to the Company's Current Report Form 8-K dated January 22, 1998. A copy of a
letter, dated May 15, 1998, is filed as Exhibit 16 to the Company's Current
Report on Form 8-K, dated May 18, 1998.
During the two most recent fiscal years and through January 20, 1998,
the Company has not consulted with Deloitte & Touche LLP regarding either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the registrant nor oral advice was provided that
Deloitte & Touche LLP concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issue; or
(ii) any matter that was either the subject of a disagreement, as the
term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
Although stockholder action on this matter is not required, the
appointment of Deloitte & Touche LLP is being recommended to the stockholders
for ratification. Pursuant to applicable Delaware law, the ratification of the
appointment of auditors of the Company requires the affirmative vote of the
holders of a majority of the shares of Common Stock present at the Meeting, in
person or by proxy, and entitled to vote. Abstentions and broker non-votes will
be counted and will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
<PAGE>
STOCKHOLDER PROPOSALS
Proposals and suggestions received from stockholders are given careful
consideration by the Company in accordance with Rule 14a-8 under the Exchange
Act. Stockholder proposals are eligible for consideration for inclusion in the
proxy statement for the 1999 Annual Meeting if they are received by the Company
on or before December 20, 1998. Any proposal should be directed to the
attention of the Secretary, Cendant Corporation, 6 Sylvan Way, Parsippany, New
Jersey 07054. In order for a shareholder proposal submitted outside of Rule
14a-8 to be considered "timely" within the meaning of Rule 14a-4(c) such
proposal must be received by the Company on or prior to March 5, 1999 and in
order for a proposal to be timely under the Company's By-Laws it must be
received on or prior to March 20, 1999 but no earlier than February 18, 1999.
By Order of the Board of Directors
JEANNE M. MURPHY
Secretary
Dated: September 28, 1998
<PAGE>
C E N D A N T C O R P O R A T I O N
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting of Stockholders,
you can ensure your shares are represented at the Meeting by promptly
completing, signing and returning your proxy (attached below) to ChaseMellon
Shareholder Services L.L.C., in the enclosed postage-paid envelope. We urge you
to return your proxy as soon as possible. AS AN ALTERNATIVE TO COMPLETING THIS
FORM, YOU MAY ENTER YOUR VOTE INSTRUCTION BY TELEPHONE. CALL TOLL FREE
1-800-840-1208 AND FOLLOW THE SIMPLE INSTRUCTIONS. Thank you for your attention
to this important matter.
- -------------------------------------------------------------------------------
Detach Here
CENDANT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 30, 1998
The undersigned stockholder of Cendant Corporation ("Cendant") hereby
appoints Henry R. Silverman, Stephen P. Holmes and James E. Buckman, and each
of them individually, with full power of substitution, attorneys and proxies
for the undersigned and authorizes them to represent and vote, as designated
below, all of the shares of common stock of Cendant ("Cendant Common Stock")
which the undersigned may be entitled, in any capacity, to vote at the Annual
Meeting of Stockholders to be held at the Ramada Inn and Conference Center, 130
Route 10 West, East Hanover, New Jersey 07936, on October 30, 1998, at 10:00
a.m. Eastern Standard Time and at any adjournments or postponements of such
meeting, for the following purposes, 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 accompanying Proxy Statement. The
undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders dated September 28, 1998, 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>
[X] PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE FOR THE ELECTION AS
DIRECTORS OF THE NAMED NOMINEES AND FOR PROPOSALS 2, 3 AND 4.
1. ELECTION OF DIRECTORS
NOMINEES: Robert D. Kunisch, John D. Snodgrass,
Dr. Carole G. Hankin, The Rt. Hon. Brian Mulroney, P.C., LL.D,
Robert W. Pittman and E. John Rosenwald, Jr.
FOR WITHHELD
ALL NOMINEES FOR ALL NOMINEES
/ / / /
For all nominees, except vote withheld from the following:
2. To approve the 1998 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify and approve the appointment of Deloitte & Touche LLP as the
Company's Independent Auditors for year ending December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears. If signing for trusts, estates or
corporations, capacity or title should be stated. If shares are owned jointly,
both owners must sign. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
Signature: Date:
---------------------------------- --------------------------
Signature if held jointly: Date:
---------------------------- -----------------
<PAGE>
ANNEX A
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company that the Plan qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Code, and the provisions of the
Plan shall be construed in a manner consistent with the requirements of such
Section of the Code.
2. Definitions.
a. "Board" shall mean the Board of Directors of the Company.
b. "Change in Capitalization" shall mean any increase, reduction,
or change or exchange of shares of Common Stock for a different number or kind
of shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise.
c. "Change in Control of the Company" shall mean any transaction or
series of transactions pursuant to or as a result of which (i) during any
period of not more than 24 months, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a third party who has entered into an agreement to effect a
transaction described in clause (ii), (iii) or (iv) of this paragraph (c))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors
then still in office who either were directors at the beginning of the period
or whose election or nomination for election was previously so approved (other
than approval given in connection with an actual or threatened proxy or
election contest), cease for any reason to constitute at least a majority of
the members of the Board, (ii) beneficial ownership of 50% or more of the
Common Stock Outstanding (or other securities having generally the right to
vote for election of the Board) of the Company shall be sold, assigned or
otherwise transferred, directly or indirectly, other than pursuant to a public
offering, to a third party, whether by sale
<PAGE>
or issuance of Common Stock or other securities or otherwise, (iii) the Company
or any Subsidiary shall sell, assign or otherwise transfer, directly or
indirectly, assets (including stock or other securities of Subsidiaries) having
a fair market or book value or earning power of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
third party, other than the Company or as a wholly-owned Subsidiary thereof, or
(iv) control of 50% or more of the business of the Company shall be sold,
assigned or otherwise transferred directly or indirectly to any third party.
d. "Code" shall mean the Internal Revenue Code of 1986, as amended.
e. "Committee" shall mean a committee of members of the Board
appointed by the Board to administer the Plan and to perform the functions set
forth herein.
f. "Common Stock" shall mean shares of common stock, par value $.01
per share, of the Company.
g. "Company" shall mean Cendant Corporation, a Delaware
corporation.
h. "Compensation" shall mean the fixed salary or wage paid by the
Company to an Employee as reported by the Company to the United States
government for federal income tax purposes, including an Employee's portion of
salary deferral contributions pursuant to Section 401(k) of the Code and any
amount excludable pursuant to Section 125 of the Code, but excluding any bonus,
fee, overtime pay, severance pay, expenses or other special emolument or any
credit or benefit under any employee plan maintained by the Company.
i. "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company (including, but not limited to, military or
sick leave), provided that such leave is for a period of not more than 90 days
or reemployment upon the expiration of such leave is guaranteed by contract or
statute.
j. "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
<PAGE>
k. "Employee" shall mean any person, including an officer, who is
regularly employed by the Company or one of its Designated Subsidiaries.
l. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
m. "Exercise Date" shall mean the last business day of each
Offering Period in which payroll deductions are made under the Plan.
n. "Fair Market Value" per share as of a particular date shall mean
(i) the closing sales price per share of Common Stock on the national
securities exchange on which the Common Stock is principally traded, on such
date or on the last preceding date on which there was a sale of such Common
Stock on such exchange, or (ii) if the shares of Common Stock are not then
listed on a national securities exchange or traded in an over-the-counter
market, such value as the Committee, in its sole discretion, shall determine.
o. "Offering Date" shall mean January 1 of each Plan Year.
p. "Offering Period" shall mean each Plan Year during the
effectiveness of the Plan, commencing on each Offering Date, provided that the
Committee shall have the power to change the duration of Offering Periods.
q. "Parent Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the employer
corporation if, at the time of granting an option, each of the corporations
other than the employer corporation owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
r. "Participant" shall mean an Employee who participates in the
Plan.
s. "Plan" shall mean the 1998 Employee Stock Purchase Plan, as
amended from time to time.
t. "Plan Year" shall mean the calendar year.
<PAGE>
u. "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the employer
corporation if, at the time of granting an option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
3. Eligibility.
a. Subject to the requirements of Section 4.b. hereof, any person
who is (i) an Employee as of an Offering Date and (ii) who is regularly
scheduled to work at least 20 hours per week and at least 5 months per year
shall be eligible to participate in the Plan and be granted an option for the
Offering Period commencing on such Offering Date if (iii) at the commencement
of such Offering Period such person has maintained Continuous Status as an
Employee for at least three months.
b. Notwithstanding any provisions of the Plan to the contrary, no
Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (or any other person whose stock would be attributed
to such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary or Parent of the Company, or (ii) which permits
such Employee's right to purchase stock under all employee stock purchase plans
(as described in Section 423 of the Code) of the Company and any Subsidiary or
Parent of the Company to accrue at a rate which exceeds twenty-five thousand
dollars ($25,000) of Fair Market Value of such stock (determined at the time
such option is granted) for any calendar year in which such option is
outstanding at any time.
4. Grant of Option; Participation.
a. On each Offering Date the Company shall commence an offer by
granting each eligible Employee an option to purchase shares of Common Stock,
subject to the limitations set forth in Sections 3.b. and 10 hereof.
b. Each eligible Employee may elect to become a Participant in the
Plan with respect to an Offering Period, only by filing an agreement with the
Company authorizing payroll deductions (as set forth in Section 5 hereof). Such
authorization will remain in effect for subsequent Offering Periods, until
modified or terminated by the Participant.
<PAGE>
c. The option price per share of the Common Stock subject to an
offering shall be the lesser of: (i) 85% of the Fair Market Value of a share of
Common Stock on the Offering Date or (ii) 85% of the Fair Market Value of a
share of Common Stock on the Exercise Date.
5. Payroll Deductions.
a. A Participant may, in accordance with rules adopted by the
Committee, authorize a payroll deduction of any whole percentage from 2 percent
to 10 percent of such Participant's Compensation each pay period. A Participant
may increase or decrease such payroll deduction (including a cessation of
payroll deductions) at any time but not more frequently than once each six
months, by filing a new authorization form with the Committee.
b. All payroll deductions made by a Participant shall be credited
to such Participant's account under the Plan. A Participant may not make any
additional payments into such account.
6. Exercise of Option.
a. Unless a Participant withdraws from the Plan as provided in
Section 8 hereof, such Participant's election to purchase shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to such option will be purchased for such Participant at the
applicable option price with the accumulated payroll deductions and cash
dividends (credited pursuant to Section 9 hereof) in such Participant's
account. During a Participant's lifetime, a Participant's option to purchase
shares hereunder is exercisable only by such Participant.
b. Any cash balance remaining in a Participant's account after the
termination of an Offering Period will be carried forward to the Participant's
account for the purchase of Common Stock during the next Offering Period if the
Participant has elected to continue to participate in the Plan. Otherwise the
Participant will receive a cash payment equal to the balance of his or her
account.
c. The shares of Common Stock purchased upon exercise of an option
hereunder shall be credited to the Participant's account under the Plan and
shall be deemed to be transferred to the Participant on the Exercise Date and,
except as otherwise provided herein, the Participant shall have all rights of a
stockholder with respect to such shares.
<PAGE>
7. Delivery of Common Stock.
a. As promptly as practicable after receipt by the Committee of a
written request for withdrawal of Common Stock from any Participant, the
Company shall arrange the delivery to such Participant of a stock certificate
representing the shares of Common Stock which the Participant requests to
withdraw. Subject to paragraph b. of this Section 7, withdrawals (i) may be
made no more frequently than once each Plan Year and (ii) cannot occur prior to
two (2) years from the Offering Date on which such shares of Common Stock were
purchased. Shares of Common Stock received upon stock dividends or stock splits
shall be treated as having been purchased on the Exercise Date of the shares to
which they relate.
b. Notwithstanding anything in paragraph a. of this Section 7 to
the contrary, Common Stock may be withdrawn by a Participant more than once
during a Plan Year and prior to the second anniversary of the Exercise Date on
which such shares were purchased under the following circumstances: (i) within
sixty (60) days following a Change in Control of the Company or (ii) upon the
approval of the Committee, in its sole discretion. Shares of Common Stock
purchased pursuant to reinvestment of cash dividends shall not be subject to
the restriction in Section 7.a.(ii) hereof.
8. Withdrawal; Termination of Employment.
a. A Participant may withdraw all, but not less than all, the
payroll deductions and cash dividends credited to such Participant's account
(that have not been used to purchase shares of Common Stock) under the Plan at
any time by giving written notice to the Company received prior to the Exercise
Date. All such payroll deductions and cash dividends credited to such
Participant's account will be paid to such Participant promptly after receipt
of such Participant's notice of withdrawal and such Participant's option for
the Offering Period in which the withdrawal occurs will be automatically
terminated. No further payroll deductions for the purchase of shares of Common
Stock will be made for such Participant during such Offering Period, and any
additional cash dividends during the Offering Period will be distributed to the
Participant.
b. Upon termination of a Participant's Continuous Status as an
Employee during the Offering Period for any reason, including voluntary
termination, retirement or death, the payroll deductions and cash dividends
credited to such Participant's account (that have not been used to purchase
shares of Common Stock) will be returned (and any future cash dividends will be
distributed) to such
<PAGE>
Participant or, in the case of such Participant's death, to the person or
persons entitled thereto under Section 12 hereof, and such Participant's option
will be automatically terminated.
c. A Participant's withdrawal from an offering will not have any
effect upon such Participant's eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.
9. Dividends and Interest.
a. Cash dividends paid on Common Stock held in a Participant's
account shall be credited to such Participant's account and used in addition to
payroll deductions to purchase shares of Common Stock on the Exercise Date.
Dividends paid in Common Stock or stock splits of the Common Stock shall be
credited to the accounts of Participants. Dividends paid in property other than
cash or Common Stock shall be distributed to Participants as soon as
practicable.
b. No interest shall accrue on or be payable with respect to the
payroll deductions or credited cash dividends of a Participant in the Plan.
10. Stock.
a. The maximum number of shares of Common Stock which shall be
reserved for sale under the Plan shall be 2,500,000, subject to adjustment upon
Changes in Capitalization of the Company as provided in Section 16 hereof. If
the total number of shares which would otherwise be subject to options granted
pursuant to Section 4.a. hereof on an Offering Date exceeds the number of
shares then available under the Plan (after deduction of all shares for which
options have been exercised or are then outstanding), the Committee shall make
a pro rata allocation of the shares remaining available for option grant in as
uniform a manner as shall be practicable and as it shall determine to be
equitable. In such event, the Committee shall give written notice to each
Participant of such reduction of the number of option shares affected thereby
and shall similarly reduce the rate of payroll deductions, if necessary.
b. Shares of Common Stock to be delivered to a Participant under
the Plan will be registered in the name of the Participant or, at the election
of the Participant, in the name of the Participant and another person as joint
tenants with rights of survivorship.
<PAGE>
11. Administration. The Plan shall be administered by the Committee,
and the Committee may select an administrator to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full
power and authority, subject to the provisions of the Plan, to promulgate such
rules and regulations as it deems necessary for the proper administration of
the Plan, to interpret the provisions and supervise the administration of the
Plan, and to take all action in connection therewith or in relation thereto as
it deems necessary or advisable. Any decision reduced to writing and signed by
a majority of the members of the Committee shall be fully effective as if it
had been made at a meeting duly held. The Company will pay all expenses
incurred in the administration of the Plan. No member of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan, and all members of the Committee shall be fully
indemnified by the Company with respect to any such action, determination or
interpretation.
12. Designation of Beneficiary.
a. A Participant may file, on forms supplied by and delivered to
the Company, a written designation of a beneficiary who is to receive any
shares and cash remaining in such Participant's account under the Plan in the
event of the Participant's death.
b. Such designation of beneficiary may be changed by the
Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the Participant or, if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
13. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 12 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 8 hereof.
<PAGE>
14. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
15. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to participating
Employees as soon as practicable following each Offering Period, which
statements will set forth the amounts of payroll deductions, the per share
purchase price, the number of shares of Common Stock purchased, the aggregate
shares in the Participant's account and the remaining cash balance, if any.
16. Effect of Certain Changes. In the event of a Change in
Capitalization or the distribution of an extraordinary dividend, the Committee
shall conclusively determine the appropriate equitable adjustments, if any, to
be made under the Plan, including without limitation adjustments to the number
of shares of Common Stock which have been authorized for issuance under the
Plan but have not yet been placed under option, as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised. In the event of a Change in Control of the Company, the Offering
Period will terminate unless otherwise provided by the Committee.
17. Amendment or Termination. The Board may at any time terminate or
amend the Plan. Except as provided in Section 16 hereof, no such termination
can adversely affect options previously granted and no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any Participant. No amendment shall be effective unless approved by the
stockholders of the Company if stockholder approval of such amendment is
required to comply with Rule 16b-3 under the Exchange Act or to comply with any
other law, regulation or stock exchange rule.
18. Notices. All notices or other communications by a Participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
<PAGE>
19. Regulations and Other Approvals;
Governing Law.
a. This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of
Delaware without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by federal law.
b. The obligation of the Company to sell or deliver shares of
Common Stock with respect to options granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
c. The Plan is intended to comply with Rule 16b-3 under the
Exchange Act and the Committee shall interpret and administer the provisions of
the Plan in a manner consistent therewith. Any provisions inconsistent with
such Rule shall be inoperative and shall not affect the validity of the Plan.
20. Withholding of Taxes. If the Participant makes a disposition,
within the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any share or shares issued to such Participant pursuant to such
Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Offering Date or within the
one-year period commencing on the day after the Exercise Date, such Participant
shall, within ten (10) days of such disposition, notify the Company thereof and
thereafter immediately deliver to the Company any amount of Federal, state or
local income taxes and other amounts which the Company informs the Participant
the Company is required to withhold.
21. Effective Date. The Plan shall be effective as of the date
determined by the Company subject to the approval of the Plan by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted.
