UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-10308
CUC International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0918165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Summer Street
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
(203) 324-9261
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value - 396,648,457 shares as of November
30, 1996
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - October 31, 1996
and January 31, 1996. 3
Condensed Consolidated Statements of Income - Three months
ended October 31, 1996 and 1995. 4
Condensed Consolidated Statements of Income - Nine months
ended October 31, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flows -
Nine months ended October 31, 1996 and 1995. 6
Notes to Condensed Consolidated Financial Statements. 7
Independent Accountants' Review Report. 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 24
INDEX TO EXHIBITS 25
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31, January 31,
1996 1996
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $368,325 $333,036
Marketable securities 98,313 97,164
Receivables, net of allowances 537,714 463,492
Prepaid membership materials 49,447 39,061
Prepaid expenses, deferred income
taxes and other 193,282 158,523
Total Current Assets 1,247,081 1,091,276
Membership solicitations in process 70,149 60,713
Deferred membership acquisition costs 393,181 404,655
Contract renewal rights and intangible
assets - net of accumulated amortization
of $120,552 and $100,578 355,530 332,806
Properties, at cost, less accumulated
depreciation of $128,183 and $105,235 142,865 113,353
Deferred income taxes and other 53,301 65,393
$2,262,107 $2,068,196
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $348,935 $296,048
Federal and state income taxes payable 29,389 35,957
Total Current Liabilities 378,324 332,005
Deferred membership income 673,761 682,823
Convertible debt - net of unamortized
original issue discount of $518 and $586 23,457 23,389
Zero coupon convertible notes - net of
unamortized original issue discount of $588 14,410
Other 12,156 13,046
Contingencies (Note 5)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares; issued
402,636,666 shares and 385,576,801
shares 4,026 3,856
Additional paid-in capital 593,430 429,856
Retained earnings 667,163 601,472
Treasury stock, at cost, 6,136,757
shares and 5,115,947 shares (56,618) (30,998)
Other (33,592) (1,663)
Total Shareholders' Equity 1,174,409 1,002,523
$2,262,107 $2,068,196
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
October 31,
1996 1995
REVENUES
Membership and service fees $503,592 $420,685
Software 98,611 71,871
Total Revenues 602,203 492,556
EXPENSES
Operating 181,113 148,786
Marketing 226,347 187,341
General and administrative 81,691 70,264
Costs related to Ideon products
abandoned and restructuring 16,439
Merger, integration, restructuring and
litigation charges associated with
business combinations 147,200
Interest income, net (2,319) (2,263)
Total Expenses 634,032 420,567
INCOME (LOSS) BEFORE INCOME TAXES (31,829) 71,989
(Benefit from) provision for income taxes (13,820) 28,590
NET INCOME (LOSS) ($18,009) $43,399
Net Income (Loss) Per Common Share ($0.04) $0.11
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 407,032 395,369
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Nine Months Ended
October 31,
1996 1995
REVENUES
Membership and service fees $1,445,330 $1,207,430
Software 228,096 181,833
Total Revenues 1,673,426 1,389,263
EXPENSES
Operating 507,454 426,432
Marketing 641,052 537,311
General and administrative 225,967 203,496
Costs related to Ideon products
abandoned and restructuring 97,591
Merger, integration, restructuring and
litigation charges associated with
business combinations 175,835
Interest income, net (6,394) (8,070)
Total Expenses 1,543,914 1,256,760
INCOME BEFORE INCOME TAXES 129,512 132,503
Provision for income taxes 54,939 53,168
NET INCOME $74,573 $79,335
Net Income Per Common Share $0.19 $0.20
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 401,854 391,290
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
OCTOBER 31,
NINE MONTHS ENDED 1996 1995
OPERATING ACTIVITIES:
Net income $74,573 $79,335
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Membership acquisition costs (467,325) (435,093)
Amortization of membership acquisition
costs 478,762 413,954
Deferred membership income (9,263) 16,872
Membership solicitations in process (9,436) (11,567)
Amortization of contract renewal rights
and excess cost 20,013 17,775
Deferred income taxes (41,056) (33,283)
Loss on impairment of assets 4,317
Amortization of original issue discount
on convertible notes 1,743 1,236
Amortization of restricted stock 1,137
Depreciation 28,463 17,890
Effect of change in amortization
periods for Ideon membership
acquisition costs 65,500
Net loss during change in fiscal
year-ends (4,268) (49,944)
Changes in working capital items, net
of acquisitions:
Increase in receivables (71,562) (101,755)
Increase in prepaid membership
materials (9,919) (12,527)
Net decrease (increase) in prepaid
expenses and other current assets 9,634 (17,159)
Net increase (decrease) in accounts
payable, accrued expenses and
federal & state income taxes payable 101,193 (9,481)
(Decrease) increase in product
abandonment and related liabilities (10,841) 27,557
Other, net (9,169) (16,827)
Net cash provided by (used in) operating
activities 82,679 (43,200)
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 108,071 186,375
Purchases of marketable securities (96,517) (141,986)
Acquisitions, net of cash acquired (40,465) (24,890)
Acquisitions of properties (55,425) (53,444)
Net cash used in investing activities (84,336) (33,945)
FINANCING ACTIVITIES:
Issuance of Common Stock 41,879 29,292
Payments for purchase of treasury shares (9,711)
Borrowings of long-term obligations, net (2,135) 6,349
Dividends paid (2,798) (5,783)
Net cash provided by financing activities 36,946 20,147
Net increase (decrease) in cash and cash
equivalents 35,289 (56,998)
Cash and cash equivalents at beginning of
period 333,036 281,019
Cash and cash equivalents at end of period $368,325 $224,021
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management of CUC International Inc. (the "Company"),
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended October 31, 1996 are
not necessarily indicative of the results that may be expected
for the year ending January 31, 1997. For further information,
refer to the supplemental consolidated financial statements and
footnotes thereto included in the Company's Current Report on
Form 8-K filed on September 17, 1996 and the Company's Form 10-K
filing for the year ended January 31, 1996. The condensed
consolidated financial statements at October 31, 1996 and for the
three and nine months ended October 31, 1996 and 1995 are
unaudited, but have been reviewed by independent accountants and
their report is included herein. All periods presented reflect
the Company's reclassifications of deferred membership
acquisition costs (previously classified as an offset to deferred
membership income) and membership solicitations in process
(previously classified as a current asset) to noncurrent assets.
NOTE 2 -- MERGERS AND ACQUISITIONS
During July 1996 the Company acquired all of the outstanding
capital stock of Davidson & Associates, Inc. ("Davidson") for a
purchase price of approximately $1 billion, which was satisfied
by the issuance of approximately 45.1 million shares of the
Company's common stock, par value $.01 per share ("Common
Stock"). Also during July 1996 the Company acquired all of the
outstanding capital stock of Sierra On-Line, Inc. ("Sierra") for
a purchase price of approximately $858 million, which was
satisfied by the issuance of approximately 38.4 million shares of
Common Stock. Davidson and Sierra develop, publish and
distribute educational and entertainment software for home and
school use. During August 1996 the Company acquired all of the
outstanding capital stock of Ideon Group, Inc. ("Ideon"),
principally a provider of credit card enhancement services, for a
purchase price of approximately $393 million, which was satisfied
by the issuance of approximately 16.6 million shares of Common
Stock. The mergers with Davidson, Sierra and Ideon (the "Fiscal
1997 Pooled Entities") have been accounted for in accordance with
the pooling-of-interests method of accounting and, accordingly,
the accompanying interim consolidated financial statements have
been retroactively adjusted as if the Fiscal 1997 Pooled Entities
and the Company had operated as one since inception.
The following represents revenues and net income of the Company
and the Fiscal 1997 Pooled Entities for the nine months ended
October 31, 1995 and the last complete interim period preceding
each of such mergers (in thousands).
Nine months
Six months ended
ended July October 31,
31, 1996 1995
Revenues:
The Company $880,403 $1,037,016
Fiscal 1997 Pooled Entities 190,820 352,247
---------- ----------
$1,071,223 $1,389,263
========== ==========
Net Income (Loss):
The Company $83,558 $120,759
Fiscal 1997 Pooled Entities 9,024 (41,424)
------- -------
$92,582 $79,335
======= =======
Davidson, Sierra and Ideon previously used the fiscal year-ends
December 31, March 31 and December 31, respectively, for their
financial reporting. To conform to the Company's January 31
fiscal year-end, Davidson's and Ideon's operating results for
January 1996 have been excluded from the operating results for the
nine months ended October 31, 1996. In addition, Sierra's
operating results for February and March 1996 have been included
in the operating results for the nine months ended October 31,
1996 and for the year ended January 31, 1996. The above-mentioned
excluded and duplicated periods have been adjusted by a $4.3
million charge to retained earnings at October 31, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- MERGERS AND ACQUISITIONS (continued)
Effective January 1, 1995, Ideon changed its fiscal year end from
October 31 to December 31 (the "Ideon Transition Period"). The
Ideon Transition Period has been excluded from the Company's
historical consolidated statements of income. Ideon's revenues and
net loss for the Ideon Transition Period were $34.7 million and
$(49.9) million, respectively. This excluded period has been
reflected as a $49.9 million charge to retained earnings at
January 31, 1996. The net loss for the Ideon Transition Period was
principally the result of a $65.5 million one-time, non-cash,
pretax charge recorded in connection with a change in accounting
for deferred membership acquisition costs.
In connection with the Davidson, Sierra and Ideon mergers with the
Company, the Company charged approximately $147.2 million ($89.6
million or $.22 per common share after-tax effect) and
approximately $175.8 million ($114.6 million or $.29 per common
share after-tax effect) to operations as merger, integration,
restructuring and litigation charges during the three and nine
months ended October 31, 1996, respectively. Such costs in
connection with the Davidson and Sierra mergers with the Company
(approximately $48.6 million) are non-recurring and are comprised
primarily of transaction costs, other professional fees and
integration costs. Such costs associated with the Company's merger
with Ideon (the "Ideon Merger") (approximately $127.2 million) are
non-recurring and include integration and transaction costs as
well as a provision relating to certain litigation matters (see
Note 5) giving consideration to the Company's intended approach to
these matters. Most of the provision is related to these
outstanding litigation matters. In determining the amount of the
provision, the Company estimated the cost of settling these
litigation matters. In estimating such cost, the Company
considered potential liabilities related to these matters and the
estimated cost of prosecuting and defending them (including out-of-
pocket costs, such as attorneys' fees, and the cost to the Company
of having its management involved in numerous complex litigation
matters). The Company is unable at this time to determine the
estimated timing of the future cash outflows with respect to this
liability. Although the Company has attempted to estimate the
amounts that will be required to settle these litigation matters,
there can be no assurance that the actual aggregate amount of such
settlements will not exceed the amount accrued. Any payments
related to these matters will reduce the amount of the provision.
The Company does not expect any loss in revenue as a result of
these integration and consolidation efforts.
During August 1996, the Company acquired substantially all of the
assets and liabilities of Kevlin Services, Incorporated
("Kevlin") and one other corporation affiliated with Kevlin for a
purchase price of approximately $27 million, which was satisfied
by the issuance of approximately 1.2 million shares of Common
Stock. Kevlin provides membership-based consumer services to
customers of financial institutions. During September 1996, the
Company acquired all of the outstanding capital stock of Dine-A-
Mate, Inc. ("Dine-A-Mate") for a purchase price of approximately
$36 million, which was satisfied by the issuance of approximately
1.4 million shares of Common Stock. Dine-A-Mate offers discount
dining and entertainment program memberships. These acquisitions
were accounted for as poolings-of-interests; however, financial
statements for periods prior to the dates of acquisition have not
been restated due to immateriality.
On October 11, 1996, the Company entered into an agreement to
acquire all of the outstanding capital stock of Knowledge
Adventure, Inc. ("KA"), which designs, develops and markets
children's educational computer software. The consummation of
the acquisition of KA is contingent upon the satisfaction of
certain customary closing conditions, including the approval of
the transaction by the shareholders of KA. The purchase price
for this acquisition will be satisfied by the issuance of
approximately 3.4 million shares of Common Stock, subject to
certain adjustments. This transaction will be accounted for
under the pooling-of-interests method and is expected to be
completed during the fourth quarter of fiscal 1997.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- SHAREHOLDERS' EQUITY
On September 26, 1996, the Company's Board of Directors declared
a three-for-two split of the Common Stock, in the nature of a
stock dividend, effective October 21, 1996, payable to
shareholders of record on October 7, 1996. Accordingly, the
financial statements and all common share and per common share
data have been retroactively adjusted to reflect the stock split.
The par value of the additional shares of Common Stock issued in
connection with the stock split was credited to Common Stock and
charged to retained earnings.
During the nine months ended October 31, 1996, $14.9 million
principal of zero coupon convertible notes were converted into
3.4 million shares of Common Stock and the related unamortized
original issue discount ($68,000) was charged against additional
paid-in capital. The balance of the change in additional paid-in
capital and treasury stock relates principally to acquisitions
and stock option activity.
The Company's fiscal 1990 recapitalization included establishment
of a restricted stock plan designed to compensate and retain key
employees of the Company. During July 1996, 1.4 million
restricted shares of Common Stock were granted with a fair value
on the date of grant of $30.5 million, which amount was deducted
from shareholders' equity and is being amortized over the vesting
period.
Net income per share, assuming the conversions of the zero coupon
convertible notes during the nine months ended October 31, 1996
occurred at the beginning of such period, would not differ
significantly from the Company's actual earnings per share for
such period.
NOTE 4 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF
SOFTWARE REVENUE
Software research and development costs are included in operating
expenses and aggregated $15.9 million and $13.7 million for the
three months ended October 31, 1996 and 1995, respectively, and
$46.1 million and $38.0 million for the nine months ended October
31, 1996 and 1995, respectively. Costs of software revenue are
included in operating expenses and aggregated $24.0 million and
$27.3 million for the three months ended October 31, 1996 and
1995, respectively, and $69.9 million and $75.2 million for the
nine months ended October 31, 1996 and 1995, respectively.
NOTE 5 -- CONTINGENCIES - IDEON
At October 31, 1996, Ideon was defending or prosecuting claims in
thirteen complex lawsuits, twelve of which involved Peter Halmos,
former Chairman of the Board and Executive Management Consultant
to SafeCard Services, Incorporated ("SafeCard"), a subsidiary of
Ideon, and various parties related to him as adversaries. Peter
Halmos is also a plaintiff in three other lawsuits, one against a
former officer, one against a director of Ideon and one against
SafeCard's outside counsel, in which neither SafeCard nor Ideon
have been named as defendant. The thirteen cases in which Ideon or
its subsidiaries is a party are as follows:
A suit initiated by Peter Halmos, related entities, and Myron
Cherry (a former lawyer for SafeCard) in April 1993 in Cook County
Circuit Court in Illinois against SafeCard and one of Ideon's
directors, purporting to state claims aggregating in excess of
$100 million, principally relating to alleged rights to "incentive
compensation," stock options or their equivalent, indemnification,
wrongful termination and defamation. On February 7, 1995, the
court dismissed with prejudice Peter Halmos' claims regarding
alleged rights to "incentive compensation," stock options or their
equivalent, wrongful termination and defamation. Mr. Halmos has
appealed this ruling. SafeCard has filed an answer to the
remaining indemnification claims. Its obligation to file an answer
to the claims of Myron Cherry have been stayed pending settlement
discussions. On December 28, 1995, the court stayed Halmos'
indemnification claims pending resolution of a declatory judgment
action filed by Ideon in Delaware Chancery Court.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
A suit which seeks monetary damages and certain equitable relief
filed by SafeCard in August 1993 in Laramie County Circuit Court
in Wyoming against Peter Halmos and related entities alleging that
Peter Halmos dominated and controlled SafeCard, breached his
fiduciary duties to SafeCard, and misappropriated material non-
public information to make $48 million in profits on sales of
SafeCard stock. In March 1994, Mr. Halmos and related entities
filed a counterclaim in which claims were made of conspiracy in
restraint to trade, monopolization and attempted monopolization,
unfair competition and restraint of trade, breach of contract for
indemnity and intentional infliction of emotional distress.
SafeCard's motion to sever the conspiracy, monopolization and
restraint of trade claims was granted in May 1994. The claims for
the conspiracy, monopolization, restraint of trade and unfair
competition were dismissed without prejudice in June 1994. On
April 12, 1995, the trial court granted the motion of Mr. Halmos
and certain related entities to amend their counterclaims. The
amended counterclaims include claims for indemnification for legal
expenses incurred in the action and a claim that SafeCard's
contract with CreditLine should be rescinded. On April 19, 1995,
the trial court granted Mr. Halmos' motion for summary judgment
that certain of SafeCard's claims against him were barred by the
statute of limitation. On March 14, 1996, the Wyoming Supreme
Court reversed the trial court's ruling that certain of SafeCard's
claims were barred by the statute of limitations. Pursuant to the
Court's order of July 31, 1996, the action has been abated to
permit the parties to engage in settlement negotiations.
A suit seeking monetary damages by Peter Halmos, purportedly in
his name and in the name of CreditLine Corporation and Continuity
Marketing Corporation against SafeCard, one of its officers and
three of Ideon's directors in United States District Court in the
Southern District of Florida, in September 1994 purporting to
state various tort claims, state and federal antitrust claims and
claims of copyright infringement. The claims principally relate to
the allegation by Peter Halmos and his companies that SafeCard has
taken action to prevent him from being a successful competitor.
All discovery in the case has been stayed pending a ruling on a
motion to dismiss filed by SafeCard, its officer and Ideon's
directors. On August 16, 1995, the United States Magistrate Judge
filed a Report and Recommendation that the case be dismissed. The
parties have filed various briefs and memoranda in response to
this Report. On January 4, 1996, the Magistrate recommended ruling
that the statute of limitations was tolled during pendency of the
case in federal court and the plaintiffs' state law claims were
thus not time-barred. Defendants have filed an objection to this
recommendation.
A suit seeking monetary damages by Peter Halmos, as trustee for
the Peter A. Halmos revocable trust dated January 24, 1990 and the
Halmos Foundation, Inc. individually and certain other named
parties on behalf of themselves and all others similarly situated
against SafeCard, one of its officers, one of its former officers
and three of Ideon's directors in the United States District Court
for the Southern District of Florida in December 1994. This
litigation involves claims by a putative class of sellers of
SafeCard Stock for the period January 11, 1993 through December 8,
1994 for alleged violations of the federal and states securities
laws in connection with alleged improprieties in SafeCard's
investor relations program. The complaint also includes individual
claims made by Peter Halmos in connection with the sale of stock
by two trusts controlled by him. SafeCard and the individual
defendants have filed a motion to dismiss. There has been limited
discovery on class certification and identification of "John Doe"
defendant issues. Ideon filed its opposition to the pending motion
for class certification on December 11, 1995. Plaintiffs' reply
was filed March 19, 1996. On December 10, 1996, the parties filed
a joint status report on settlement negotiations requesting an
order abating the action until January 24, 1997 to permit further
settlement negotiations.
A suit seeking monetary damages and injunctive relief by LifeFax,
Inc. and Continuity Marketing Corporation, companies affiliated
with Peter Halmos, in the State Circuit Court in Palm Beach
County, Florida in April 1995 against Ideon, Family Protection
Network, Inc., SafeCard, one of Ideon's directors and Ideon's
Chief Executive Officer purporting to state various statutory and
tort claims. The claims principally relate to the allegation by
these companies that SafeCard's Early Warnings Service and Family
Protection Network were conceived and commercialized by, among
others, Peter Halmos and have been improperly copied. An amended
complaint filed on June 14, 1995 seeking monetary damages adds to
the prior claims certain claims by Nicholas Rubino that
principally relate to the allegation that SafeCard's Pet
Registration Product was conceived by Mr. Rubino and has been
improperly copied. The Company has filed an appropriate answer.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
A suit seeking monetary damages and declatory relief by Peter
Halmos, individually and as trustee for the Peter A. Halmos
revocable trust dated January 24, 1990 and by James B. Chambers,
individually and on behalf of himself and all others similarly
situated against Ideon, SafeCard, each of the members of Ideon's
Board of Directors, three non-board member officers of Ideon,
Ideon's previous outside auditor and one of Ideon's outside
counsel in the United States District Court for the Southern
District of Florida in June 1995. The litigation involves claims
by a putative class of purchasers of Ideon stock between December
14, 1994 and May 25, 1995 and on behalf of a separate class of all
record holders of SafeCard stock as of April 27, 1995. The
putative class claims are for alleged violations of the federal
securities laws, for alleged breach of fiduciary duty and alleged
negligence in connection with certain matters voted on at the
Annual Meeting of SafeCard stockholders held on April 27, 1995.
Ideon and the individual defendants have filed a motion to dismiss
these claims. There has been limited discovery on class
certification issues. Ideon filed its opposition to the pending
motion for class certification on December 11, 1995. Plaintiffs'
reply was filed March 19, 1996. On December 5, 1996, plaintiffs
filed a motion for leave to file an amended complaint to name
additional parties (previously named as "John Does") and to add
additional claims. On December 10, 1996, the parties filed a
joint status report on settlement negotiations requesting an order
abating the action until January 24, 1997 to permit further
settlement negotiations.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard
and Ideon against SafeCard, Ideon, two of their officers, and
Ideon's directors in United States District Court, Southern
District of Florida. This litigation involves claims that the
officers and directors of SafeCard have improperly refused to
accede Peter Halmos' litigation and indemnification demands
against Ideon. Ideon and the individual defendants have filed
motions to dismiss the first amended complaint. On September 29,
1995, Pisano filed a second amended complaint which made
additional allegations of waste and mismanagement against Ideon's
officers and directors in connection with the Family Protection
Network and PGA Tour Partner products. On December 26, 1995, Ideon
filed motions to dismiss the Second Amended Complaint. On June 4
and June 19, 1996, orders were entered dismissing plaintiff's
claims with prejudice for failure to join an indispensable party,
Peter Halmos. On June 27, 1996, plaintiff filed a notice of
appeal. Plaintiff filed his initial brief on September 26, 1996.
The Company filed its answer brief on November 1, 1996.
Plaintiff's reply brief was filed on November 15, 1996. Oral
argument has not yet been scheduled.
A suit seeking monetary damages filed by Peter Halmos against
SafeCard, one of its directors, its former general counsel, and
its legal counsel in the Circuit Court, Fifteenth Judicial
Circuit, in and for Palm Beach County, Florida on August 10, 1995.
This litigation involves claims by Peter Halmos for breach of
fiduciary duty and constructive fraud, fraud, and negligent
misrepresentation and is based on allegations arising out of the
resolution of a shareholder class action lawsuit in 1991 and
SafeCard's subsequent filing of an action against Halmos and his
related companies in Wyoming in 1993. Plaintiff filed an amended
complaint on June 26, 1996. On July 11, 1996, Ideon moved to
dismiss plaintiff's amended complaint or, in the alternative, to
stay the action.
A declatory judgment action by Ideon and its directors against
Peter Halmos in Delaware Chancery Court, New Castle County. This
action seeks a declaration regarding Ideon's advance
indemnification obligations, if any, to Peter Halmos in connection
with his many lawsuits. Halmos filed a motion to dismiss on
jurisdictional grounds on November 17, 1995. Ideon filed a brief
in opposition and an amended complaint on February 14, 1996. On
April 22, 1996, Halmos filed an answer and amended counterclaims
in which High Plains Capital Corporation ("High Plains") and
Halmos Trading & Investment Company ("Halmos Trading") were added
as additional parties. The amended counterclaims seek advancement
and/or indemnification for Halmos, High Plains and Halmos Trading
for certain litigations and an IRS investigation. The amended
counterclaims also seek recovery against individual defendant
directors based on allegations they willfully and unjustly denied
Halmos indemnification and/or advancement.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
A suit by High Plains against Ideon, SafeCard, two of its
directors and The Dilenschneider Group, Inc. in Circuit Court in
Palm Beach County, Florida. This litigation involves claims by
High Plains for certain incentive compensation arising out of
Halmos' affiliation with SafeCard. The complaint includes claims
for breach of written agreements regarding additional services and
expenses, an alternative claim for quantum meruit based on written
agreement and a count for tortious interference with advantageous
business relationship. Ideon filed a motion for final summary
judgment. Discovery has been stayed pending a ruling on this
motion.
A suit filed by High Plains against Ideon and SafeCard in Circuit
Court in Broward County, Florida. This litigation involves claims
by High Plains for alleged breach of oral contract, alleged
violation of Florida's Uniform Trade Secrets Act, alleged
misappropriation of trade secrets and for declaration that certain
alleged trade secrets are property of High Plains. Ideon filed
motions to dismiss and to transfer on December 15, 1995.
A suit by Peter Halmos, purportedly in the name of Halmos Trading,
seeking monetary damages and specific performance against
SafeCard, one of its former officers and one of Ideon's directors
in Circuit Court in Broward County, Florida, making a variety of
claims related to the contested lease of SafeCard's former Ft.
Lauderdale headquarters. SafeCard had vacated the building, ceased
making payments related to such lease and had filed counterclaims.
On March 25, 1996, the parties entered into a Settlement Agreement
under which Ideon made a payment of $3.8 million to settle all
claims currently pending or previously brought in this lawsuit.
A suit by Lois Hekker on behalf of herself and all others
similarly situated seeking monetary damages against Ideon and its
former Chief Executive Officer in the United States District Court
for the Middle District of Florida on July 28, 1995. The
litigation involves claims by a putative class of purchasers of
Ideon stock for the period April 25, 1995 through May 25, 1995 for
alleged violation of the federal securities laws in connection
with statements made about Ideon's business and financial
performance. Defendants filed a motion to dismiss on October 2,
1995. On January 3, 1996, the court stayed all merits discovery
pending rulings on the motion to dismiss and on the plaintiff's
motion for class certification. On August 19, 1996, the court
denied the Company's motion to dismiss. The Company filed its
answer and affirmative defenses on September 30, 1996.
A suit by Frist Capital Partners, Thomas F. Frist III and Patricia
F. Elcan against Ideon and two of its employees in the United
States District Court for the Southern District of New York. The
litigation involves claims against Ideon, its former CEO and its
Vice President of Investor Relations for alleged material
misrepresentations and omissions in connection with announcements
relating to Ideon's expected earnings per share in 1995 and its
new product sales, which included the PGA Tour Card Program,
Family Protection Network and Collections of the Vatican Museums.
The Company filed an answer on December 5, 1996.
As discussed in Note 2, the Company established a provision upon
completion of the Ideon Merger related primarily to these
litigation matters. The Company is also involved in certain other
claims and litigation arising from the ordinary course of business
which are not considered material to the operations of the
Company.
Independent AccountantsO Review Report
Shareholders and Board of Directors
CUC International Inc.
We have reviewed the accompanying condensed consolidated balance
sheets of CUC International Inc. as of October 31, 1996, and the
related condensed consolidated statements of income for the three-
month and nine-month periods ended October 31, 1996 and 1995, and
the condensed consolidated statements of cash flows for the nine-
month periods ended October 31, 1996 and 1995. These financial
statements are the responsibility of the CompanyOs management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the
objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance
sheet of CUC International Inc. as of January 31, 1996, prior to
the restatement for the fiscal 1997 poolings of interest with
Davidson & Associates, Inc. ("Davidson"), Sierra On-Line, Inc.
("Sierra") and Ideon Group, Inc. ("Ideon") described in Note 2 to
the condensed consolidated financial statements. The balance
sheets of Davidson, Sierra and Ideon included in the restated
January 31, 1996 consolidated balance sheet were audited and
reported on separately by other auditors. We have also audited,
as to combination only, the consolidated balance sheet as of
January 31, 1996, after restatement for the fiscal 1997 poolings
of interests with Davidson, Sierra and Ideon; in our opinion,
such consolidated balance sheet has been properly combined on the
basis described in Note 2 to the condensed consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January
31, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
December 2, 1996
Stamford, Connecticut
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 vs.
Three Months Ended October 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 53.2 million members at October 31, 1995 to 63.8
million members at October 31, 1996), which is the largest
contributing factor to the 20% increase in membership revenues
(from $420.7 million for the quarter ended October 31, 1995 to
$503.6 million for the quarter ended October 31, 1996). While
the overall membership base increased by approximately 1.5
million members during the quarter, the average annual fee
collected for the Company's membership services increased by
approximately 3% from the same period a year ago. The Company
divides its memberships into three categories: individual,
wholesale and discount program memberships. Individual
memberships consist of members that pay directly for the services
and the Company pays for the marketing costs to solicit the
member, primarily using direct marketing techniques. Wholesale
memberships include members that pay directly for the services to
their sponsor and the Company does not pay for the marketing
costs to solicit the members. Discount program memberships are
generally marketed through a direct sales force, participating
merchant or general advertising and the related fees are either
paid directly by the member or the local retailer. All of these
categories share various aspects of the Company's marketing and
operating resources.
Compared to the previous year's third quarter, individual,
wholesale and discount program memberships grew by 6%, 28% and
52%, respectively, including members which came from acquisitions
completed during fiscal 1996 (members resulting from acquisitions
being "Acquired Members"). Wholesale memberships have grown in
part due to the success of the Company's international business
in Europe. Discount program memberships have incurred the
largest increase from Acquired Members, principally from Advance
Ross Corporation, acquired during the fourth quarter of fiscal
1996, which provides local discounts to consumers. For the
quarter ended October 31, 1996, individual, wholesale and
discount program memberships represented 68%, 13% and 19% of
membership revenues, respectively. All membership data has been
restated to reflect the acquisition of Ideon, however it has not
been restated to reflect other Acquired Members. The Company
maintains a flexible marketing plan so that it is not dependent
on any one service for the future growth of the total membership
base.
Software revenues increased 37% from $71.9 million for the
quarter ended October 31, 1995 to $98.6 million for the quarter
ended October 31, 1996. Distribution revenue, which consists
principally of third-party software and typically has low
operating margins, remained constant at $11 million. The
Company's software operations continue to focus on the growth of
selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 44%. Contributing to the
software revenue growth in fiscal 1997 is the availability of a
larger number of titles as well as the significant increase in
the installed base of CD-ROM personal computers.
As the Company's membership services continue to mature, a
greater percentage of the total individual membership base is in
its renewal years. This results in increased profit margins for
the Company due to the significant decrease in certain marketing
costs incurred in renewing existing members. Improved response
rates for new members also favorably impacted profit margins.
As a result, operating income before interest, costs related to
Ideon products abandoned and restructuring, merger, integration,
restructuring and litigation charges associated with business
combinations, and income taxes ("EBIT") increased from $86.2
million to $113.1 million, and EBIT margins improved from 17.5%
to 18.8%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended October 31, 1996 vs.
Three Months Ended October 31, 1995 (continued)
Operating costs increased 22% (from $148.8 million to $181.1
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). The major components
of the Company's software operating costs are material costs,
manufacturing labor and overhead, royalties paid to developers
and affiliated label publishers and research and development
costs related to designing, developing and testing new software
products. The increase in overall operating costs is due
principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in
the membership base and software sales. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
Marketing costs remained constant as a percentage of revenue
(38%). This is primarily due to maintained per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred decreased by 3% (from $162.0 million
to $156.9 million) primarily due to increased conversion rates in
the Company's various membership marketing programs. Marketing
costs include the amortization of membership acquisition costs
and other marketing costs, which primarily consist of membership
communications and sales expenses. Amortization of membership
acquisition costs increased by 12% (from $141.6 million to $159.2
million). Other marketing costs increased by 47% (from $45.7
million to $67.1 million). These increases resulted primarily
from the costs of servicing a larger membership base and expenses
incurred when selling and marketing a larger number of software
titles.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Renewal rates are calculated by dividing the total number
of renewing members not requesting a refund during their renewal
year by the total members eligible for renewal.
General and administrative costs remained constant as a
percentage of revenue (14%). This is a result of the Company's
ongoing ability to control overhead. Interest income, net, was
$2.3 million for the three months ended October 31, 1996 and
1995.
Included in costs related to Ideon products abandoned and
restructuring for the three months ended October 31, 1995, are
special charges totaling $10.9 million related to the abandonment
of certain new product developmental efforts and the related
impairment of certain assets and the restructuring of the SafeCard
division of Ideon and the Ideon corporate infrastructure. This
charge of $10.9 million was composed of accrued liabilities of
$10.7 million and asset impairments. Also included in costs
related to products abandoned and restructuring are marketing and
operational costs incurred for Ideon products abandoned of $5.5
million.
Merger, integration, restructuring and litigation charges of
$147.2 million for the three months ended October 31, 1996 are
non-recurring and are comprised primarily of transaction and
integration costs principally associated with the mergers of the
Company with Davidson, Sierra and Ideon as well as a provision
relating to certain outstanding Ideon litigation matters (see
Note 5).
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Nine Months Ended October 31, 1996 vs.
Nine Months Ended October 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 53.2 million members at October 31, 1995 to 63.8
million members at October 31, 1996), which is the largest
contributing factor to the 20% increase in membership revenues
(from $1,207.4 million for the nine months ended October 31, 1995
to $1,445.3 million for the nine months ended October 31, 1996).
While the overall membership base increased by approximately 4.2
million members during the nine months ended October 31, 1996,
the average annual fee collected for the Company's membership
services increased by approximately 3% from the same period a
year ago. The Company divides its memberships into three
categories: individual, wholesale and discount program
memberships. Individual memberships consist of members that pay
directly for the services and the Company pays for the marketing
costs to solicit the member, primarily using direct marketing
techniques. Wholesale memberships include members that pay
directly for the services to their sponsor and the Company does
not pay for the marketing costs to solicit the members. Discount
program memberships are generally marketed through a direct sales
force, participating merchant or general advertising and the
related fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's first nine months, individual,
wholesale and discount program memberships grew by 10%, 23% and
57%, respectively, including Acquired Members which came from
acquisitions completed during fiscal 1996. Wholesale memberships
have grown in part due to the success of the Company's
international business in Europe. Discount program memberships
have incurred the largest increase from Acquired Members,
principally from Advance Ross Corporation, acquired during the
fourth quarter of fiscal 1996, which provides local discounts to
consumers. For the nine months ended October 31, 1996,
individual, wholesale and discount program memberships
represented 68%, 13% and 19% of membership revenues,
respectively. All membership data has been restated to reflect
the acquisition of Ideon, however it has not been restated to
reflect other Acquired Members. The Company maintains a flexible
marketing plan so that it is not dependent on any one service for
the future growth of the total membership base.
Software revenues increased 25% from $181.8 million for the nine
months ended October 31, 1995 to $228.1 million for the nine
months ended October 31, 1996. Distribution revenue, which
consists principally of third-party software and typically has
low operating margins, was down from $52.7 million to $36.7
million. The Company's software operations continue to focus on
the growth of selling titles through retailers. Excluding
distribution revenue, core software revenue grew by 48%.
Contributing to the software revenue growth in fiscal 1997 is the
availability of a larger number of titles as well as the
significant increase in the installed base of CD-ROM personal
computers.
As the Company's membership services continue to mature, a
greater percentage of the total individual membership base is in
its renewal years. This results in increased profit margins for
the Company due to the significant decrease in certain marketing
costs incurred in renewing existing members. Improved response
rates for new members also favorably impacted profit margins. As
a result, EBIT increased from $222.0 million to $299.0 million,
and EBIT margins improved from 16.0% to 17.9%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Nine Months Ended October 31, 1996 vs.
Nine Months Ended October 31, 1995 (continued)
Operating costs increased 19% (from $426.4 million to $507.5
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). The major components
of the Company's software operating costs are material costs,
manufacturing labor and overhead, royalties paid to developers
and affiliated label publishers and research and development
costs related to designing, developing and testing new software
products. The increase in overall operating costs is due
principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in
the membership base and software sales. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
Marketing costs decreased as a percentage of revenue (from 39% to
38%). This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members.
Membership acquisition costs incurred increased by 7% (from
$435.1 million to $467.3 million) as a result of the increased
marketing effort which resulted in an increased number of new
members acquired. Marketing costs include the amortization of
membership acquisition costs and other marketing costs, which
primarily consist of membership communications and sales
expenses. Amortization of membership acquisition costs increased
by 16% (from $414.0 million to $478.8 million). Other marketing
costs increased by 32% (from $123.3 million to $162.3 million).
These increases resulted primarily from the costs of servicing a
larger membership base and expenses incurred when selling and
marketing a larger number of software titles.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Renewal rates are calculated by dividing the total number
of renewing members not requesting a refund during their renewal
year by the total members eligible for renewal.
General and administrative costs decreased as a percentage of
revenue (from 15% to 14%). This is a result of the Company's
ongoing ability to control overhead. Interest income, net,
decreased from $8.1 million to $6.4 million primarily due to cash
used to fund acquisitions during fiscal 1996 and the first nine
months of fiscal 1997.
Included in costs related to Ideon products abandoned and
restructuring for the nine months ended October 31, 1995, are
special charges totaling $45.0 million related to the abandonment
of certain new product developmental efforts and the related
impairment of certain assets and the restructuring of the SafeCard
division of Ideon and the Ideon corporate infrastructure. This
charge of $45.0 million was composed of accrued liabilities of
$36.2 million and asset impairments of $8.8 million. Also
included in costs related to products abandoned and restructuring
are marketing and operational costs incurred for Ideon products
abandoned of $52.6 million.
Merger, integration, restructuring and litigation charges of
$175.8 million for the nine months ended October 31, 1996 are non-
recurring and are comprised primarily of transaction and
integration costs principally associated with the mergers of the
Company with Davidson, Sierra and Ideon as well as a provision
relating to certain outstanding Ideon litigation matters (see
Note 5).
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Membership Information
The following chart sets forth the approximate number of members
and net additions for the respective periods. All membership data
has been restated to reflect the acquisition of Ideon, however it
has not been restated to reflect other Acquired Members.
Net New Member
Number of Additions
Period Members for the Period
Nine Months Ended October 31, 1996 63,835,000 4,185,000
Year Ended January 31, 1996 59,650,000 12,750,000*
Nine Months Ended October 31, 1995 53,160,000 6,260,000**
Year Ended January 31, 1995 46,900,000 3,820,000
Quarter Ended October 31, 1996 63,835,000 1,520,000
Quarter Ended October 31, 1995 53,160,000 1,995,000
*Includes approximately 8 million Acquired Members.
**Includes approximately 3.1 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining
a new member, for memberships other than coupon book memberships,
generally approximate the initial membership fee. Initial
membership fees for coupon book memberships generally exceed the
membership acquisition costs incurred applicable to obtaining a
new member.
Membership cancellations processed by certain of the Company's
clients report membership information only on a net basis.
Accordingly, the Company does not receive actual numbers of gross
additions and gross cancellations for certain types of
memberships. In calculating the number of members, the Company
has deducted its best estimate of cancellations which may occur
during the trial membership periods offered in its marketing
programs. Typically these periods range from one to three
months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations and acquisitions have been
provided through cash flow from operations. The Company also has
a credit agreement, dated March 26, 1996, with certain banks
providing for a $500 million revolving credit facility (the
"Credit Agreement"). The amount of borrowings currently
available to the Company under the Credit Agreement was $500
million at October 31, 1996, as there were no borrowings under
the Credit Agreement to that date. The Credit Agreement is
scheduled to expire March 26, 2001.
In February 1996, Wright Express Corporation ("Wright Express"),
a subsidiary of Ideon, entered into a revolving credit facility
agreement which has an available line of credit of $75 million of
which $50 million may be used to finance working capital
requirements and for general corporate purposes and $25 million
may be used for acquisition financing. This facility expires
December 1, 1998.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity And Capital Resources; Inflation; Seasonality
(continued)
Costs related to the Davidson, Sierra and Ideon mergers are non-
recurring and include integration and transaction costs as well a
provision relating to certain outstanding Ideon litigation
matters (see Note 5) giving consideration to the Company's
intended approach to these litigation matters. In estimating the
cost to settle these matters, the Company considered potential
liabilities relating to these matters and the estimated cost of
prosecuting and defending them (including out-of-pocket costs,
such as attorneys' fees, and the cost to the Company of having
its management involved in numerous complex litigation matters).
The Company is unable at this time to determine the estimated
timing of the future cash outflows with respect to this
liability. Although the Company has attempted to estimate the
amounts that will be required to settle these litigation matters,
there can be no assurance that the actual aggregate amount of
such settlements will not exceed the amount of the provision.
The Company invested approximately $40 million in acquisitions,
net of cash acquired, during the nine months ended October 31,
1996. These acquisitions have been fully integrated into the
Company's operations. The Company is not aware of any trends,
demands or uncertainties that will have a material effect on the
Company's liquidity. The Company anticipates that cash flows
from operations and the Credit Agreement will be sufficient to
achieve its current long-term objectives.
The Company does not anticipate any material capital expenditures
for the next year. Total capital expenditures were $55 million
for the nine months ended October 31, 1996.
The Company intends to continue to review potential acquisitions
that it believes would enhance the Company's growth and
profitability. Any acquisitions paid for in cash will initially
be financed through excess cash flows from operations and the
Credit Agreement. However, depending on the financing necessary
to complete an acquisition, additional funding may be required.
To date, the overall impact of inflation on the Company has not
been material. Except for the cash receipts from the sale of
coupon book memberships, the Company's membership business is
generally not seasonal. Most cash receipts from these coupon
book memberships are received in the fourth quarter and, to a
lesser extent, in the first and the third quarters of each fiscal
year. As is typical in the consumer software industry, the
Company's software business is highly seasonal. Net revenues and
operating income are highest during the third and fourth quarters
and are lowest in the first and second quarters. This seasonal
pattern is primarily due to the increased demand for the
Company's software products during the year-end holiday season.
For the nine months ended October 31, 1996, the Company's
international businesses represented less than 5% of EBIT.
Operating in international markets involves dealing with
sometimes volatile movements in currency exchange rates. The
economic impact of currency exchange rate movements on the
Company is complex because it is linked to variability in real
growth, inflation, interest rates and other factors. Because the
Company operates in a mix of membership services and numerous
countries, management believes currency exposures are fairly well
diversified. To date, currency exposure has not been a
significant competitive factor at the local market operating
level. As international operations continue to expand and the
number of cross-border transactions increases, the Company
intends to continue monitoring its currency exposures closely and
take prudent actions as appropriate.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During August 1996, the Company completed its acquisition of
Ideon. Ideon is a party to a number of lawsuits which are
described in detail in Note 5 to the Condensed Consolidated
Financial Statements of the Company.
ITEM 2. CHANGES IN SECURITIES
During the fiscal quarter ended October 31, 1996, the Company
issued the following equity securities that were not registered
under the Securities Act:
(a) On August 29, 1996, the Company issued 1,155,733 shares of
Common Stock to Kevlin and to one other corporation affiliated
with Kevlin in connection with the acquisition by a subsidiary of
the Company of substantially all of the assets and liabilities of
Kevlin. This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act, as
this issuance of Common Stock did not involve a "public offering"
pursuant to the Securities Act given the limited number and scope
of persons to whom the securities were issued. The Company has
filed a Registration Statement with the Commission, which has
been declared effective by the Commission, with respect to the
resale of the Common Stock received from the Company in
connection with this acquisition.
(b) On September 17, 1996, the Company issued 165,630 shares of
Common Stock to Charles Stack in connection with the acquisition
by a subsidiary of the Company of Book Stacks Unlimited, Inc.
("Book Stacks"), a corporation owned by Mr. Stack. This issuance
was made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act, as this issuance of Common
Stock did not involve a "public offering" pursuant to the
Securities Act given the limited number and scope of persons to
whom the securities were issued. The Company has filed a
Registration Statement with the Commission, which has been
declared effective by the Commission, with respect to the resale
by Mr. Stack of the Common Stock received by him from the Company
in connection with this acquisition.
(c) On September 23, 1996, the Company issued 1,394,894 shares
of Common Stock to Raymond H. Stanton II and Raymond H. Stanton
III (the "Stantons") in connection with the acquisition by the
Company of all of the outstanding capital stock of Dine-A-Mate
from the Stantons. This issuance was made pursuant to the
exemption from registration provided by Section 4(2) of the
Securities Act, as this issuance of Common Stock did not involve
a "public offering" pursuant to the Securities Act given the
limited number and scope of persons to whom the securities were
issued. The Company has filed a Registration Statement with the
Commission, which has been declared effective by the Commission,
with respect to the resale by the Stantons of 741,565 shares of
Common Stock received by them from the Company in connection with
this acquisition.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation of
the Company, as filed June 5, 1996 (filed as Exhibit
3.1 to the Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the
Company's Registration Statement, No. 33-44453, on Form
S-4 dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement, No. 33-44453, on Form
S-4 dated December 19, 1991).*
10.1-10.20 Management Contracts, Compensatory Plans and
Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15,
1996 (filed as Exhibit 10.1 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May
15, 1996 (filed as Exhibit 10.2 to the Company's Form
10-Q for the period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A.
Forbes, dated as of May 15, 1996 (filed as Exhibit 10.3
to the Company's Form 10-Q for the period ended July
31, 1996).*
10.4 Agreement with Cosmo Corigliano, dated February 1, 1994
(filed as Exhibit 10.6 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1995).*
10.5 Amendment to Agreement with Cosmo Corigliano, dated
February 21, 1996 (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Agreement with Amy N. Lipton, dated February 1, 1996
(filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.7 Employment Agreement with Robert M. Davidson, dated
July 24, 1996 (filed as Exhibit 10.7 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.8 Employment Agreement with Janice G. Davidson, dated
July 24, 1996 (filed as Exhibit 10.8 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.9 Non-Competition Agreement with Robert M. Davidson,
dated July 24, 1996 (filed as Exhibit 10.9 to the
Company's Form 10-Q for the period ended July 31,
1996).*
10.10 Non-Competition Agreement with Janice G. Davidson,
dated July 24, 1996 (filed as Exhibit 10.10 to the
Company's Form 10-Q for the period ended July 31,
1996).*
10.11 Employment Agreement with Kenneth A. Williams,
dated July 24, 1996 (filed as Exhibit 10.11 to the
Company's Form 10-Q for the period ended July 31,
1996).*
10.12 Non-Competition Agreement with Kenneth A.
Williams, dated July 24, 1996 (filed as Exhibit 10.12
to the Company's Form 10-Q for the period ended July
31, 1996).*
10.13 Form of Employee Stock Option under the 1987 Stock
Option Plan, as amended.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.14 Form of Director Stock Option for 1990 and 1992
Directors Stock Options Plans (filed as Exhibit 10.4 to
the Company's Annual Report for the fiscal year ended
January 31, 1991, as amended December 12, 1991 and
December 19, 1991).*
10.15 Form of Director Stock Option for 1994 Directors
Stock Option Plan, as amended.
10.16 1987 Stock Option Plan, as amended.
10.17 1990 Directors Stock Option Plan, as amended.
10.18 1992 Directors Stock Option Plan, as amended.
10.19 1994 Directors Stock Option Plan, as amended.
10.20 Restricted Stock Plan and Form of Restricted Stock
Plan Agreement (filed as Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1991, as amended December 12, 1991 and
December 19, 1991).*
10.21 Credit Agreement, dated as of March 26, 1996,
among: CUC International Inc.; the banks signatory
thereto; The Chase Manhattan Bank, N.A., Bank of
Montreal, Morgan Guaranty Trust Company of New York,
and The Sakura Bank, Limited as Co-Agents; and The
Chase Manhattan Bank, N.A., as Administrative Agent
(filed as Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.22 Agreement and Plan of Merger, dated October 17,
1995, among CUC International Inc., Retreat Acquisition
Corporation and Advance Ross Corporation (filed as
Exhibit 2 to the Company's Registration Statement on
Form S-4, Registration No. 33-64801, filed on December
7, 1995).*
10.23 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Davidson & Associates,
Inc., CUC International Inc. and Stealth Acquisition I
Corp. (filed as Exhibit 2(a) to the Company's Report on
Form 8-K filed March 12, 1996).*
10.24 Amendment No.1 dated as of July 24, 1996, among
Davidson & Associates, Inc., CUC International Inc. and
Stealth I Acquisition Corp. (filed as Exhibit 2.2 to
the Company's Report on Form 8-K filed August 5,
1996).*
10.25 Agreement and Plan of Merger, dated as of February
19, 1996, by and among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition Corp. (filed
as Exhibit 2(b) to the Company's Report on Form 8-K
filed March 12, 1996).*
10.26 Amendment No.1 dated as of March 27, 1996, among
Sierra On-Line, Inc., CUC International Inc. and Larry
Acquisition Corp. (filed as Exhibit 2.4 to the
Company's Report on Form 8-K filed August 5, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.27 Amendment No.2 dated as of July 24, 1996, among
Sierra On-Line, Inc., CUC International Inc. and Larry
Acquisition Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.28 Registration Rights Agreement dated July 24, 1996,
among CUC International Inc. and the other parties
signatory thereto (filed as Exhibit 10.1 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.29 Agreement of Sale dated July 23, 1996, between
Robert M. Davidson and Janice G. Davidson and CUC Real
Estate Holdings, Inc. (filed as Exhibit 10.2 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.30 Agreement and Plan of Merger, dated as of April
19, 1996, by and among Ideon Group, Inc., CUC
International Inc. and IG Acquisition Corp. (filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31, 1996).*
10.31 Form of U.S. Underwriting Agreement dated October
1996, among CUC International Inc., certain selling
stockholders and the U.S. Underwriters (filed as
Exhibit 1.1 (a) to the Company's Registration Statement
on Form S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.32 Form of International Underwriting Agreement dated
October 1996, among CUC International Inc., certain
selling stockholders and the International Underwriters
(filed as Exhibit 1.1 (b) to the Company's Registration
Statement on Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
11 Statement re: Computation of Per Share Earnings
(Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
(b) During the quarter ended October 31, 1996, the Company filed
the following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on August 5, 1996,
reporting an Item 2 ("Acquisition or Disposition of
Assets") event.
(2) Current Report on Form 8-K, filed on August 14, 1996,
reporting an Item 2 ("Acquisition or Disposition of
Assets") event.
(3) Current Report on Form 8-K, filed on September 17, 1996,
reporting an Item 5 ("Other Events") event and an Item
7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") event.
(4) Current Report on Form 8-K, filed on September 19, 1996,
reporting an Item 5 ("Other Events") event.
(5) Current Report on Form 8-K, filed on September 26, 1996,
reporting an Item 5 ("Other Events") event.
(6) Current Report on Form 8-K, filed on October 7, 1996,
reporting an Item 5 ("Other Events") event.
(7) Current Report on Form 8-K, filed on October 28, 1996,
reporting an Item 5 ("Other Events") event.
*Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CUC INTERNATIONAL INC.
(Registrant)
Date: December 12, 1996 By: WALTER A. FORBES
Walter A. Forbes - Chief
Executive Officer and Chairman
of the Board (Principal
Executive Officer)
Date: December 12, 1996 By: COSMO CORIGLIANO
Cosmo Corigliano - Senior Vice
President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
No. Description Page
3.1 Amended and Restated Certificate of
Incorporation of the Company, as filed
June 5, 1996 (filed as Exhibit 3.1 to the
Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit
3.2 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as
Exhibit 4.1 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
10.1-10.20 Management Contracts, Compensatory
Plans and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as
of May 15, 1996 (filed as Exhibit 10.1 to
the Company's Form 10-Q for the period
ended July 31, 1996).*
10.2 Agreement with Christopher K. McLeod,
dated as of May 15, 1996 (filed as
Exhibit 10.2 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract
with Walter A. Forbes, dated as of May
15, 1996 (filed as Exhibit 10.3 to the
Company's Form 10-Q for the period ended
July 31, 1996).*
10.4 Agreement with Cosmo Corigliano, dated
February 1, 1994 (filed as Exhibit 10.6
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1995).*
10.5 Amendment to Agreement with Cosmo
Corigliano, dated February 21, 1996
(filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Agreement with Amy N. Lipton, dated
February 1, 1996 (filed as Exhibit 10.8
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1996).*
10.7 Employment Agreement with Robert M.
Davidson, dated July 24, 1996 (filed as
Exhibit 10.7 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.8 Employment Agreement with Janice G.
Davidson, dated July 24, 1996 (filed as
Exhibit 10.8 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.9 Non-Competition Agreement with Robert M.
Davidson, dated July 24, 1996 (filed as
Exhibit 10.9 to the Company's Form 10-Q
for the period ended July 31, 1996).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.10 Non-Competition Agreement with
Janice G. Davidson, dated July 24, 1996
(filed as Exhibit 10.10 to the Company's
Form 10-Q for the period ended July 31,
1996).*
10.11 Employment Agreement with Kenneth A.
Williams, dated July 24, 1996 (filed as
Exhibit 10.11 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.12 Non-Competition Agreement with
Kenneth A. Williams, dated July 24, 1996
(filed as Exhibit 10.12 to the Company's
Form 10-Q for the period ended July 31,
1996).*
10.13 Form of Employee Stock Option under
the 1987 Stock Option Plan, as amended.
10.14 Form of Director Stock Option for
1990 and 1992 Directors Stock Options
Plans (filed as Exhibit 10.4 to the
Company's Annual Report for the fiscal
year ended January 31, 1991, as amended
December 12, 1991 and December 19,
1991).*
10.15 Form of Director Stock Option for
1994 Directors Stock Option Plan, as
amended.
10.16 1987 Stock Option Plan, as amended.
10.17 1990 Directors Stock Option Plan, as amended.
10.18 1992 Directors Stock Option Plan, as amended.
10.19 1994 Directors Stock Option Plan, as amended.
10.20 Restricted Stock Plan and Form of
Restricted Stock Plan Agreement (filed as
Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1991, as amended
December 12, 1991 and December 19,
1991).*
10.21 Credit Agreement, dated as of March 26,
1996, among: CUC International Inc.; the
Banks signatory thereto; The Chase
Manhattan Bank, N.A., Bank of Montreal,
Morgan Guaranty Trust Company of New
York, and the Sakura Bank, Limited as Co-
Agents; and The Chase Manhattan Bank,
N.A., as Administrative Agent (filed as
Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1996).*
10.22 Agreement and Plan of Merger, dated
October 17, 1995, among CUC International
Inc., Retreat Acquisition Corporation and
Advance Ross Corporation (filed as
Exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No.
33-64801, filed on December 7, 1995).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.23 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Davidson
& Associates, Inc., CUC International
Inc. and Stealth Acquisition I Corp.
(filed as Exhibit 2(a) to the Company's
Report on Form 8-K filed March 12,
1996).*
10.24 Amendment No.1 dated as of July 24, 1996,
among Davidson & Associates, Inc., CUC
International Inc. and Stealth I
Acquisition Corp. (filed as Exhibit 2.2
to the Company's Report on Form 8-K filed
August 5, 1996).
10.25 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Sierra On-
Line, Inc., CUC International Inc. and
Larry Acquisition Corp. (filed as Exhibit
2(b) to the Company's Report on Form 8-K
filed March 12, 1996).*
10.26 Amendment No.1 dated as of March 27,
1996, among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition
Corp.(filed as Exhibit 2.4 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.27 Amendment No.2 dated as of July 24,
1996, among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition
Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.28 Registration Rights Agreement dated July
24, 1996, among CUC International Inc.
and the other parties signatory thereto
(filed as Exhibit 10.1 to the Company's
Report on Form 8-K filed August 5,
1996).*
10.29 Agreement of Sale dated July 23, 1996,
between Robert M. Davidson and Janice G.
Davidson and CUC Real Estate Holdings,
Inc. (filed as Exhibit 10.2 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.30 Agreement and Plan of Merger, dated as of
April 19, 1996, by and among Ideon Group,
Inc., CUC International Inc. and IG
Acquisition Corp. (filed as Exhibit 10.21
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1996).*
10.31 Form of U.S. Underwriting Agreement
dated October 1996, among CUC
International Inc., certain selling
stockholders and the U.S. Underwriters
(filed as Exhibit 1.1 (a) to the
Company's Registration Statement on Form
S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.32 Form of International Underwriting
Agreement dated October 1996, among CUC
International Inc., certain selling
stockholders and the International
Underwriters (filed as Exhibit 1.1 (b) to
the Company's Registration Statement on
Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
11 Statement re: Computation of Per Share
Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
*Incorporated by reference
CUC INTERNATIONAL INC. AND
SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
October 31,
----------- ----------
1996 1995
----------- ----------
PRIMARY
Average shares outstanding 393,893 376,284
Net effect of dilutive stock options
- based on the treasury stock method
using average market price 13,139 19,085
------- --------
Total 407,032 395,369
======= =======
Net Income (Loss) ($18,009) $43,399
======= =======
Net income (loss)
per common share ($0.044) $0.110
===== =====
FULLY DILUTED
Average shares outstanding 393,893 376,284
Net effect of dilutive stock options
- based on the treasury stock method
using the period - end market price,
if higher than the average market
price 13,155 19,891
Net effect of zero coupon convertible
notes - based on the if converted
method 3,147 7,890
------- --------
Total 410,195 404,065
======= =======
Net Income (Loss) ($18,009) $43,399
Zero Coupon Convertible Notes and
Convertible Debt 452 525
--------- --------
($17,557) $43,924
========= =======
Net income (loss)
per common share ($0.043) $0.109
======== ======
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Nine Months Ended
October 31,
----------- -----------
1996 1995
PRIMARY ----------- -----------
Average shares outstanding 388,519 374,235
Net effect of dilutive stock options
- based on the treasury stock method
using average market price 13,335 17,055
------- --------
Total 401,854 391,290
======= =======
Net Income $74,573 $79,335
======= =======
Net income per common share $0.186 $0.203
===== =====
FULLY DILUTED
Average shares outstanding 388,519 374,235
Net effect of dilutive stock options
- based on the treasury stock method
using the period - end market price,
if higher than the average market
price 13,568 18,575
Net effect of zero coupon convertible
notes - based on the if converted
method 4,680 8,400
------- --------
Total 406,767 401,210
===== =====
Net Income $74,573 $79,335
Zero Coupon Convertible Notes and
Convertible Debt 1,443 1,845
------- --------
$76,016 $81,180
======= =======
Net income per common share $0.187 $0.202
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 15-LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
December 12, 1996
Shareholders and Board of Directors
CUC International Inc.
We are aware of the incorporation by reference in the following
Registration Statements of our reports dated May 22, 1996, September
4, 1996 and December 2, 1996 relating to the unaudited condensed
consolidated interim financial statements of CUC International Inc.
which are included in its Forms 10-Q for the quarters ended April
30, 1996, July 31, 1996 and October 31, 1996:
Form S-8s,
33-17247 CUC International Inc. 1985 Non-Qualified Stock Option Plan
33-17248 CUC International Inc. 1985 Incentive Stock Option Plan
33-17249 CUC International Inc. 1987 Performance Share Stock Option
Plan
33-26875 CUC International Inc. 1987 Stock Option Plan
33-75682 CUC International Inc. 1987 Stock Option Plan as amended
33-93322 CUC International Inc. 1987 Stock Option Plan as amended
33-41823 CUC International Inc. 1990 Directors Stock Option Plan
33-48175 Entertainment Publications Inc. 1988 Non-Qualified Stock
Option Plan
33-58896 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan
33-91656 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan as amended
333-03241 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan as amended
33-74068 CUC International Inc. 1992 Directors Stock Option Plan
33-74066 CUC International Inc. 1992 Employee Stock Option Plan
33-91658 CUC International Inc. 1992 Employee Stock Option Plan as
amended
333-00475 CUC International Inc. 1992 Employee Stock Option Plan as
amended
333-03237 CUC International Inc. 1992 Employee Stock Option Plan as
amended
33-75684 CUC International Inc. 1994 Employee Stock Purchase Plan as
amended
33-80834 CUC International Inc. Savings Incentive Plan
33-93372 CUC International Inc. 1994 Directors Stock Option Plan
333-09633 Sierra On-Line, Inc. 1987 Stock Option Plan
333-09637 Sierra On-Line, Inc. 1995 Stock Option and Award Plan
333-09655 Papyrus Design Group Inc. 1992 Stock Option Plan
Form S-3s,
33-30306, 33-47271, 33-58598, 33-63237, 33-95126, 333-11035,
333-13537, 333-17323 and 333-17411
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports
are not a part of the registration statements prepared or certified
by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG LLP
Stamford, Connecticut
5
0000723612
CUC INTERNATIONAL INC.
1,000
9-MOS
JAN-31-1997
OCT-31-1996
368,325
98,313
537,714
0
0
1,247,081
271,048
128,183
2,262,107
378,324
23,457
0
0
4,026
1,170,383
2,262,107
1,673,426
1,673,426
0
1,374,473
175,835
0
(6,394)
129,512
54,939
74,573
0
0
0
74,573
.19
.19
(5)
, 199_
Dear (name):
I am pleased to advise you that the Compensation Committee (the
"Committee") of the Board of Directors of CUC International Inc.
(the "Corporation") on ___________, 199_ authorized the granting
to you of a non-statutory option to purchase ________ shares of
common stock, $.01 par value, of the Corporation (the "Common
Stock") at a price of $_____ per share (the "Exercise Price"),
which the Committee believes to be the fair market value on that
date. Your option has been granted under the Company's 1987
Stock Option Plan (the "Plan").
Terms not defined herein shall have the meaning set forth in the
Plan.
Your option may be exercised under the following terms:
(a) This option shall not be transferable except: by will or the
laws of descent and distribution; pursuant to a domestic
relations order, as defined in the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employee
Retirement Security Act or the rules thereunder; or as a
gift to your family members, trusts for the benefit of your
family members or charities or other not-for-profit
organizations.
(b) Subject to the provisions of paragraphs (e), (f) and (g)
hereof, this option may be exercisable by you as follows:
You may purchase ____________ of the Common Stock for which
options are herein granted on or after February 1, 199_ and
an additional _____________ on or after each successive
February 1.
Your right to exercise this option shall be cumulative. The
Board of Directors of the Corporation may at any time
accelerate the vesting of this option. This option shall
expire on the tenth anniversary of the date of grant.
(c) If required by the Corporation, prior to the delivery to you
of a certificate or certificates representing the shares of
Common Stock purchased by you upon the exercise of this
option, you shall have deposited with the Corporation a non-
disposition letter (restricting disposition by you of the
shares of Common Stock) in form satisfactory to counsel for
the Corporation.
(d) In the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the Common Stock, the number and kind of shares subject to
this option and the Exercise Price shall be equitably
adjusted (including by payment of cash to you) in the
discretion of the Committee in order to preserve the
benefits or potential benefits intended to be made available
to you under this option. The determination of the
Committee as to what adjustments shall be made, and the
extent thereof, shall be final. Unless otherwise determined
by the Committee, such adjustments shall be subject to the
same vesting schedule and restrictions to which this option
is subject. No fractional shares of Common Stock shall be
reserved or authorized or made subject to this option by any
such adjustment.
(e) Notwithstanding anything herein to the contrary, if you die
while in the employ of the Corporation or any of its
subsidiaries or if you die within a period of three (3)
months after your employment has terminated or if your
employment is terminated by reason of total and permanent
disability (as defined in Section 22(e)(3) of the Code),
this option shall become immediately exercisable in full
and, in the case of your death, your estate shall have the
right to exercise your rights hereunder.
(f) Notwithstanding anything herein to the contrary, in the
event your employment or relationship with the Corporation
or any of its subsidiaries is terminated for any reason
other than death or total and permanent disability (as
defined in Section 22(e)(3) of the Code,) you shall be
entitled to exercise your options hereunder, to the extent
exercisable on the date of termination, for a period of four
(4) months from such termination, but in no event after the
expiration of the term of the option.
(g) You may pay for shares purchased pursuant hereto as follows:
(i) You may pay the Exercise Price per share in cash or
check at the time of exercise;
(ii) You may pay the Exercise Price by remitting to the
Corporation in cash or by check an amount equal to or
greater than the product of (a) the par value of the
Corporation's Common Stock and (b) the number of shares
of Common Stock acquired pursuant to the exercise of
this option (such amount is hereinafter referred to as
the "Minimum Payment") and by executing a promissory
note for the balance equal to (A) the product of (i)
the Exercise Price and (ii) the number of shares of
Common Stock acquired pursuant to the exercise of this
option less (B) the Minimum Payment (such balance is
hereinafter referred to as the "Principal Amount").
Pursuant to the terms of the promissory note, interest
will be charged per year at the lowest interest rate in
effect at the time of exercise, which will prevent any
imputation of income under Sections 483 or 7872 of the
Code. Five years from the date of exercise, the
Principal Amount plus interest compounded annually will
be due. In the discretion of the Corporation's Board
of Directors, the Corporation may demand repayment of
the Principal Amount plus accrued interest upon a
termination of your employment with the Corporation or
any of its subsidiaries. With notice of your exercise
of your option, you must give notice of your election
to use the loan arrangement described above. In the
discretion of the Corporation's Board of Directors, you
may be required to execute a pledge agreement. The
Corporation will retain possession of certificates
representing shares of Common Stock acquired pursuant
to the exercise of this option until the loan is repaid
in full;
(iii) Provided that at the time of exercise, Common
Stock is publicly traded and quoted regularly in the
Wall Street Journal, you may pay for the shares of
Common Stock purchased pursuant hereto by delivery of
already-owned shares of Common Stock owned by you free
and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued
(a) if listed on a national securities exchange, at the
average closing price for the ten (10) trading days
immediately preceding the date of exercise, or (b)
otherwise at the average of the closing bid and ask
quotations published in the Wall Street Journal for the
ten (10) trading days immediately preceding the date of
exercise (as so valued, the "Fair Market Value");
(iv) If approved by the Committee, you may request that
the Corporation withhold from the number of shares of
Common Stock which you would otherwise acquire upon
exercise of your option and payment of the Exercise
Price therefor, that number of shares of Common Stock
which have an aggregate Fair Market Value equal to the
aggregate Exercise Price of all or any portion of the
options which you are then exercising; or
(v) You may pay with any other legal consideration
that may be acceptable to the Committee in its sole
discretion at the time of exercise.
When you wish to exercise your stock option in whole or in part,
please refer to the provisions of this letter and correspond in
writing with the Secretary of the Corporation. This is not an
incentive stock option under Section 422A of the Code.
Very truly yours,
E. Kirk Shelton
President and Chief Operating Officer
(5)
Dear (name):
I am pleased to advise you that the Committee (the "Committee")
of the Board of Directors of CUC International Inc. (the
"Corporation") which administers the Corporation's 1994 Directors
Stock Option Plan (the "Plan") on November __, 199_ authorized
the granting to you under the Plan of a non-statutory option to
purchase 11,250 shares of common stock, $.01 par value, of the
Corporation (the "Common Stock") at a price of $____________ per
share (the "Exercise Price"), which the Committee believes to be
the fair market value of the Common Stock on that date.
Terms not defined herein shall have the meaning set forth in the
Plan.
1. Your option may be exercised under the following terms:
(a) This option shall not be transferable except: by
will or the laws of descent and distribution; pursuant
to a domestic relations order, as defined in the
Internal Revenue Code of 1986, as amended (the "Code")
or Title I of the Employee Retirement Security Act or
the rules thereunder; or as a gift to your family
members, trusts for the benefit of your family members
or charities or other not-for-profit organizations.
(b) Subject to the provisions of paragraphs (e)
through (i) hereof, this option may be exercisable by
you as follows:
You may purchase some or all of the Common Stock
for which options are herein granted on or after the
date hereof.
Your right to exercise this option shall be cumulative.
This option shall expire on the tenth anniversary
of the date hereof.
(c) If required by the Corporation, prior to the
delivery to you of a certificate or certificates
representing the shares of Common Stock purchased by
you upon the exercise of the option, you shall have
deposited with the Corporation a non-disposition letter
(restricting disposition by you of the shares of Common
Stock) in form satisfactory to counsel for the
Corporation. In no case may you sell the Common Stock
purchased by you upon the exercise of this option until
at least six months after the date hereof.
(d) In the event of a stock split, stock dividend,
recapitalization, reorganization, merger,
consolidation, extraordinary dividend, split-up, spin-
off, combination, stock repurchase, exchange of shares,
warrants or rights offering to purchase stock at a
price substantially below fair market value or other
similar corporate event affecting the Common Stock, the
number and kind of shares subject to this option and
the Exercise Price shall be equitably adjusted
(including by payment of cash to you) in the
discretion of the Committee, as defined in the Plan, in
order to preserve the benefits or potential benefits
intended to be made available to you under this option.
The determination of the Committee as to what
adjustments shall be made, and the extent thereof,
shall be final. Unless otherwise determined by the
Committee, such adjustments shall be subject to the
same vesting schedule and restrictions to which this
option is subject. No fractional shares of Common
Stock shall be reserved or authorized or made subject
to this option by any such adjustment.
(e) In the event that the term of your membership on
the Board of Directors expires because you (i) lose an
election for a position on the Board of Directors, (ii)
resign from the Board of Directors prior to attaining
age 65 or (iii) fail to seek election to the Board of
Directors for a term commencing prior to your attaining
age 62 (in any case, other than on account of death or
physical or mental disability), this option shall
remain exercisable until the earlier to occur of the
expiration of one month after the expiration of your
term or the stated expiration date of this option, at
which time this option shall expire.
(f) In the event that the term of your membership on
the Board of Directors expires because you (i) resign
after age 65 or (ii) fail to seek election to the Board
of Directors for a term commencing after you attain age
62, this option shall remain exercisable until the
earlier to occur of the expiration of five years after
the expiration of your term or the stated expiration
date of this option, at which time this option shall
expire.
(g) In the event that the term of your membership on
the Board of Directors expires because you become
physically or mentally disabled (unless such expiration
is described in paragraph (f) above) or you die, the
options granted to you under this letter shall remain
exercisable until the earlier to occur of the
expiration of one year after the expiration of your
term or the stated expiration date of such option, at
which time such options shall expire.
(h) In the event that you are removed from the Board
of Directors by the shareholders of the Corporation or
by the Board of Directors, options granted to you shall
expire immediately upon such removal or
disqualification.
(i) In the event you are appointed a "director
emeritus" by the Board of Directors, and you cease to
be a director emeritus because of physical or mental
disability or death, the provisions of paragraph 1(g)
shall apply; if you cease to be a director emeritus
because of removal by the Board of Directors, the
provisions of paragraph 1(h) shall apply; and if you
cease to be a director emeritus for any other reason,
the provisions of paragraph 1(f) shall apply.
2. You may pay for shares purchased pursuant hereto as follows:
(a) You may pay the Exercise Price per share in cash
or by certified check at the time of exercise;
(b) Provided that at the time of exercise Common Stock
is publicly traded and quoted regularly in the Wall
Street Journal, you may pay for the shares by delivery
of already-owned shares of Common Stock owned by you
free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued
(a) if listed on a national securities exchange, at the
average closing price for the ten (10) trading days
immediately preceding the date of exercise or (b)
otherwise at the average of the closing bid and ask
quotations published in the Wall Street Journal for the
ten (10) trading days immediately preceding the date of
exercise; or
(c) You may pay for the shares by any combination of
the methods set forth in (a) and (b) above.
When you wish to exercise your stock option in whole or in part,
please refer to the provisions of this letter and correspond in
writing with the Secretary of the Corporation. This is not an
incentive stock option under Section 422A of the Code.
Very truly yours,
E. Kirk Shelton
President and Chief Operating Officer
AS AMENDED THROUGH SEPTEMBER 10, 19961
1987 STOCK OPTION PLAN
OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees,
including officers and directors who are employees, of CUC
International Inc., a Delaware corporation (the "Company"),
and its present and future Subsidiaries, as defined in
Paragraph 16, and to offer an additional inducement in
obtaining the services of such individuals. The Plan
provides for the grant of "incentive stock options," within
the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-qualified stock
options."
2. STOCK SUBJECT TO THE PLAN; LIMITATION ON OPTIONS GRANTED TO
ANY ONE OPTIONEE. Options may be granted under the Plan to
purchase in the aggregate not more than 35,578,125 shares of
Common Stock, $.01 par value per share, of the Company
("Common Stock"), which shares may, in the discretion of the
Board of Directors, consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. The
Company shall at all times during the term of the Plan
reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of
the Plan. Subject to the provision of Paragraph 12, any
shares subject to an option which for any reason expires, is
canceled or is terminated unexercised as to such shares
shall again become available for option under the Plan.
Notwithstanding anything else to the contrary which may be
set forth herein, no individual optionee shall be granted,
in any five-year period, options under and pursuant to the
Plan to purchase more than 4,500,000 shares of Common Stock.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a Committee (the "Committee") consisting of not less than
two members of the Board of Directors, each of whom shall be
a Non-Employee Director of the Company within the meaning of
Rule 16b-3 or its successors under the Securities Exchange
Act of 1934, as amended ("1934 Act"). A majority of the
members shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a
quorum is present, and any acts approved in writing by all
members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to
determine the individuals who shall receive options; the
times when they shall receive them; whether an incentive
and/or a non-qualified stock option shall be granted; the
number of shares to be subject to each option; the term of
each option; the date each option shall become exercisable;
whether an option shall be exercisable in whole, in part or
in installments, and if in installments, the number of
shares to be subject to each installment; the date each
installment shall become exercisable and the term of each
installment; to accelerate the date of exercise of any
installment; whether shares may be issued on exercise of an
option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the
amounts of each installments; the exercise price; the form
of payment upon exercise; to require that the individual
remain employed in some capacity with the Company or its
Subsidiaries for a period of time from and after the date
the option is granted to him; the amount necessary to
satisfy the Company's withholding obligation; to restrict
the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any
such restriction; to construe the respective option
agreements and the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to make all
other determinations necessary or advisable for
administering the Plan; and, with the consent of the
optionee, to cancel or modify an option, provided such
option as modified does not violate the terms of the Plan.
The determinations of the Committee on the matters referred
to in this Paragraph 3 shall be conclusive.
No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan
except such member's own willful misconduct. Under no
circumstances shall any member of the Committee be liable
for any act or omission of any other member of the
Committee. In the performance of its functions with respect
to the Plan, the Committee shall be entitled to rely upon
information and advice furnished by the Company's officers,
the Company's accountants, the Company's counsel and any
other party the Committee deems necessary and no member of
the Committee shall be liable for any action taken or not
taken in reliance upon any such advice.
4. ELIGIBILITY. The Committee may, consistent with the
purposes of the Plan, grant options from time to time,
within 15 years from the date of adoption of the Plan by the
Board of Directors (provided that, with respect to incentive
stock options, this period shall be within 10 years from the
date of adoption of the Plan by the Board of Directors), to
key employees (including officers and directors who are
employees) of the Company or any of its Subsidiaries and
covering such number of shares of Common Stock as it may
determine; provided, however, that the aggregate market
value (determined at the time the stock option is granted)
of the shares for which any eligible person may be granted
incentive stock options under the Plan or any other plan of
the Company, or of a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Any option (or the
portion thereof) granted in excess of such amount shall be
treated as a non-qualified stock option.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the
Committee, but in no event shall such purchase price be less
than 100% of the fair market value of the Common Stock on
the date of grant; provided, however, that if, at the time
an option is granted, the optionee owns (or is deemed to
own) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of
any of its Subsidiaries, the exercise price shall not be
less than 110% of the fair market value of the Common Stock
subject to the option at the time of the granting of such
option. The fair market value of the Common Stock on any
day shall be (a) if the principal market for the Common
Stock is a national securities exchange, the closing sale
price of the Common Stock on such day as reported by such
exchange or on a consolidated tape reflecting transactions
on such exchange, (b) if the principal market for the Common
Stock is not a national securities exchange and the Common
Stock is quoted on the National Association of Securities
Dealers Automated Quotations System ("NASDAQ"), and (i) if
the Common Stock is quoted on the NASDAQ National Market
System, the closing sale price of the Common Stock on such
day, or (ii) if the Common Stock is not quoted on the NASDAQ
National Market System, the average between the highest bid
and the lowest asked prices for the Common Stock on such day
on NASDAQ, or (c) if the principal market for the Common
Stock is not a national securities exchange and the Common
Stock is not quoted on NASDAQ, the average between the
highest bid and lowest asked prices for the Common Stock on
such day as reported by National Quotation Bureau,
Incorporated; provided that if clauses (a), (b) and (c) of
this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair
market value of the Common Stock shall be determined by the
Committee by any method consistent with applicable
regulations adopted by the Treasury Department relating to
stock options. The determination of the Committee shall be
conclusive in determining the fair market value of the
stock.
6. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the
Committee, in its sole discretion, at the time such option
is granted; provided, however, that the term of each
incentive stock option granted pursuant to the Plan shall be
for a period not exceeding 10 years from the date of
granting thereof, and further, provided, that if, at the
time an option is granted, the optionee owns (or is deemed
to own) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, or of
any of its Subsidiaries, the term of the incentive stock
option shall be for a period not exceeding five years.
Options shall be subject to earlier termination as
hereinafter provided.
7. EXERCISE OF OPTION. An option (or any part or installment
thereof) shall be exercised by giving written notice to the
Company at its principal office (at present 707 Summer
Street, Stamford, Connecticut 06901), stating whether an
incentive stock option or a non-qualified stock option is
being exercised, specifying the number of shares as to which
such option is being exercised and accompanied by payment in
full of the aggregate exercise price therefor (or the amount
due on exercise if the Stock Option Contract permits
installment payments) (i) in cash or by certified check,
(ii) with previously acquired shares of Common Stock having
an aggregate fair market value, on the date of exercise,
equal to the aggregate exercise price of all options being
exercised, (iii), if approved by the Committee, by
requesting the Company withhold from the shares of Common
Stock issuable upon exercise of such options that number of
shares which have an aggregate fair market value, on the
date of exercise, equal to the aggregate exercise price of
all or any portion of the options being exercised, or (iv)
any combination thereof.
The Company shall have the right to deduct and withhold from
any cash otherwise payable to an optionee, or require that
an optionee make arrangements satisfactory to the Company
for payment of (including, without limitation, by
withholding shares of Common Stock otherwise issuable upon
exercise of options), such amounts as the Company shall
determine for the purpose of satisfying its liability to
withhold Federal, state or local income or FICA taxes
incurred by reason of the grant or exercise of an option.
Certificates representing the shares purchased shall be
issued as promptly as practicable, provided that the Company
may postpone issuing certificates for such shares for such
time as the Company, in its sole discretion, may deem
necessary or desirable in order to enable it to comply with
any requirements of the Securities Act of 1933, as amended
("Securities Act"), the 1934 Act, any Rules or Regulations
of the Securities and Exchange Commission promulgated under
either of the foregoing acts, the listing requirements of
any securities exchange on which the Company's Common Stock
may now or hereafter be listed, or any applicable laws of
any jurisdiction relating to the authorization, issuance or
sale of securities. With respect to persons subject to
Section 16 of the 1934 Act, the Company reserves the right
to defer distribution of share certificates issuable upon
exercise of an option by such person until at least six
months have elapsed from the date of grant of the option.
The holder of an option shall not have the rights of a
stockholder with respect to the shares covered by his option
until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock
certificate is issued, any option holder using previously
acquired shares in payment of an option exercise price shall
have the rights of a shareholder with respect to such
previously acquired shares. In no case may a fraction of a
share by purchased or issued under the Plan.
8. TERMINATION OF EMPLOYMENT. Any optionee whose employment or
relationship with the Company (and its Subsidiaries) has
terminated for any reason other than death or permanent and
total disability (as defined in Section 22(e) (3) of the
Code) may exercise his option, to the extent exercisable on
the date of such termination, at any time within four months
after the date of termination, unless otherwise permitted by
the Committee, but in no event after the expiration of the
term of the option. Options granted to an employee under
the Plan shall not be affected by any changes in the status
of an optionee so long as he continues to be employed in
some capacity with the Company, or any of its Subsidiaries,
or a Constituent Corporation, as defined in Paragraph 16,
unless the Committee otherwise permits.
Nothing in the Plan or in any option granted under the Plan
shall confer on any individual any right to continue in the
employ of the Company or any of its Subsidiaries, or
interfere in any way with the right of the Company or any of
its Subsidiaries to terminate the employee's employment at
any time for any reason whatsoever without liability to the
Company or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies
while he is employed by the Company or any of its
Subsidiaries, or within three months after the termination
of his employment, or if the optionee's employment has
terminated by reason of a permanent and total disability (as
defined in Section 22(e)(3) of the Code), options granted
under this Plan shall become immediately exercisable by his
executor, administrator or other person at the time entitled
by law to his rights under the option.
10. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Stock Option Contract, and shall contain such
terms and conditions not inconsistent herewith as may be
determined by the Committee, and which may provide, among
other things, (a) that in the event of the exercise of such
option, unless the shares of Common Stock received upon such
exercise shall have been registered under an effective
registration statement under the Securities Act, such shares
will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold
except in compliance with the applicable provisions of the
Securities Act, and (b) that in the event of any disposition
of the shares of Common Stock acquired upon the exercise of
an incentive stock option within two years from the date of
grant of the option or one year from the date of issuance of
such shares to him (a "Disqualifying Disposition") the
optionee will notify the Company thereof in writing within
30 days after such disposition, pay the Company, on demand,
in cash an amount necessary to satisfy its obligation, if
any, to withhold any Federal, state or local income taxes or
other taxes by reason of such Disqualifying Disposition and
provide the Company, on demand, with such information as the
Company shall reasonably request to determine such
obligation.
11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and
kind of shares reserved for issuance hereunder may be
equitably adjusted, in the discretion of the Committee, in
the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the stock, in order to preserve the benefits intended to be
made available under the Plan. In the event of any of the
foregoing, the number and kind of shares subject to any
outstanding option granted pursuant to the Plan and the
exercise price of any such option shall be equitably
adjusted (including by payment of cash to the holder of such
option) in the discretion of the Committee in order to
preserve the benefits or potential benefits intended to be
made available to the holder of an option granted pursuant
to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be
final. Unless otherwise determined by the Committee, such
adjustments shall be subject to the same vesting schedule
and restrictions to which the underlying option is subject.
No fractional shares of Company Stock shall be reserved or
authorized or made subject to any outstanding option by any
such adjustment.
12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on October 27, 1987. No
incentive stock options may be granted under the Plan after
October 26, 1997, and no non-qualified stock options may be
granted under the Plan after October 26, 2002. The Board of
Directors, without further approval of the Company's
stockholders, may at any time suspend or terminate the Plan,
in whole or in part, or amend it from time to time in such
respects as it may deem advisable, including, without
limitation, in order that incentive stock options granted
hereunder meet the requirements for "incentive stock
options" under the Code, or any comparable provisions
thereafter enacted and conform to any change in applicable
law or to regulations or rulings of administrative agencies.
No termination, suspension or amendment of the Plan shall,
without the consent of the holder of an existing option
affected thereby, adversely affect his rights under such
option.
13. TRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall be transferable by the optionee only pursuant to the
following methods, and, with respect to incentive stock
options, only to the extent permitted under the Code for
options to qualify as incentive stock options: by will or
the laws of descent and distribution; pursuant to a domestic
relations order, as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules
thereunder; or as a gift to family members of the optionee,
trusts for the benefit of family members of the optionee or
charities or other not-for-profit organizations. Except to
the extent provided in this Paragraph, Paragraph 9 and
Paragraph 14, options may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise), shall not be subject to
execution, attachment or similar process, and may be
exercised during the lifetime of the holder thereof only by
such holder.
14. DESIGNATION OF BENEFICIARY. The optionee may designate in
writing on forms prescribed by and filed with the Committee
prior to the optionee's death a beneficiary or beneficiaries
to receive all or part of the options to be delivered to the
optionee under this Plan in the event of the death of the
optionee at any time on forms prescribed by and filed with
the Committee. In the event of the optionee's death, the
options to be delivered to the optionee under this Plan with
respect to which a designation of a beneficiary has been
made (to the extent such designation is valid and
enforceable under applicable law) shall be delivered, in
accordance with the Plan, to the designated beneficiary or
beneficiaries. Any options to be delivered as to which a
designation has not been made shall be delivered to the
optionee's estate. If there is any question as to the legal
right of any beneficiary to receive delivery of the Plan
pursuant to the Plan, the options (and shares issuable upon
the exercise thereof) may be delivered in the sole
discretion of the Committee to the estate of the optionee,
in which event neither the Company nor any Subsidiary shall
have any further liability to anyone with respect to such
options.
15. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the
contrary notwithstanding, the Board of Directors may,
without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation or
assume the prior options of such Constituent Corporation.
16. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the
same definition as "subsidiary corporation" in Section
425(f) of the Code.
(b) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 425(e) of
the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages
with the Company or any of its Subsidiaries in a
transaction to which Section 425(a) of the Code applies
(or would apply if the option assumed or substituted
were an incentive stock option), or any Parent or any
Subsidiary of such corporation.
17. STOCKHOLDERS' APPROVAL. The Plan shall be subject to
approval by a majority of the Company's outstanding stock
entitled to vote thereon at the next annual or special
meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised
prior to such approval, provided that the date of grant of
any options granted hereunder shall be determined as if the
Plan had not been subject to such approval.
18. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with and governed by the internal
laws of the State of Delaware.
19. COMPLIANCE WITH RULE 16b-3. With respect to optionees
subject to Section 16 of the 1934 Act, transactions under
the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934
Act. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed
advisable by the Committee.
_______________________________
1 Gives effect to October 21, 1996 stock split.
AS AMENDED THROUGH SEPTEMBER 10, 19961
1990 DIRECTORS STOCK OPTION PLAN
OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to directors of CUC
International Inc., a Delaware corporation (the "Company").
2. STOCK SUBJECT TO THE PLAN. Options may be granted as
provided herein to purchase in the aggregate not more than
One Million One Hundred Thirty-Nine Thousand Sixty-Two
(1,139,062) shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock"). Each individual who
on August 23, 1990 was a director (but not an employee) of
the Company was granted on such date options with respect to
seventy-five thousand nine hundred thirty-seven (75,937)
shares of Common Stock. Each individual who after August
23, 1990 becomes a director (but not an employee) of the
Company, on the date of his election to the Board of
Directors, shall be granted an option to purchase seventy-
five thousand nine hundred thirty-seven (75,937) shares of
Common Stock. Such shares may, in the discretion of the
Committee, consist either in whole or in part of authorized
but unissued shares of Common Stock or shares of Common
Stock held in the treasury of the Company. The Company
shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will
be sufficient to satisfy the requirements of the Plan. Such
options shall be considered "non-qualified stock options,"
within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"). No director to whom any options are
granted hereunder shall be eligible to receive any
additional options under the Plan. Subject to the provision
of Paragraph 11, any shares subject to an option which for
any reason expires, is canceled or is terminated unexercised
as to such shares shall again become available for option
under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a Committee (the "Committee") consisting of not less than
two members of the Board of Directors, each of whom shall be
a Non-Employee Director of the Company within the meaning of
Rule 16b-3 or its successors under the Securities Exchange
Act of 1934 (the "34 Act"). A majority of the members shall
constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present,
and any acts approved in writing by all members without a
meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to make
all determinations necessary or advisable for administering
the Plan; and, with the consent of the optionee, to modify
an option, provided such option as modified does not violate
the terms of the Plan. The determinations of the Committee
on the matters referred to in this Paragraph 3 shall be
conclusive.
No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan
except such member's own willful misconduct. Under no
circumstances shall any member of the Committee be liable
for any act or omission of any other member of the
Committee. In their performance of its functions with
respect to the Plan, the Committee shall be entitled to rely
upon information and advice furnished by the Company's
officers, the Company's accountants, the Company's counsel
and any other party the Committee deems necessary and no
member of the Committee shall be liable for any action taken
or not taken in reliance upon any such advice.
4. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be 100% of the fair market
value of the Common Stock on the date of grant. The
determination of the Committee shall be conclusive in
determining the fair market value of the stock.
5. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the
Committee, in its sole discretion, at the time such option
is granted. Options shall be subject to earlier termination
as hereinafter provided.
6. EXERCISE OF OPTION. An option or any part or installment
thereof shall be exercised by giving written notice to the
Company at its principal office (at present 707 Summer
Street, Stamford, Connecticut 06901), specifying the number
of shares as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise
price therefor (or the amount due on exercise if the Stock
Option Contract permits installment payments) (i) in cash or
by certified check, (ii) with previously acquired shares of
Common Stock having an aggregate exercise price of all
options being exercised, or (iii) any combination thereof.
The Company shall have the right to deduct and withhold from
any cash otherwise payable to an optionee, or require that
an optionee make arrangements satisfactory to the Company
for payment of, such amounts as the Company shall determine
for the purpose of satisfying its liability to withhold
Federal, state or local income of FICA taxes incurred by
reason of the grant or exercise of an option.
Certificates representing the shares purchased shall be
issued as promptly as practicable, provided that the Company
may postpone issuing certificates for such shares for such
time as the Company, in its sole discretion, may deem
necessary or desirable in order to enable it to comply with
any requirements of the Securities Act of 1933, as amended
("Securities Act"), the 34 Act, any Rules or Regulations of
the Securities and Exchange Commission promulgated under
either the foregoing acts, the listing requirements of any
securities exchange on which the Company's Common Stock may
now or hereafter be listed, or any applicable laws of any
jurisdiction relating the authorization, issuance or sale of
securities. With respect to persons subject to Section 16
of the 34 Act, the Company reserves the right to defer
distribution of share certificates issuable upon exercise of
an option by such person until at least six months have
elapsed from the date of grant of the option. The holder of
an option shall not have the rights of a stockholder with
respect to the shares covered by his option until the date
of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is
issued, any option holder using previously acquired shares
in payment of an option exercise price shall have the rights
of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share be purchased
or issued under the Plan.
7. TERMINATION OF DIRECTOR'S TERM.
(a) In the event that the term of an optionee's
membership on the Board of Directors expires because
the optionee (i) loses an election for a position on
the Board of Directors, (ii) resigns from the Board of
Directors prior to attaining age 65 or (iii) fails to
seek election to the Board of Directors for a term
commencing prior to his attainment of age 62 (in any
case, other than on account of death or physical or
mental disability), options granted to such optionee
shall remain exercisable until expiration of one month
after the expiration of such optionee's term, at which
time such options shall expire.
(b) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's resignation after age 65 or failure to
seek election to the Board of Directors for a term
commencing after his attainment of age 62, options
granted to such optionee shall remain exercisable until
the expiration of five years after the expiration of
such optionee's term, at which time such options shall
expire.
(c) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's physical or mental disability (unless
such expiration is described in subsection (b) hereof)
or death, options granted to such optionee shall become
immediately exercisable by his executor, administrator
or other person at the time entitled by law to his
rights under the option, by his executor, administrator
or other person at the time entitled by law to his
rights under the option and shall remain exercisable
until the expiration of one year after the expiration
of such optionee's term, at which time such options
shall expire.
(d) In the event that an optionee is removed from the
Board of Directors by the shareholders of the Company
or by the Board of Directors, options granted to such
optionee shall expire immediately upon such removal or
disqualification.
8. CHANGE IN CONTROL. In the event of a change in control, as
hereinafter defined, options granted under this Plan shall
become immediately exercisable, provided that such change in
control occurs after the initial vesting of an option grant.
A "change in control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the
ownership of 51% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of
such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former
shareholders, of the Company, other than affiliates (within
the meaning of the 34 Act) of any party to such merger or
consolidation, as the same shall have existed immediately
prior to such merger or consolidation, (iii) the Company
shall sell substantially all of its assets to another
corporation which is not a wholly owned subsidiary, or (iv)
a person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the 34
Act, shall acquire 25% or more of the outstanding voting
securities of the Company (whether directly, indirectly,
beneficially or of record). For purposes hereof, ownership
of voting securities shall take into account and shall
include ownership as determined by applying the provisions
of Rule 13d-3(d)(1)(i) (as in effect on the date hereof)
pursuant to the 34 Act.
9. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Stock Option Contract, and shall contain such
terms and conditions not inconsistent herewith as may be
determined by the Committee, and which may provide, among
other things, that in the event of the exercise of such
option, unless the shares of Common Stock received upon such
exercise shall have been registered under an effective
registration statement under the Securities Act, such shares
will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold
except in compliance with the applicable provisions of the
Securities Act.
10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and
kind of shares reserved for issuance hereunder may be
equitably adjusted, in the discretion of the Committee, in
the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the stock, in order to preserve the benefits intended to be
made available under the Plan. In the event of any of the
foregoing, the number and kind of shares subject to any
outstanding option granted pursuant to the Plan and the
exercise price of any such option shall be equitably
adjusted (including by payment of cash to the holder of such
option) in the discretion of the Committee in order to
preserve the benefits or potential benefits intended to be
made available to the holder of an option granted pursuant
to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be
final. Unless otherwise determined by the Committee, such
adjustments shall be subject to the same vesting schedule
and restrictions to which the underlying option is subject.
No fractional shares of Company stock shall be reserved or
authorized or made subject to any outstanding option by any
such adjustment.
11. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on August 23, 1990. No
options may be granted under the Plan after August 23, 2000.
The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or terminate
the Plan, in whole or in part, or amend it from time to time
in such respects as it may deem advisable. No termination,
suspension or amendment of the Plan shall, without the
consent of the holder of an existing option affected
thereby, adversely affect his rights under such option.
12. TRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall be transferable by the optionee only pursuant to the
following methods: by will or the laws of descent and
distribution; pursuant to a domestic relations order, as
defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder; or as a gift
to family members of the optionee, trusts for the benefit of
family members of the optionee or charities or other not-for-
profit organizations. Except to the extent provided in this
Paragraph and Paragraph 7(c), options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise), shall not be
subject to execution, attachment or similar process, and may
be exercised during the lifetime of the holder thereof only
by such holder.
13. STOCKHOLDERS' APPROVAL. The Plan shall be subject to
approval by a majority of the Company's outstanding stock
entitled to vote thereon at the next annual or special
meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised
prior to such approval, provided that the date of grant of
any options granted hereunder shall be determined as if the
Plan had not been subject to such approval.
14. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with and governed by the internal
laws of the State of Delaware.
15. COMPLIANCE WITH RULE 16b-3. All transactions under the Plan
are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the 34 Act, regardless of
whether such conditions are set forth in the Plan. To the
extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the
Committee.
_______________________________
1 Gives effect to October 21, 1996 stock split.
AMENDED THROUGH SEPTEMBER 10, 19961
1992 DIRECTORS STOCK OPTION PLAN
OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to directors of CUC
International Inc., a Delaware corporation (the "Company").
2. STOCK SUBJECT TO THE PLAN. Options may be granted as
provided herein to purchase in the aggregate not more than
Six Hundred Seventy-Five Thousand (675,000) shares of Common
Stock, $.01 par value per share, of the Company ("Common
Stock"). Each individual who on August 28, 1992 was a
director (but not an employee) of the Company was granted on
such date options with respect to sixty-seven thousand five
hundred (67,500) shares of Common Stock. Each individual
who after August 28, 1992 becomes a director (but not an
employee) of the Company, on the date of his election to the
Board of Directors, shall be granted an option to purchase
sixty-seven thousand five hundred (67,500) shares of Common
Stock. Such shares may, in the discretion of the Committee,
consist either in whole or in part of authorized but
unissued shares of Common Stock or shares of Common Stock
held in the treasury of the Company. The Company shall at
all times during the term of the Plan reserve and keep
available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan. Such
options shall be considered "non-qualified stock options,"
within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"). No director to whom any options are
granted hereunder shall be eligible to receive any
additional options under the Plan. Subject to the provision
of Paragraph 11, any shares subject to an option which for
any reason expires, is canceled or is terminated unexercised
as to such shares shall again become available for option
under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a Committee (the "Committee") consisting of not less than
two members of the Board of Directors, each of whom shall be
a Non-Employee Director of the Company within the meaning of
Rule 16b-3 or its successors under the Securities Exchange
Act of 1934, as amended (the "34 Act"). A majority of the
members shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a
quorum is present, and any acts approved in writing by all
members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to make
all determinations necessary or advisable for administering
the Plan; and, with the consent of the optionee, to modify
an option, provided such option as modified does not violate
the terms of the Plan. The determinations of the Committee
on the matters referred to in this Paragraph 3 shall be
conclusive.
No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan
except such member's own willful misconduct. Under no
circumstances shall any member of the Committee be liable
for any act or omission of any other member of the
Committee. In their performance of its functions with
respect to the Plan, the Committee shall be entitled to rely
upon information and advice furnished by the Company's
officers, the Company's accountants, the Company's counsel
and any other party the Committee deems necessary and no
member of the Committee shall be liable for any action taken
or not taken in reliance upon any such advice.
4. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be 100% of the fair market
value of the Common Stock on the date of grant. The
determination of the Committee shall be conclusive in
determining the fair market value of the stock.
5. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the
Committee, in its sole discretion, at the time such option
is granted. Options shall be subject to earlier termination
as hereinafter provided.
6. EXERCISE OF OPTION. An option or any part or installment
thereof shall be exercised by giving written notice to the
Company at its principal office (at present 707 Summer
Street, Stamford, Connecticut 06901), specifying the number
of shares as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise
price therefor (or the amount due on exercise if the Stock
Option Contract permits installment payments) (i) in cash or
by certified check, (ii) with previously acquired shares of
Common Stock having an aggregate exercise price of all
options being exercised, or (iii) any combination thereof.
The Company shall have the right to deduct and withhold from
any cash otherwise payable to an optionee, or require that
an optionee make arrangements satisfactory to the Company
for payment of, such amounts as the Company shall determine
for the purpose of satisfying its liability to withhold
Federal, state or local income of FICA taxes incurred by
reason of the grant or exercise of an option.
Certificates representing the shares purchased shall be
issued as promptly as practicable, provided that the Company
may postpone issuing certificates for such shares for such
time as the Company, in its sole discretion, may deem
necessary or desirable in order to enable it to comply with
any requirements of the Securities Act of 1933, as amended
("Securities Act"), the 34 Act, any Rules or Regulations of
the Securities and Exchange Commission promulgated under
either the foregoing acts, the listing requirements of any
securities exchange on which the Company's Common Stock may
now or hereafter be listed, or any applicable laws of any
jurisdiction relating the authorization, issuance or sale of
securities. With respect to persons subject to Section 16
of the 34 Act, the Company reserves the right to defer
distribution of share certificates issuable upon exercise of
an option by such person until at least six months have
elapsed from the date of grant of the option. The holder of
an option shall not have the rights of a stockholder with
respect to the shares covered by his option until the date
of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is
issued, any option holder using previously acquired shares
in payment of an option exercise price shall have the rights
of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share be purchased
or issued under the Plan.
7. TERMINATION OF DIRECTOR'S TERM.
(a) In the event that the term of an optionee's
membership on the Board of Directors expires because
the optionee (i) loses an election for a position on
the Board of Directors, (ii) resigns from the Board of
Directors prior to attaining age 65 or (iii) fails to
seek election to the Board of Directors for a term
commencing prior to his attainment of age 62 (in any
case, other than on account of death or physical or
mental disability), options granted to such optionee
shall remain exercisable until expiration of one month
after the expiration of such optionee's term, at which
time such options shall expire.
(b) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's resignation after age 65 or failure to
seek election to the Board of Directors for a term
commencing after his attainment of age 62, options
granted to such optionee shall remain exercisable until
the expiration of five years after the expiration of
such optionee's term, at which time such options shall
expire.
(c) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's physical or mental disability (unless
such expiration is described in subsection (b) hereof)
or death, options granted to such optionee shall become
immediately exercisable by his executor, administrator
or other person at the time entitled by law to his
rights under the option and shall remain exercisable
until the expiration of one year after the expiration
of such optionee's term, at which time such options
shall expire.
(d) In the event that an optionee is removed from the
Board of Directors by the shareholders of the Company
or by the Board of Directors, options granted to such
optionee shall expire immediately upon such removal or
disqualification.
(e) For the purposes of this Section 7 only, in the
case of an optionee who is appointed by the Board of
Directors as a "director emeritus" of the Company, the
"term" of such optionee's "membership on the Board of
Directors" shall not be deemed to terminate or expire
until such time as such optionee ceases for any reason
to be a director emeritus of the Company. If such
optionee ceases to be a director emeritus because of
physical or mental disability or death, the provisions
of Section 7(c) shall apply; if such optionee ceases to
be a director emeritus because of removal by the Board
of Directors, the provisions of Section 7(d) shall
apply; if such optionee ceases to be a director
emeritus for any other reason, the provisions of
Section 7(b) shall apply.
8. CHANGE IN CONTROL. In the event of a change in control, as
hereinafter defined, options granted under this Plan shall
become immediately exercisable, provided that such change in
control occurs after the initial vesting of an option grant.
A "change in control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the
ownership of 51% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of
such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former
shareholders of the Company, other than affiliates (within
the meaning of the 34 Act) of any party to such merger or
consolidation, as the same shall have existed immediately
prior to such merger or consolidation, (iii) the Company
shall sell substantially all of its assets to another
corporation which is not a wholly owned subsidiary, or (iv)
a person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the 34
Act, shall acquire 25% or more of the outstanding voting
securities of the Company (whether directly, indirectly,
beneficially or of record). For purposes hereof, ownership
of voting securities shall take into account and shall
include ownership as determined by applying the provisions
of Rule 13d-3(d)(1)(i) (as in effect on the date hereof)
pursuant to the 34 Act.
9. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Stock Option Contract, and shall contain such
terms and conditions not inconsistent herewith as may be
determined by the Committee, and which may provide, among
other things, that in the event of the exercise of such
option, unless the shares of Common Stock received upon such
exercise shall have been registered under an effective
registration statement under the Securities Act, such shares
will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold
except in compliance with the applicable provisions of the
Securities Act.
10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and
kind of shares reserved for issuance hereunder may be
equitably adjusted, in the discretion of the Committee, in
the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the stock, in order to preserve the benefits intended to be
made available under the Plan. In the event of any of the
foregoing, the number and kind of shares subject to any
outstanding option granted pursuant to the Plan and the
exercise price of any such option shall be equitably
adjusted (including by payment of cash to the holder of such
option) in the discretion of the Committee in order to
preserve the benefits or potential benefits intended to be
made available to the holder of an option granted pursuant
to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be
final. Unless otherwise determined by the Committee, such
adjustments shall be subject to the same vesting schedule
and restrictions to which the underlying option is subject.
No fractional shares of Company stock shall be reserved or
authorized or made subject to any outstanding option by any
such adjustment.
11. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on August 28, 1992. No
options may be granted under the Plan after the tenth
anniversary of that date. The Board of Directors, without
further approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or
amend it from time to time in such respects as it may deem
advisable. No termination, suspension or amendment of the
Plan shall, without the consent of the holder of an existing
option affected thereby, adversely affect his rights under
such option.
12. TRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall be transferable by the optionee only pursuant to the
following methods: by will or the laws of descent and
distribution; pursuant to a domestic relations order, as
defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder; or as a gift
to family members of the optionee, trusts for the benefit of
family members of the optionee or charities or other not-for-
profit organizations. Except to the extent provided in this
Paragraph and Paragraph 7(c), options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise), shall not be
subject to execution, attachment or similar process, and may
be exercised during the lifetime of the holder thereof only
by such holder.
13. STOCKHOLDERS' APPROVAL. The Plan shall be subject to
approval by a majority of the Company's outstanding stock
entitled to vote thereon at the next annual or special
meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised
prior to such approval, provided that the date of grant of
any options granted hereunder shall be determined as if the
Plan had not been subject to such approval.
14. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with and governed by the internal
laws of the State of Delaware.
15. COMPLIANCE WITH RULE 16b-3. All transactions under the Plan
are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the 34 Act, regardless of
whether such conditions are set forth in the Plan. To the
extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the
Committee.
_______________________________
1 Gives effect to October 21, 1996 stock split.
AMENDED THROUGH SEPTEMBER 10, 19961
1994 DIRECTORS STOCK OPTION PLAN
OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. The 1994 Directors Stock Option Plan
(the "Plan") is designed to attract, retain and provide an
incentive to directors of CUC International Inc., a Delaware
corporation (the "Company"), who are not employees of the
Company, by providing them with an ownership interest in the
Company.
2. STOCK SUBJECT TO THE PLAN. Options may be granted as
provided herein to purchase in the aggregate not more than
Three Hundred Thirty-Seven Thousand Five Hundred (337,500)
shares of Common Stock, $.01 par value per share, of the
Company ("Common Stock"). Options to purchase eleven
thousand two hundred fifty (11,250) shares of Common Stock
(as adjusted through October 21, 1996 and as it may be
adjusted pursuant to Section 10 hereof) shall be
automatically granted on November 23 (or the first
succeeding business day thereafter on which the Common Stock
is traded on the principal securities exchange on which it
is listed) of each of 1994, 1995, 1996 and 1997 to each
individual who is a director (but not an employee) of the
Company on such date. In the event of the expiration of the
term of the membership on the Board of Directors of the
Company ("Board of Directors") of any individual who is a
director (but not an employee) of the Company, because of
such individual's physical or mental disability or death,
such individual (or his executor, administrator or other
person at the time entitled by law thereto) shall
automatically be granted, as of the date of the expiration
of such individual's term on the Board of Directors, all of
the options under this Plan which such individual would have
been entitled to receive during the remainder of his then-
current term on the Board of Directors, with the exercise
thereof subject to the provisions of Paragraph 7(c) hereof.
The Common Stock that may be purchased pursuant to options
under this Plan by any one individual shall not exceed forty-
five thousand (45,000) shares of Common Stock (as adjusted
through October 21, 1996 and as it may be adjusted pursuant
to Section 10 hereof).
Such shares may, in the discretion of the Committee, consist
either in whole or in part of authorized but unissued shares
of Common Stock or shares of Common Stock held in the
treasury of the Company. The Company shall at all times
during the term of the Plan reserve and keep available such
number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Such options shall be
considered "non-qualified stock options," within the meaning
of the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to the provision of Paragraph 11 hereof,
any shares subject to an option which for any reason
expires, is canceled or is terminated unexercised as to such
shares shall again become available for option under the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a Committee (the "Committee") appointed by the Board of
Directors consisting of not less than two (2) members of the
Board of Directors, each of whom shall be a Non-Employee
Director of the Company within the meaning of Rule 16b-3 or
its successors under the Securities Exchange Act of 1934
(the "Exchange Act"). A majority of the members of the
Committee shall constitute a quorum, and the acts of a
majority of the members of the Committee present at any
meeting at which a quorum is present, and any acts approved
in writing by all members of the Committee without a
meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to make
all determinations necessary or advisable for administering
the Plan; and, with the consent of the optionee, to modify
an option, provided such option as modified does not violate
the terms of the Plan. The determinations of the Committee
on the matters referred to in this Paragraph 3 shall be
conclusive. The Chief Executive Officer and the President
of the Company shall be authorized to implement the Plan in
accordance with its terms.
No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan
except such member's own willful misconduct. Under no
circumstances shall any member of the Committee be liable
for any act or omission of any other member of the
Committee. In the performance of its functions with respect
to the Plan, the Committee shall be entitled to rely upon
information and advice furnished by the Company's officers,
the Company's accountants, the Company's counsel and any
other party the Committee deems necessary and no member of
the Committee shall be liable for any action taken or not
taken in reliance upon any such advice.
4. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be 100% of the fair market
value of the Common Stock on the date of grant. The
determination of the Committee shall be conclusive in
determining the fair market value of the Common Stock.
5. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the
Committee, in its sole discretion, at the time such option
is granted. Options shall be subject to earlier termination
as hereinafter provided.
6. EXERCISE OF OPTION. An option or any part or installment
thereof shall be exercised by giving written notice to the
Company at its principal office (at present, 707 Summer
Street, Stamford, Connecticut 06901), specifying the number
of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the
aggregate exercise price therefor (or the amount due on
exercise if the Stock Option Contract (as described in
Paragraph 9 hereof) permits installment payments) (i) in
cash or by certified check, (ii) with previously acquired
shares of Common Stock having an aggregate exercise price of
all options being exercised, or (iii) any combination
thereof.
The Company shall have the right to deduct and withhold from
any cash otherwise payable to an optionee, or require that
an optionee make arrangements satisfactory to the Company
for payment of, such amounts as the Company shall determine
for the purpose of satisfying its liability to withhold
Federal, state or local income or FICA taxes incurred by
reason of the grant or exercise of an option.
Certificates representing the shares of Common Stock
purchased shall be issued as promptly as practicable,
provided that the Company may postpone issuing certificates
for such shares for such time as the Company, in its sole
discretion, may deem necessary or desirable in order to
enable it to comply with any requirements of the Securities
Act of 1933, as amended ("Securities Act"), the Exchange
Act, any Rules or Regulations of the Securities and Exchange
Commission promulgated under either of the foregoing acts,
the listing requirements of any securities exchange on which
the Company's Common Stock may now or hereafter be listed,
or any applicable laws of any jurisdiction relating to the
authorization, issuance or sale of securities. The Company
reserves the right to defer distribution of share
certificates issuable upon exercise of an option by an
optionee until at least six (6) months have elapsed from the
date of grant of the option. The holder of an option shall
not have the rights of a stockholder with respect to the
shares of Common Stock covered by his option until the date
of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is
issued, any option holder using previously acquired shares
of Common Stock in payment of an option exercise price shall
have the rights of a shareholder with respect to such
previously acquired shares. In no case may a fraction of a
share of Common Stock be purchased or issued under the Plan.
An optionee receiving options to purchase Common Stock under
the Plan shall not be able to sell the Common Stock
underlying such options until at least six (6) months have
elapsed from the date such options were granted to such
optionee.
7. TERMINATION OF DIRECTOR'S TERM. Unless otherwise determined
by the Committee, options shall be exercisable following
termination of an optionee's term as a director or director
emeritus only as indicated below:
(a) In the event that the term of an optionee's
membership on the Board of Directors expires because
the optionee (i) loses an election for a position on
the Board of Directors, (ii) resigns from the Board of
Directors prior to attaining age 65, or (iii) fails to
seek election to the Board of Directors for a term
commencing prior to his attainment of age 62 (in any
case, other than on account of death or physical or
mental disability), options granted to such optionee
shall remain exercisable until the earlier to occur of
the expiration of one month after the expiration of
such optionee's term or the stated expiration date of
such options, at which time such options shall expire.
(b) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's resignation after age 65 or failure to
seek election to the Board of Directors for a term
commencing after his attainment of age 62, options
granted to such optionee shall remain exercisable until
the earlier to occur of the expiration of five years
after the expiration of such optionee's term or the
stated expiration date of such options, at which time
such options shall expire.
(c) In the event that the term of an optionee's
membership on the Board of Directors expires because of
the optionee's physical or mental disability (unless
such expiration is described in subsection (b) hereof)
or death, options granted to such optionee shall remain
exercisable by his executor, administrator or other
person at the time entitled by law to his rights under
the option until the earlier to occur of the expiration
of one year after the expiration of such optionee's
term or the stated expiration date of such options, at
which time such options shall expire.
(d) In the event that an optionee is removed from the
Board of Directors by the shareholders of the Company
or by the Board of Directors, options granted to such
optionee shall expire immediately upon such removal or
disqualification.
(e) For the purposes of this Section 7 only, in
the case of an optionee who is appointed by the
Board of Directors as a director emeritus of the
Company, the "term" of such optionee's "membership
on the Board of Directors" shall not be deemed to
terminate or expire until such time as such
optionee ceases for any reason to be a director
emeritus of the Company. If such optionee ceases
to be a director emeritus because of physical or
mental disability or death, the provisions of
Section 7(c) shall apply; if such optionee ceases
to be a director emeritus because of removal by
the Board of Directors, the provisions of Section
7(d) shall apply; if such optionee ceases to be a
director emeritus for any other reason, the
provisions of Section 7(b) shall apply.
8. CHANGE IN CONTROL. In the event of a change in control, as
hereinafter defined, each individual who is a director (but
not an employee) of the Company on the effective date of
such change of control shall automatically be granted, as of
such date, all of the options under the Plan which such
individual would have been entitled to receive if such
individual were a non-employee director on November 23 of
each remaining year in which the Plan provides that grants
are to be made. A "change in control" shall be deemed to
have occurred if (i) a tender offer shall be made and
consummated for the ownership of 51% or more of the
outstanding voting securities of the Company, (ii) the
Company shall be merged or consolidated with another
corporation and as a result of such merger or consolidation
less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, other
than affiliates (within the meaning of the Exchange Act) of
any party to such merger or consolidation, as the same shall
have existed immediately prior to such merger or
consolidation, (iii) the Company shall sell substantially
all of its assets to another corporation which is not a
wholly owned subsidiary, or (iv) a person, within the
meaning of Section 3(a)(9) or of Section 13(d)(3) (as in
effect on the date hereof) of the Exchange Act, shall
acquire 25% or more of the outstanding voting securities of
the Company (whether directly, indirectly, beneficially or
of record). For purposes hereof, ownership of voting
securities shall take into account and shall include
ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to
the Exchange Act.
9. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Stock Option Contract, and shall contain such
terms and conditions not inconsistent herewith as may be
determined by the Committee, and which may provide, among
other things, that in the event of the exercise of such
option, unless the shares of Common Stock received upon such
exercise shall have been registered under an effective
registration statement under the Securities Act, such shares
will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold
except in compliance with the applicable provisions of the
Securities Act.
10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and
kind of shares reserved for issuance hereunder may be
equitably adjusted, in the discretion of the Committee, in
the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the Common Stock, in order to preserve the benefits intended
to be made available under the Plan. In the event of any of
the foregoing, the number and kind of shares subject to any
outstanding option granted pursuant to the Plan and the
exercise price of any such option shall be equitably
adjusted (including by payment of cash to the holder of such
option) in the discretion of the Committee in order to
preserve the benefits or potential benefits intended to be
made available to the holder of an option granted pursuant
to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be
final. Unless otherwise determined by the Committee, such
adjustments shall be subject to the same vesting schedule
and restrictions to which the underlying option is subject.
No fractional shares of Company stock shall be reserved or
authorized or made subject to any outstanding option by any
such adjustment.
11. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on November 23, 1994. No
options may be granted under the Plan after the third
anniversary of that date. The Board of Directors, without
further approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or
amend it from time to time in such respects as it may deem
advisable. No termination, suspension or amendment of the
Plan shall, without the consent of the holder of an existing
option affected thereby, adversely affect his rights under
such option.
12. TRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall be transferable by the optionee only pursuant to the
following methods: by will or the laws of descent and
distribution; pursuant to a domestic relations order, as
defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder; or as a gift
to family members of the optionee, trusts for the benefit of
family members of the optionee or charities or other not-for-
profit organizations. Except to the extent provided in this
Paragraph and Paragraph 7(c), options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise), shall not be
subject to execution, attachment or similar process, and may
be exercised during the lifetime of the holder thereof only
by such holder.
13. STOCKHOLDERS' APPROVAL. The Plan shall be subject to
approval by a majority of the Company's outstanding stock
entitled to vote thereon at the next annual or special
meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised
prior to such approval, provided that the date of grant of
any options granted hereunder shall be determined as if the
Plan had not been subject to such approval. In the event
such approval is not obtained, any options granted hereunder
shall be null and void.
14. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with and governed by the internal
laws of the State of Delaware.
15. COMPLIANCE WITH RULE 16b-3. All transactions under the Plan
are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the Exchange Act,
regardless of whether such conditions are set forth in the
Plan. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed
advisable by the Committee.
_______________________________
1 Gives effect to October 21, 1996 stock split.
