SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check
the appropriate box: [ ] Preliminary [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ]
Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
CENDANT CORPORATION
(Name of Registrant as Specified In Its Charter)
.........................................N/A....................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
5) Total fee paid:
.......................................................................
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.......................................................................
2) Form, Schedule or Registration Statement No.:
.......................................................................
3) Filing Party:
.......................................................................
4) Date Filed:
.......................................................................
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Cendant Corporation, which will be held at The New York Palace Hotel, 455
Madison Avenue, New York, New York, on May 19, 1998, at 9:00 a.m., Eastern
Daylight Time. We look forward to greeting as many of our stockholders as
possible.
Details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the Annual Meeting, it is important that your
shares be represented and voted at the meeting. This year, stockholders of
record can vote their shares by using the telephone. Instructions for using this
new service are set forth on the enclosed proxy card. Of course, you may also
vote your shares by marking your votes on the enclosed proxy card, signing and
dating it and mailing it in the enclosed envelope. If you decide to attend the
Annual Meeting and vote in person, you will of course have that opportunity.
On behalf of the Board of Directors and the employees of Cendant
Corporation, we would like to express our appreciation for your continued
interest in the affairs of the Company.
Sincerely,
/s/ Walter A. Forbes /s/ Henry R. Silverman
Walter A. Forbes Henry R. Silverman
Chairman of the Board President and Chief Executive Officer
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054-0278
Notice of 1998 Annual Meeting of Stockholders
to be held on
May 19, 1998
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Cendant Corporation (the "Company") will be held on Tuesday, May 19, 1998 at
9:00 a.m. Eastern Daylight Time at The New York Palace Hotel, 455 Madison
Avenue, New York, New York (the "Meeting") for the following purposes:
1. To elect ten directors for a three-year term and until
their successors are duly elected and qualified;
2. To approve and adopt the Company's 1998 Stock Option Plan;
3. To ratify the appointment of Deloitte & Touche LLP as the
auditors of the Company's financial statements for fiscal year 1998;
and
4. To transact such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on Friday, March
20, 1998 as the record date for the Meeting. Only stockholders of record at that
time are entitled to notice of, and to vote at, the Meeting and any adjournment
or postponement thereof. A list of stockholders entitled to vote at the Meeting
will be available for examination by any stockholders, for any purpose germane
to the Meeting, for 10 days prior to the Meeting during ordinary business hours
at the offices of the Company located at 712 Fifth Avenue, 41st Floor, New York,
New York 10019.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the Meeting. The
Board of Directors urges you to date, sign and return the enclosed proxy
promptly. This will ensure the presence of a quorum at the meeting. PROMPTLY
SIGNING, DATING, AND RETURNING THE PROXY WILL SAVE THE COMPANY THE EXPENSE AND
EXTRA WORK OF ADDITIONAL SOLICITATION. A reply envelope, for which no postage is
required if mailed within the United States, is enclosed for your convenience.
Alternatively, in lieu of returning signed proxy cards, Cendant stockholders of
record can vote their shares by calling a specially designated telephone number
set forth on the enclosed proxy card. You are cordially invited to attend the
Meeting in person. The return of the enclosed proxy will not affect your right
to vote if you attend the Meeting in person, as your proxy is revocable at your
option.
By Order of the Board of Directors
/s/ Robert T. Tucker
ROBERT T. TUCKER
Secretary
Dated: March 31, 1998
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054-0278
------------------
PROXY STATEMENT
-------------------
Annual Meeting of Stockholders to
be held on Tuesday, May 19, 1998
-------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Cendant Corporation, a Delaware
corporation (the "Company"), to be voted at the 1998 Annual Meeting of
Stockholders, and any adjournment or postponement thereof (the "Meeting"), to be
held on the date, at the time and place, and for the purposes set forth in the
foregoing notice. This Proxy Statement, the accompanying notice and the enclosed
proxy card are first being mailed to stockholders on or about March 28, 1998.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice, nor does the Board of
Directors know of any matters which anyone else proposes to present for action
at the Meeting. However, if any other matters properly come before the Meeting,
the persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with their judgment on such matters.
Shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), represented by proxies received by the Company, where the
stockholder has specified his or her choice with respect to the proposals
described in this Proxy Statement (including the election of directors), will be
voted in accordance with the specification(s) so made. In the absence of such
specification(s), the shares will be voted "For" the election of all ten
nominees for the Board of Directors, "For" the Company's 1998 Stock Option Plan
(the "Stock Option Plan") and "For" the ratification of the appointment of
Deloitte & Touche LLP as auditors of the Company's financial statements for the
year ending December 31, 1998.
Except as provided below, any proxy may be revoked at any time prior to
its exercise by notifying the Secretary in writing, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.
For participants in the HFS Incorporated Employee Savings Plan (the
"HFS Plan"), the Savings Incentive Plan of CUC International Inc. (the "CUC
Plan") and the PHH Corporation Employee Investment Plan (the "PHH Plan", and
together with the CUC Plan and the HFS Plan, the "Savings Plans") with shares of
Common Stock credited to their accounts, voting instructions for the trustees of
the Savings Plans are also being solicited through this Proxy Statement. In
accordance with the provisions of the Savings Plans, the trustees will vote
shares of Common Stock in accordance with instructions received from the
participants to whose accounts such shares are credited. To the extent such
instructions are not received prior to twelve o'clock noon, Eastern Daylight
Time on May 12, 1998, the trustee of the HFS Plan will vote the shares with
respect to which it has not received instructions proportionately in accordance
with the shares for which it has received instructions, the Trustee under the
PHH Plan will vote such shares at the direction of the Employee Benefits
Committee and the Trustee under the CUC Plan will abstain from voting such
shares. Instructions given with respect to shares in Savings Plans accounts may
be changed or revoked only in writing, and no such instructions may be revoked
after twelve o'clock noon, Eastern Daylight Time on May 12, 1998. Participants
in the Savings Plans are not entitled to vote in person at the Annual Meeting.
If a participant in the Savings Plans has shares of Common Stock
credited to his or her account in the Savings Plans and also owns other shares
of Common Stock, he or she should receive separate proxy cards for shares
credited to his or her account in the Plan and any other shares that he or she
owns. All such proxy cards should be completed, signed and returned to the
transfer agent to register voting instructions for all shares owned by him or
her or held for his or her benefit in such Plans' Cendant Stock Fund.
The accompanying form of proxy is being solicited on behalf of the
Board of Directors of the Company. The expenses of solicitation of proxies for
the Meeting will be paid by the Company. In addition to the mailing of the proxy
material, such solicitation may be made in person or by telephone by directors,
officers and employees of the Company, who will receive no additional
compensation therefor. Upon request, the Company will reimburse brokers,
dealers, banks and trustees, or their nominees, for reasonable expenses incurred
by them in forwarding material to beneficial owners of shares of Common Stock.
The Company has retained ChaseMellon Shareholder Services to aid in the
solicitation of proxies. It is estimated that the fee for such firm will be
approximately $9,500.00 plus reasonable out-of-pocket costs and expenses. Such
fee will be paid by the Company.
A copy of the Annual Report on Form 10-K filed by the Company with the
Securities and Exchange Commission for its latest fiscal year is available
without charge to stockholders upon written request to Cendant Corporation, 707
Summer Street, Stamford, Connecticut 06901, Attention: Investor Relations.
TABLE OF CONTENTS
Page
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.......................... 1
Outstanding Shares and Voting Rights................................ 1
Security Ownership of Certain Beneficial Owners and Management...... 2
ELECTION OF DIRECTORS [Proposal 1]....................................... 5
General............................................................. 5
Information Regarding the Nominees for Term Expiring in 2001........ 6
Information Regarding Directors Whose Terms Expire in 1999.......... 7
Information Regarding Directors Whose Terms Expire in 2000.......... 8
Committees and Meetings of the Board of Directors................... 9
EXECUTIVE OFFICERS....................................................... 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION............................. 13
Summary Compensation Table.......................................... 13
Option Grants Table................................................. 15
Option Exercises and Year-End Option Value Table.................... 17
Employment Contracts and Termination, Severance and
Change of Control Arrangements...................................... 17
Pre-Merger Compensation Committee Report on Executive Compensation.. 21
Compensation Committee Interlocks and Insider Participation......... 25
Performance Graph................................................... 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 26
Relationship with Chartwell......................................... 26
Relationship with Avis Rent A Car, Inc. ............................ 27
Relationship with NRT............................................... 27
Other Relationships................................................. 27
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT........................ 29
APPROVAL OF 1998 STOCK OPTION PLAN [Proposal 2].......................... 30
RATIFICATION OF APPOINTMENT OF AUDITORS [Proposal 3]..................... 34
STOCKHOLDER PROPOSALS.................................................... 35
EXHIBIT 1 - 1998 Stock Option Plan
21
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Outstanding Shares and Voting Rights
Only holders of record of the Company's Common Stock at the close of
business on March 20, 1998 are entitled to notice of, and to vote at, the
Meeting. On that date, the Company had outstanding 843,661,053 shares of Common
Stock, held of record by 11,727 shareholders.
The presence, in person or by proxy, of the holders of not less than
one-third of the Common Stock entitled to vote at the Meeting will constitute a
quorum and the act of the majority of such quorum shall be deemed the act of the
stockholders. On all matters voted upon at the Meeting and any adjournment or
postponement thereof, the holders of the Common Stock vote together as a single
class, with each record holder of Common Stock entitled to one vote per share.
Directors shall be elected by the affirmative vote of the holders of a
majority of the shares of Common Stock present at the Meeting, in person or by
proxy, and entitled to vote in the election of directors. Under applicable
Delaware law, in determining whether such nominees have received the requisite
number of affirmative votes, abstentions and broker non-votes will be counted
and will have the same effect as a vote against such election.
Approval of the proposals relating to the Stock Option Plan and
ratification of the appointment of auditors of the Company's financial
statements requires the affirmative vote of the holders of a majority of the
shares of Common Stock present at the Meeting, in person or by proxy, and
entitled to vote. Under applicable Delaware law, in determining whether such
proposal has received the requisite number of affirmative votes, abstentions and
broker non-votes will be counted and will have the same effect as a vote against
this proposal.
In order that your shares of Common Stock may be represented at the
Meeting, you are requested to:
o indicate your instructions on the proxy;
o date and sign the proxy;
o mail the proxy promptly in the enclosed envelope; and
o allow sufficient time for the proxy to be received before the date
of the Meeting.
Alternatively, in lieu of returning signed proxy cards, Cendant
stockholders of record can vote their shares by calling a specially designated
telephone number. This new phone voting procedure is designed to authenticate
stockholders' identities, to allow stockholders to provide their voting
instructions, and to confirm that their instructions have been recorded
properly. Specific instructions for stockholders of record who wish to use the
telephone voting procedure are set forth on the enclosed proxy card. A proxy may
be revoked at any time prior to the voting at the Annual Meeting by submitting a
later dated proxy (including a proxy by telephone) or by giving timely written
notice of such revocation to the Secretary of the Company.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND
THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE OF THIS PROXY STATEMENT.
Security Ownership of Certain Beneficial Owners and Management
The information set forth on the following table is furnished as of
March 20, 1998 with respect to any person (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) who is known to the Company to be the beneficial owner of more
than 5% of any class of the Company's voting securities, and as to those shares
of the Company's equity securities beneficially owned by each of its directors,
certain of its executive officers, and all of its executive officers and
directors as a group.
Amount and Nature
of Beneficial
Ownership of Common Percent of
Name Stock as of 3/20/98 Class(33)
- ---- ------------------- ----------
Principal Stockholders
FMR Corp.(1) 71,004,579 8.4%
82 Devonshire Street
Boston, MA 02109
Massachusetts Financial Services Company(2) 49,048,022 5.8%
500 Boylston Street
Boston MA 02116-3741
Directors and Executive Officers
Walter A. Forbes(3) 4,587,813 *
Henry R. Silverman(4) 46,300,002 5.5%
Stephen P. Holmes(5) 2,672,801 *
Robert D. Kunisch(6) 1,989,257 *
Christopher K. McLeod(7) 3,066,754 *
Michael P. Monaco(8) 1,802,325 *
E. Kirk Shelton(9) 3,116,587 *
James E. Buckman(10) 2,383,876 *
Robert T. Tucker(11) 75,400 *
Bartlett Burnap(12) 2,753,635 *
Leonard S. Coleman(13) 120,155 *
T. Barnes Donnelley(14) 1,841,033 *
Martin L. Edelman (15) 60,155 *
Frederick D. Green 3,000 *
Stephen A. Greyser(16) 202,217 *
Dr. Carole G. Hankin - *
The Rt. Hon. Brian Mulroney, P.C. LL.D(17) 120,155 *
Robert E. Nederlander(18) 120,155 *
Burton Perfit(19) 147,866 *
Anthony G. Petrello(20) 31,800 *
Robert W. Pittman(21) 600,775 *
Robert P. Rittereiser(22) 202,217 *
E. John Rosenwald, Jr.(23) 177,936 *
Stanley M. Rumbough, Jr.(24) 1,838,834 *
Leonard Schutzman(25) 124,955 *
Robert F. Smith(26) 124,941 *
John D. Snodgrass(27) 7,130,709 *
Craig R. Stapleton(28) 2,000 *
Cosmo Corigliano(29)(31) 960,550 *
Amy N. Lipton(30)(31) 644,571 *
Executive Officers and Directors
as a group (30 persons)(32) 83,202,374 9.9%
- ---------------
* Amount represents less than 1% of Common Stock
(1) Based on a letter, dated March 24, 1998, from FMR Corp. to the Company.
This includes 66,550,482 shares beneficially owned by Fidelity
Management & Research Company, as a result of its serving as an
investment adviser; 4,187,078 shares beneficially owned by Fidelity
Management Trust Company; and 267,019 shares beneficially owned by
Fidelity Investment Limited. According to the letter, FMR Corp.,
through its control of Fidelity Management Trust Company, has sole
dispositive power over 2,937,043 shares and sole power to vote or
direct the voting of 1,250,035 shares, and no power to vote or direct
the voting of 267,019 shares of common stock owned by the institutional
account(s) as reported above. Fidelity International Limited has sole
voting and dispositive power with respect to all the shares it
beneficially owns.
(2) Based upon the information contained in a Schedule 13G dated February
12, 1998 by Massachusetts Financial Services Company, a registered
investment adviser on behalf of itself and the other reporting person
named therein, such reporting persons beneficially own 49,121,852
shares of Common Stock. According to the Schedule 13G, Massachusetts
Financial Services Company and the other reporting person named in such
filing have sole power to vote 49,048,022 of such shares, and have sole
power to dispose of 49,121,852 of such shares.
(3) Amount includes options to purchase 4,186,093 shares of Common Stock
which options are currently exercisable or exercisable within 60 days
("Vested Options"). Amount does not include 9,523 shares of Common
Stock held by Mr. Forbes' spouse, nor 22,372 shares of Common Stock
held by Mr. Forbes' spouse as custodian for their children, as to which
Mr. Forbes disclaims beneficial ownership.
(4) Includes 46,300,002 Vested Options.
(5) Includes 2,542,481 Vested Options.
(6) Includes 961,240 Vested Options, 167,892 shares of Common Stock held in
a grantor retained annuity trust of which Mr. Kunisch is the income
beneficiary, 9,912 shares of Common Stock held by Mr. Kunisch's spouse
and 78,621 shares of Common Stock held in the PHH Corporation Employee
Investment Plan.
(7) Amount includes 1,630,941 Vested Options. Amount does not include
118,377 shares of Common Stock held by a charitable foundation founded
by Mr. McLeod, as to which Mr. McLeod disclaims beneficial ownership.
(8) Includes 1,802,325 Vested Options.
(9) Includes 1,884,063 Vested Options.
(10) Includes 2,383,876 Vested Options.
(11) Includes 75,000 Vested Options
(12) Amount includes 188,438 Vested Options and 2,228,638 shares of Common
Stock held by Sun Valley Investments, a limited partnership in which
Mr. Burnap is the sole general and sole limited partner. Amount does
not include 209,650 shares of Common Stock held by Mr. Burnap's spouse,
as to which Mr. Burnap disclaims beneficial ownership.
(13) Includes 120,155 Vested Options.
(14) Includes 188,438 Vested Options and 1,069,218 shares of Common Stock
held indirectly by Mr. Donnelley under a trust under the will of Mr.
Donnelley and 583,377 shares of Common Stock held indirectly by Mr.
Donnelley under the Thorne Barnes Donnelley 1994 Trust. Amount does not
include 8,589 shares of Common Stock held by custodian for Mr.
Donnelley's children, as to which Mr. Donnelley disclaims beneficial
ownership.
(15) Includes 60,155 Vested Options.
(16) Includes 188,438 Vested Options.
(17) Includes 120,155 Vested Options.
(18) Includes 120,155 Vested Options.
(19) Includes 134,500 Vested Options and 13,366 shares of Common Stock
held by the Burton Charles Perfit Trust dated January 31, 1992.
(20) Held by Anthony G. Petrello Revocable Trust.
(21) Includes 600,775 Vested Options.
(22) Includes 188,438 Vested Options.
(23) Includes 120,155 Vested Options.
(24) Includes 112,500 Vested Options and 1,726,334 shares of Common Stock
held by Rumbough Family Limited Partnership, a limited partnership in
which Mr. Rumbough is the sole limited partner and sole shareholder of
the sole general partner.
(25) Includes 120,155 Vested Options.
(26) Includes 120,155 Vested Options and 4,806 shares of Common Stock owned
by a Keough plan of which Mr. Smith is the sole beneficiary. Amount
does not include 19,244 shares of Common Stock held in the name of the
Smith Family Foundation of which Mr. Smith is President, as to which
Mr. Smith disclaims beneficial ownership.
(27) Includes 6,337,683 Vested Options. Amount does not include 33,600
shares held by The Snodgrass Foundation of which Mr. Snodgrass and his
spouse are trustees but in which they have no pecuniary interest. Mr.
Snodgrass disclaims beneficial ownership of such shares.
(28) Does not include 500 shares owned by Mr. Stapleton's spouse, 3,093
shares owned by his mother, 1,687 shares in each of two trusts of which
his daughter and son, respectively, are beneficiaries and 2,000 shares
owned by his son, as to all of which Mr. Stapleton disclaims beneficial
ownership.
(29) Includes 880,207 Vested Options.
(30) Amount includes 638,750 Vested Options. Amount does not include
13,612 shares of Common Stock held by Ms. Lipton's spouse, as to which
Ms. Lipton disclaims beneficial ownership.
(31) Ms. Lipton and Mr. Corigliano ceased being executive officers of the
Company at the Effective Time.
(32) In addition to shares beneficially owned by executive officers and
directors, share number includes an aggregate of 72,005,273 Vested
Options held by officers and directors. Vested Options are deemed
outstanding for the purpose of computing percent of class.
(33) Based on the number of shares outstanding on March 20, 1998 which
aggregated 843,661,053 shares.
ELECTION OF DIRECTORS
[Proposal No. 1]
General
The Board of Directors presently consists of twenty-eight members. As
of December 15, 1997, in connection with the merger of the Company with HFS
Incorporated ("HFS") which was consummated on December 17, 1997 (the "Merger"),
the number of members of the Board of Directors was increased from ten to
twenty-nine and the following individuals were appointed to fill the resulting
vacancies (the "New Directors"):
Henry R. Silverman Martin L. Edelman
Michael P. Monaco Frederick D. Green
Stephen P. Holmes Dr. Carole G. Hankin
Robert D. Kunisch The Rt. Hon. Brian Mulroney, P.C., LL.D
John D. Snodgrass Robert E. Nederlander
James E. Buckman Anthony G. Petrello
Leonard S. Coleman Robert W. Pittman
Christel DeHaan E. John Rosenwald, Jr.
Leonard Schutzman
Robert F. Smith
Craig Stapleton
Robert T. Tucker
Ms. Christel DeHaan resigned from the Board of Directors for personal
reasons on January 22, 1998.
The Board is divided into three classes. The Board of Directors has
nominated ten candidates to be elected at the Meeting to serve as Class I
directors for a three-year term ending at the 2001 Annual Meeting of
Stockholders and when their successors are duly elected and qualified. All
nominees are currently directors of the Company. The terms of the remaining 18
directors expire in 1999 and 2000.
Each nominee has consented to being named in this Proxy Statement and
to serve if elected. If, prior to the Meeting, any nominee should become
unavailable to serve, the shares of Common Stock represented by a properly
executed and returned proxy will be voted for such additional person as shall be
designated by the Board of Directors, unless the Board determines to reduce the
number of directors in accordance with the Company's Amended and Restated
Certificate of Incorporation and the Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE. UNLESS
MARKED TO THE CONTRARY, PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THE
ELECTION OF THE TEN NOMINEES LISTED BELOW.
Certain information regarding each nominee and as to each incumbent
director whose term of office extends to 1999 and 2000 and who, is therefore,
not a nominee for election as a director at the Meeting, as of March 20, 1998,
is set forth below, including such individual's age and principal occupation, a
brief account of such individual's business experience during at least the last
five years and other directorships currently held.
Information Regarding the Nominees for Term Expiring in 2001
E. Kirk Shelton Stephen A. Greyser
Robert D. Kunisch Dr. Carole G. Hankin
John D. Snodgrass The Rt. Hon. Brian Mulroney, P.C., LL.D
Robert T. Tucker Burton C. Perfit
Robert W. Pittman
E. John Rosenwald, Jr.
Mr. Shelton, age 43, has been a Vice Chairman of the Company since December
1997 and a Director of the Company since 1995. Mr. Shelton also serves as a
director and officer of several subsidiaries of the Company. Mr. Shelton was
President of the Company from May 1991 until December 1997, Chief Operating
Officer of the Company from 1988 to December 1997 and Executive Vice President
of the Company from 1984 to 1991.
Mr. Kunisch, age 56, has been a Vice Chairman and a Director of the
Company since December 1997. Mr. Kunisch was a Vice Chairman of HFS from April
1997 to December 1997 and Chairman of the Board (since 1989), Chief Executive
Officer (since 1988) and President (since 1984) of PHH Corporation. He is a
director of the following corporations which file reports pursuant to the
Exchange Act: CSX Corporation, Mercantile Bankshares Corporation and GenCorp,
Inc.
Mr. Snodgrass, age 41, has been a Director of the Company since December
1997. Mr. Snodgrass was a Director, President and Chief Operating Officer of HFS
from February 1992 until December 1997 and was Vice Chairman of HFS from
September 1996 until December 1997. From November 1994 through January 1996, Mr.
Snodgrass served as Vice Chairman of the Board of Chartwell Leisure Inc.
("Chartwell Leisure"). Since December 1997, Mr. Snodgrass has been an
independent investor. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Other Relationships."
Mr. Tucker, age 56, has been a Vice Chairman and a Director of the Company
since December 1997 and has been Secretary of the Company since 1977. From 1972
through 1992, Mr. Tucker was a partner in Baker & McKenzie, a law firm. Since
1992, Mr. Tucker has been engaged in private legal practice. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Other Relationships."
Prof. Greyser, age 63, has been a Director of the Company since 1984
and is the Richard P. Chapman Professor of Business Administration
(marketing/communications) at the Harvard Business School, on whose faculty he
has served for over 30 years. He also serves as a director of Edelman Worldwide
(a public relations firm), Opinion Research Corporation and the
investment/brokerage firm Gruntal & Co. L.L.C.; he is also a past Vice Chairman
of the Public Broadcasting Service.
Dr. Hankin, age 55, has been a Director of the Company since December 1997.
Dr. Hankin is Superintendent of Schools in Syosset, New York, a suburban K-12
school district; she has served in that district since 1990.
Mr. Mulroney, age 58, has been a Director of the Company since December
1997. Mr. Mulroney was a Director of HFS from April 1997 until December 1997.
Mr. Mulroney was Prime Minister of Canada from 1984 to 1993 and is currently
Senior Partner in the Montreal-based law firm, Ogilvy Renault. He is a director
of the following corporations which file reports pursuant to the Exchange Act:
Archer Daniels Midland Company Inc., Barrick Gold Corporation, Petrofina, S.A
and Trizechahh Corporation Ltd. and Quebecor Printing Inc.
Mr. Perfit, age 69, has been a Director of the Company since 1982. Mr.
Perfit was a Senior Vice President of Jack Eckerd Corporation from 1980 until
his retirement in 1986.
Mr. Pittman, age 44, has been a Director of the Company since December
1997. Mr. Pittman was a Director of HFS from July 1994 until December 1997.
Since February 1998, Mr. Pittman has been President and Chief Operating Officer
of America Online, Inc. From October 1996 to February 1998, Mr. Pittman was
President and Chief Executive Officer of AOL Networks, a unit of America Online,
Inc. From September 1995 through October 1996, Mr. Pittman served as the Chief
Executive Officer and Managing Partner of the Company's wholly owned subsidiary,
Century 21 Real Estate Corporation. From 1990 until September 1995, Mr. Pittman
served as President and Chief Executive Officer of Time Warner Enterprises, a
business development unit of Time Warner Inc. and, from 1991 to September 1995,
additionally, as Chairman and Chief Executive Officer of Six Flags Entertainment
Corporation, the parent of Six Flags Theme Parks Inc. Mr. Pittman serves as a
director of America Online, Inc., which files reports pursuant to the Exchange
Act. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Other Relationships."
Mr. Rosenwald, age 67, has been a Director of the Company since December
1997. Mr. Rosenwald was a Director of HFS from September 1996 until December
1997. Mr. Rosenwald has been, since 1988, Vice Chairman of The Bear Stearns
Companies Inc. Mr. Rosenwald also serves as a director of the following
corporations which file reports pursuant to the Exchange Act: The Bear Stearns
Companies Inc. and Hasbro, Inc. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Other Relationships."
Information Regarding Directors Whose Terms Expire in 1999
Christopher K. McLeod Stanley M. Rumbough, Jr.
Leonard S. Coleman Leonard Schutzman
Robert E. Nederlander Robert F. Smith
T. Barnes Donnelley Craig R. Stapleton
Mr. McLeod, age 42, has been a Vice Chairman of the Company since December
1997 and a Director of the Company since 1995. Mr. McLeod also serves as a
director and officer of several subsidiaries of the Company. Mr. McLeod was an
Executive Vice President of the Company from 1986 to December 1997. He has been
Chief Executive Officer of Cendant Software since January 1997. Mr. McLeod was a
member of the Office of the President of the Company from 1988 to December 1997
and served as President of the Company's Comp-U-Card Division between 1988 and
August 1995.
Mr. Coleman, age 49, has been a Director of the Company since December
1997. Mr. Coleman was a Director of HFS from April 1997 until December 1997. Mr.
Coleman has served as President of The National League of Professional Baseball
Clubs since 1994, having previously served since 1992 as Executive Director,
Market Development of Major League Baseball. Mr. Coleman is a director of the
following corporations which file reports pursuant to the Exchange Act:
Beneficial Corporation, Avis Rent A Car, Inc., Owens Corning, The Omnicom Group
and New Jersey Resources.
Mr. Nederlander, age 64, has been a Director of the Company since December
1997. Mr. Nederlander was a Director of HFS from July 1995 to December 1997. Mr.
Nederlander has been President and Director since November 1981 of the
Nederlander Organization, Inc., owner and operator of one of the world's largest
chains of legitimate theaters. Mr. Nederlander has been Chairman of the Board of
Riddell Sports Inc. since April 1988 and was the Chief Executive Officer of such
corporation from 1988 through April 1, 1993. From February until June 1992, Mr.
Nederlander was also Riddell Sports Inc.'s interim President and Chief Operating
Officer. He served as the Managing General Partner of the New York Yankees from
August 1990 until December 1991, and has been a limited partner since 1973. Mr.
Nederlander has been President since October 1985 of Nederlander Television and
Film Productions, Inc.; Chairman of the Board and Chief Executive Officer since
January 1988 of Mego Financial Corp. ("Mego") and Vice Chairman of the Board
since February 1988 to early 1993 of Vacation Spa Resorts, Inc., an affiliate of
Mego. Since September 1996, Mr. Nederlander has been a director of Mego Mortgage
Corp. Mr. Nederlander also served as Chairman of the Board of Allis-Chalmers
Corp. from May 1989 to 1993 and as Vice Chairman of Allis-Chalmers Corp. from
1993 through October 1996. He is currently a Director of Allis-Chalmers Corp. In
October 1996, Mr. Nederlander became a director of New Communications, Inc., a
publisher of community oriented free circulation newspapers. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS-Other Relationships."
Mr. Donnelley, age 64, has been a Director of the Company since 1977
and, for at least the past five years, an independent investor.
Mr. Rumbough, age 78, has been a Director of the Company since 1976 and,
for at least the past five years, an independent investor. Mr. Rumbough is a
director of International Flavors and Fragrances, Inc. which files reports
pursuant to the Exchange Act.
Mr. Schutzman, age 52, has been a Director of the Company since December
1997. Mr. Schutzman was a Director of HFS from August 1993 until December 1997.
Mr. Schutzman is currently Chairman of the Board and Chief Executive Officer of
Triad Capital Corporation of New York, a small business investment company, and
is a professor at the William E. Simon Graduate School of Business at the
University of Rochester in Rochester, New York. Mr. Schutzman was Senior Vice
President of PepsiCo Inc. from February 1987 to April 1995.
Mr. Smith, age 65, has been a Director of the Company since December 1997.
Mr. Smith was a Director of HFS from February 1993 until December 1997. From
November 1994 until August 1996, Mr. Smith also served as a Director of
Chartwell. Mr. Smith is the retired Chairman and Chief Executive Officer of
American Express Bank, Ltd. ("AEBL"). He joined AEBL's parent company, the
American Express Company, in 1981 as Corporate Treasurer before moving to AEBL
and serving as Vice Chairman and Co-Chief Operating Officer and then President
prior to becoming Chief Executive Officer. Mr. Smith is currently a Partner in
Car Component Technologies, Inc., an automobile parts remanufacturer, located in
Bedford, New Hampshire.
Mr. Stapleton, age 52, has been a Director of the Company since December
1997. Mr. Stapleton has been President of Marsh & McLennan Real Estate Advisors,
Inc. since 1983. Mr. Stapleton is also a director of the following corporations
which file reports pursuant to the Exchange Act: Alleghany Properties, Inc., a
subsidiary of Alleghany Corp., T.B. Woods Inc. and Vacu Dry Co.
Information Regarding Directors Whose Terms Expire in 2000
Walter A. Forbes James E. Buckman Anthony G. Petrello
Henry R. Silverman Bartlett Burnap Robert P. Rittereiser
Michael P. Monaco Martin Edelman
Stephen P. Holmes Frederick Green
Mr. Forbes, age 55, has been Chairman of the Board of Directors of the
Company since 1983 and a Director of the Company since 1974. Mr. Forbes was
Chief Executive Officer of the Company from 1976 until December 1997 and was the
Company's President between 1982 and May 1991. Mr. Forbes also serves as a
director and officer of several subsidiaries of the Company. Mr. Forbes is a
director of the following corporation which files reports pursuant to the
Exchange Act: NFO Worldwide, Inc.
Mr. Silverman, age 57, has been President and Chief Executive Officer and
Director of the Company since December 1997. Mr. Silverman was Chairman of the
Board, Chairman of the Executive Committee and Chief Executive Officer of HFS
from May 1990 until December 1997. From November 1994 until February 1996, Mr.
Silverman also served as Chairman of the Board and Chief Executive Officer of
Chartwell.
Mr. Monaco, age 50, has been a Vice Chairman, the Chief Financial Officer
and a Director of the Company since December 1997. Mr. Monaco was Vice Chairman
and Chief Financial Officer of HFS from October 1996 until December 1997 and was
a Director of HFS from January 27, 1997 until December 1997. Mr. Monaco also
serves as a director and officer of several subsidiaries of the Company. Mr.
Monaco served as Executive Vice President and Chief Financial Officer of the
American Express Company from September 1990 to June 1996. Mr. Monaco serves as
a director of the following corporation which file reports pursuant to the
Exchange Act: Avis Rent A Car, Inc. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Relationship with Avis Rent A Car, Inc." and "- Relationship with
NRT."
Mr. Holmes, age 41, has been a Vice Chairman and Director of the Company
since December 1997. Mr. Holmes was Vice Chairman of HFS from September 1996
until December 1997 and was a Director of HFS from June 1994 until December
1997. From July 1990 through September 1996, Mr. Holmes served as Executive Vice
President, Treasurer and Chief Financial Officer of HFS. Mr. Holmes also serves
as a director and officer of several subsidiaries of the Company. Mr. Holmes is
a director of the following corporations that file reports pursuant to the
Exchange Act: Avis Rent A Car, Inc. and Chartwell. Mr. Holmes is also a Director
of Avis Europe PLC. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Relationship with Avis Rent A Car, Inc."
Mr. Buckman, age 53, has been the Senior Executive Vice President, General
Counsel and a Director of the Company since December 1997. Mr. Buckman was the
Senior Executive Vice President and General Counsel and Assistant Secretary of
HFS from May 1997 to December 1997, a Director of HFS since June 1994 and was
Executive Vice President, General Counsel and Assistant Secretary of HFS from
February 1992 to May 1997. Mr. Buckman also serves as a director and officer of
several subsidiaries of the Company. From November 1994 to February 1996, Mr.
Buckman served as the Executive Vice President, General Counsel and Secretary of
Chartwell and until August 1996 he served as a director of Chartwell. He was a
partner with Troutman, Sanders, Lockersman & Ashmore, an Atlanta, Georgia law
firm, from January 1990 to February 1992.
Mr. Burnap, age 66, has been a Director of the Company since 1976 and
currently is an independent investor. Since 1978, he has been President of the
Ralph J. Weiler Foundation, a charitable foundation. Since 1981, he has been
President of CIB Associates, a venture capital firm. Mr. Burnap was Chairman of
the Company's Board of Directors between 1976 and 1983.
Mr. Edelman, age 56, has been a Director of the Company since December
1997. Mr. Edelman was a Director of HFS from November 1993 until December 1997.
Mr. Edelman also serves as President and a Director of Chartwell. He has been a
partner with Battle Fowler, a New York City law firm, from 1972 through 1993 and
since January 1, 1994 has been Of Counsel to that firm. Mr. Edelman is also a
partner of Chartwell Hotels Associates, Chartwell Leisure Associates L.P.,
Chartwell Leisure Associates L.P. II, and of certain of their respective
affiliates. Mr. Edelman also serves as a director of the following corporations
which file reports pursuant to the Exchange Act: Avis Rent A Car, Inc. and
Capital Trust. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Relationship with Chartwell", "-Relationship with Avis Rent A Car, Inc." and "-
Other
Relationships."
Mr. Green, age 59, has been a Director of the Company since December 1997.
Mr. Green is President and Chairman of Golf Services, Inc. Since 1969, Golf
Services and its affiliates have been engaged in the ownership and development
of residential and commercial real estate projects as well as the creation and
management of golf clubs.
Mr. Petrello, age 43, has been a Director of the Company since December
1997. Mr. Petrello has been President and Chief Operating Officer of Nabors
Industries, Inc. (an international drilling contractor) since 1992 and a member
of the Executive Committee of Nabors Industries since 1991. Mr. Petrello has
also been a director of Danielson Holding Corporation, a financial services
holding company, since 1996. From 1979 to 1991, Mr. Petrello was with Baker &
McKenzie, a law firm, where Mr. Petrello was Managing Partner of its New York
office until his resignation in 1991. Mr. Petrello continues as of counsel to
Baker & McKenzie, and the firm continues to provide legal services to the
Company.
Mr. Rittereiser, age 59, has been a Director of the Company since 1982 and
is Chairman and Chief Executive Officer of Gruntal Financial L.L.C., an
investment services firm based in New York City. He is Chairman of Yorkville
Associates Corp., a private investment and financial concern, since its
formation in April 1989. He served as a Trustee of the DBL Liquidating Trust
from April 1992 through April 1996. He served as a Director in 1990, as Chairman
in November 1992, and as President and Chief Executive Officer from March 1993
until February 1995 of Nationar, a New York banking services company which was
taken over on February 6, 1995 by the Acting Superintendent of Banks of New York
State. He is a Director of the following corporations which file reports
pursuant to the Exchange Act: Ferrofluidics Corporation, Interchange Financial
Services Corp. and Wallace Computer Services, Inc.
Messrs. Holmes and Pittman were directors and Mr. Snodgrass was Chairman of
the Board of AMRE, Inc. ("AMRE") within two years prior to January 20, 1997, the
date on which AMRE filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Although the Company had a minor investment in AMRE, AMRE is
not an affiliate of or otherwise related to the Company.
Committees and Meetings of the Board of Directors
Board of Directors
The Board of Directors held 10 meetings during 1997. All incumbent
directors attended at least 75% of the aggregate number of meetings of the Board
and committees of the Board on which they served, except that the New Directors
attended at least 75% of those meetings held after their appointment in December
1997.
Executive Committee
Prior to the effective time of the Merger, the Executive Committee was
composed of Walter A. Forbes, E. Kirk Shelton, Bartlett Burnap, Robert P.
Rittereiser and Stanley M. Rumbough, Jr. (the "Pre-Merger Executive Committee").
The Pre-Merger Executive Committee had all of the powers of the Board of
Directors when the Board was not in session, usually between regular Board
meetings and when timing was critical, except that the Pre-Merger Executive
Committee did not have the power to elect Directors or officers of the Company,
to alter, amend or repeal by-laws of the Company or any resolution of the Board
relating to the Pre-Merger Executive Committee, to declare any dividend or
distribution to the shareholders of the Company, to appoint any member of the
Pre-Merger Executive Committee, or to take any other action specifically
reserved by law to the Board of Directors. The Pre-Merger Executive Committee
held one meeting during 1997.
At the effective time of the Merger (the "Effective Time"), a new
Executive Committee of the Board of Directors (the "Executive Committee") was
appointed. The Executive Committee (which also acts as the nominating committee)
is composed of Walter A. Forbes (Chairman), Henry R. Silverman, E. Kirk Shelton,
Christopher K. McLeod, Robert P. Rittereiser, Michael P. Monaco, Stephen P.
Holmes and Martin L. Edelman. Until the third anniversary of the Effective Time,
the Board of Directors has delegated to the Executive Committee full and
exclusive power and authority to evaluate director candidates for election to
the Board of Directors and committees of the Board of Directors, to nominate
directors for election to the Board of Directors at any annual or special
meeting of stockholders, and to elect directors to fill vacancies (i) on the
Board of Directors between stockholder meetings or (ii) on any committee of the
Board (to the extent an alternate member has not been previously designated by
the Board of Directors). The Executive Committee also has and may exercise all
of the powers of the Board of Directors when the Board is not in session,
including the power to authorize the issuance of stock, except that the
Executive Committee has no power to (a) alter, amend or repeal the By-Laws or
any resolution or resolutions of the Board of Directors, (b) declare any
dividend or make any other distribution to the stockholders of the Company, (c)
appoint any member of the Executive Committee, or (d) take any other action
which legally may be taken only by the full Board of Directors. The Chairman of
the Board will serve as Chairman of the Executive Committee. The Executive
Committee did not meet in 1997.
Pursuant to the By-Laws, nomination of directors for election to the
Board of Directors and the election of directors to fill vacancies arising
between stockholders' meetings or the election of directors to fill vacancies on
any committee of the Board of Directors will be undertaken by the Executive
Committee such that the number of HFS Directors (as defined below) and CUC
Directors (as defined below) on the Board of Directors or any committee of the
Board of Directors will be equal. Prior to the Merger, the nominating committee
consisted of Messrs. Burnap (Chairman), Greyser, Rittereiser and Rumbough. The
pre-merger nominating committee held one meeting in 1997.
The term "HFS Director" means (i) any person serving as a director of
HFS on May 27, 1997 (or any person appointed by the HFS Board of Directors after
May 27, 1997 to fill a vacancy on the HFS Board created other than due to an
increase in the size of the HFS Board of Directors) who continues as a director
of the Company at the Effective Time and (ii) any person who becomes a director
of the Company and who was designated as such by the remaining HFS Directors
prior to his or her election; and the term "CUC Director" means (a) any person
serving as a director of the Company on May 27, 1997 (or any person appointed by
the CUC Board of Directors after May 27, 1997 to fill a vacancy on the CUC Board
of Directors created other than due to an increase in the size of the CUC Board
of Directors) who continues as a director of the Company at the Effective Time,
(b) any of the five persons designated by the CUC Directors to become a director
of the Company on December 15, 1997, and (c) any person who becomes a director
of the Company and who was designated as such by the remaining CUC Directors
prior to his or her election.
Resolutions regarding the filling of a director vacancy between
stockholder meetings, the filling of a vacancy on any committee of the Board or
the nomination of a director for election at any annual or special meetings of
stockholders in a manner that (i) is consistent with the governance plan of the
Company requires the approval by only three members of the Executive Committee
(or only two members if there are then two vacancies on the Executive Committee)
or (ii) is inconsistent with the governance plan of the Company requires
approval by at least seven members of the Executive Committee. To be consistent
with the governance plan, nominations of Directors for election to the Board of
Directors at any annual or special meeting of stockholders, the election of
Directors to fill vacancies on the Board of Directors at any annual or special
meeting of stockholders, the election of Directors to fill vacancies on the
Board of Directors in between stockholders' meetings or the election of
Directors to fill vacancies on any committee of the Board of Directors (to the
extent an alternate member has not been previously designated by the Board of
Directors) shall be undertaken by the Executive Committee such that (1) the
number of HFS Directors and CUC Directors on the Board of Directors or any
committee of the Board shall be equal and (2) the remaining HFS Directors (if
the number of HFS Directors is less than the number of CUC Directors) or the
remaining CUC Directors (if the number of CUC Directors is less than the number
of HFS Directors) shall designate the person to be nominated or elected.
Until the third anniversary of the Effective Time, any change to the above
procedure will require the affirmative vote of 80% of the Board of Directors.
Audit Committee
Prior to the Effective Time, the Audit Committee (the "Pre-Merger Audit
Committee") was composed of T. Barnes Donnelley, Stephen A. Greyser and Burton
C. Perfit (Chairman). The Pre-Merger Audit Committee recommended to the Board a
firm of independent auditors to conduct the annual audit of the Company's
financial statements, reviewed with such firm the overall scope and results of
the annual audit, reviewed and approved the performance by such independent
auditors of professional services in addition to those which were audit-related,
and reviewed the fees charged by the independent auditors for professional
services. In addition, the Audit Committee met periodically with the independent
auditors and representatives of management to review accounting activities,
financial controls and reporting. During 1997, the Audit Committee held two
meetings.
At the Effective Time, the Board of Directors appointed a new Audit
Committee (the "New Audit Committee") composed of Frederick D. Green (Chairman),
Robert P. Rittereiser, E. John Rosenwald, Jr. and Robert E. Nederlander. The New
Audit Committee reviews and evaluates the Company's internal accounting and
auditing procedures; recommends to the Board of Directors the firm to be
appointed as independent accountants to audit the Company's financial
statements; reviews with management and the independent accountants the
Company's year-end operating results; reviews the scope and results of the audit
with the independent accountants; reviews with management the Company's interim
operating results; and reviews the non-audit services to be performed by the
firm of independent accountants and considers the effect of such performance on
the accountants' independence. The New Audit Committee did not meet in 1997.
Compensation Committee
Prior to the Effective Time, the Compensation Committee (the
"Pre-Merger Compensation Committee") was composed of Bartlett Burnap, Stephen A.
Greyser, Robert P. Rittereiser (Chairman) and Stanley M. Rumbough, Jr. The
Pre-Merger Compensation Committee recommended to the Board of Directors overall
compensation philosophy and policies for the Company and determined the salary
range for different executive levels and the specific compensation for the
Company's Chief Executive Officer. See "Executive Compensation and Other
Information--Compensation Committee Report on Executive Compensation." The
Pre-Merger Compensation Committee reviewed and made recommendations to the Board
concerning plans, programs, and benefits which related to executive
compensation, and made incentive compensation and stock option awards. In
addition, the Pre-Merger Compensation Committee reviewed and made
recommendations to the Board concerning selection, recruiting, hiring, and
promotion of key executive personnel. During 1997, the Pre-Merger Compensation
Committee held eight meetings.
At the Effective Time, the Board of Directors appointed a new
Compensation Committee (the "New Compensation Committee") composed of Robert F.
Smith (Chairman), Leonard Schutzman, Anthony G. Petrello and Robert T. Tucker.
The New Compensation Committee has the following powers and authority: (i)
determining and fixing the compensation for all senior officers of the Company
and those of its subsidiaries that the New Compensation Committee shall from
time to time consider appropriate, as well as all employees of the Company and
its subsidiaries compensated at a rate in excess of such amount per annum as may
be fixed or determined from time to time by the Board; (ii) performing the
duties of the committees of the Board provided for in any present or future
stock option, incentive compensation or employee benefit plan of the Company or,
if the New Compensation Committee shall so determine, any such plan of any
subsidiary; and (iii) reviewing the operations of and policies pertaining to any
present or future stock option, incentive compensation or employee benefit plan
of the Company or any subsidiary that the New Compensation Committee shall from
time to time consider appropriate. Each resolution of the New Compensation
Committee requires approval by at least three members of such committee. The New
Compensation Committee did not meet in 1997.
Director Compensation
Non-Employee Directors (as defined in Rule 16b-3(b)(3) of the Exchange
Act) of the Company receive an annual retainer of $30,000, plus $4,000 for
chairing a committee and $2,000 for serving as a member of a committee other
than Chairman. Non-Employee Directors also are paid $1,000 for each Board
meeting attended and $500 ($1,000 for committee chair) for each Board committee
meeting if held on the same day as a Board meeting and $1,000 ($2,000 for
committee chair) for each Board committee meeting attended on a day on which
there is no Board meeting. Non-Employee Directors are reimbursed for expenses
incurred in attending meetings of the Board of Directors and committees.
The Company provides $100,000 of term life insurance coverage for each
Non-Employee Director to the beneficiary designated by such Non-Employee
Director. In addition, the Company has purchased joint life insurance contracts
in the amount of $1 million for each Director. Upon the death of such Director,
the Company will donate an aggregate of $1 million to one or more charitable
organizations designated by such Director from the proceeds of such insurance
policy. With the exception of such joint life insurance contracts, members of
the Board of Directors who are officers or employees of the Company or any of
its subsidiaries do not receive compensation or reimbursement of expenses for
serving in such capacity.
Non-Employee Directors have also received grants of stock options under
one or more of the following plans: 1990 Directors Stock Option Plan, 1992
Directors Stock Option Plan, 1994 Director Stock Option Plan, the 1997 Stock
Incentive Plan and the HFS 1993 Stock Option Plan.
Directors shall be elected by the affirmative vote of the holders of a
majority of the shares of Common Stock present at the Meeting, in person or by
proxy, and entitled to vote in the election of directors. Pursuant to applicable
Delaware law, abstentions and broker non-votes will have the effect of a vote
against the election of the Director.
EXECUTIVE OFFICERS
The executive officers of the Company as of the date of this Proxy
Statement are set forth in the table below. All executive officers are appointed
at the annual meeting or interim meetings of the Board of Directors. Each
executive officer is appointed by the Board to hold office until his or her
successor is duly appointed and qualified:
Name Office or Positions Held
- --------------------- -----------------------------------------
Walter A. Forbes Chairman of the Board
Henry R. Silverman President and Chief Executive Officer
Michael P. Monaco Vice Chairman and Chief Financial Officer
Stephen P. Holmes Vice Chairman
Robert D. Kunisch Vice Chairman
Christopher K. McLeod Vice Chairman
E. Kirk Shelton Vice Chairman
Robert T. Tucker Vice Chairman and Secretary
James E. Buckman Senior Executive Vice President, General
Counsel and Assistant Secretary
For biographical information concerning the Executive Officers of the
Company, see "Election of Directors."
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth the 1995, 1996 and 1997 cash and noncash
compensation awarded to or earned by the Chief Executive Officer of the Company
and the four other most highly compensated executive officers of the Company
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation(2) Long Term Compensation
---------- ------------- ------------- ---------------- ------------- -----------------
Securities
Restricted Underlying All Other
Name and Year Stock Award(s) Options/ Compensation
Principal Position (1) Salary($) Bonus($) (3)($) SARs (#) ($)(4)
- ----------------------------- ---------- ------------- ------------- ---------------- ------------- -------------
Walter A. Forbes 1997 782,772.66 780,000.00 0 4,400,000 8,283,244.00
Chairman of the Board(5) 1996 757,228.00 760,000.00 5,081,175 225,000 268,513.00
1995 732,470.00 725,000.00 0 112,500 264,828.00
Henry R. Silverman 1997 60,672.00 0 0 19,307,180 0
President and Chief 1996 0 0 0 0 0
Executive Officer(5) 1995 0 0 0 0 0
E. Kirk Shelton 1997 514,769.84 520,000.00 0 2,200,000 7,913,005.00
Vice Chairman 1996 480,000.00 480,000.00 4,234,313 187,500 131,644.00
1995 450,000.00 450,000.00 0 78,750 131,223.00
Christopher K. McLeod 1997 514,769.84 520,000.00 0 2,200,000 7,841,112.00
Vice Chairman 1996 480,000.00 480,000.00 4,234,313 187,500 125,559.00
1995 450,000.00 450,000.00 0 78,750 122,057.00
Cosmo Corigliano 1997 216,520.64 100,000.00 0 830,000 3,607,999.00
Executive Vice 1996 189,134.00 80,000.00 1,354,980 172,500 15,517.00
President(6) 1995(7) 160,000.00 30,000.00 0 18,000 7,044.00
Amy N. Lipton 1997 246,898.33 120,000.00 0 830,000 3,608,119.00
Executive Vice 1996 224,211.00 100,000.00 1,354,980 172,000 15,637.00
President and Deputy 1995(7) 210,000.00 80,000.00 0 11,250 7,129.00
General Counsel(6)
- ------------------------
(1) As of the Effective Time, the Company changed its fiscal year end from year
ended January 31 to year ended December 31. The compensation provided for
Messrs. Forbes, Shelton, McLeod and Corigliano and for Ms. Lipton for 1995
and 1996 is based on the fiscal years ended January 31, 1996 and January
31, 1997, respectively.
(2) For each of the Named Executive Officers for the year ended December 31,
1997 and for each of the fiscal years ended January 31, 1997 and 1996,
there were no payments by the Company of (i) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year,
(ii) above-market earnings on deferred compensation, (iii) earnings with
respect to long-term incentive plans, (iv) tax reimbursements, or (v)
preferential discounts on stock.
(3) Awards of restricted stock were made to Messrs. Forbes, Shelton, McLeod and
Corigliano and Ms. Lipton on July 24, 1996 pursuant to the Company's 1989
Restricted Stock Plan. The value of the awards set forth in the table above
reflects the number of shares of restricted stock granted to such Named
Executive Officer on that date multiplied by the closing market price of a
share of Common Stock on the New York Stock Exchange, Inc. ("NYSE") on that
date, which was $22.583. The restrictions on these shares lapsed at the
Effective Time.
(4) "All Other Compensation" includes: (i) contributions of $1,584 for each of
Messrs. Forbes, Shelton, McLeod and Corigliano and Ms. Lipton and
contributions of $1,577 for Mr. Forbes to the Company's 401(k) Plan to
match 1997 pre-tax elective deferral contributions (included under Salary)
made by each such individual to such plan; and (ii) the premiums paid by
the Company for the term life component of "split-dollar" life insurance
policies (the "Insurance Program") procured by the Company in respect of
these executive's lives. In 1997, premiums of $30,168, $4,401, $7,196, $685
and $805 were paid in respect of Messrs. Forbes, Shelton, McLeod and
Corigliano and Ms. Lipton, respectively. "All Other Compensation" also
includes the present dollar value, determined in accordance with SEC
regulations, and based on actuarial computations, as of December 31, 1997
and each of January 31, 1997, 1996, respectively, of the benefit to the
Named Executive Officers of the remainder of the premium payments made by
the Company in respect of such Named Executive Officers on December 31,
1997 and each of January 31, 1997 and January 31, 1996, respectively. The
present dollar value of such payments as of December 31, 1997 is as
follows: Walter A. Forbes--$751,499; E. Kirk Shelton--$482,020; Christopher
K. McLeod--$407,332; Cosmo Corigliano--$5,730; and Amy N. Lipton--$5,730.
"All Other Compensation" also includes amounts payable to Messrs. Forbes,
Shelton, McLeod, Corigliano and Ms. Lipton under the previously adopted CUC
Executive Retirement Plan (the "SERP"), which became payable upon the
consummation of the Merger, as follows: Walter A. Forbes - $7,500,000; E.
Kirk Shelton - $7,425,000; Christopher K. McLeod - $7,425,000; Cosmo
Corigliano - $3,600,000; and Amy N. Lipton - $3,600,000. The payments under
the SERP were in full settlement of all benefits under the SERP.
(5) At the Effective Time, Mr. Silverman became President and Chief Executive
Officer of the Company. Prior to the Effective Time, Mr. Forbes served as
Chief Executive Officer of the Company. The compensation shown in the table
above reflects only the compensation received by Mr. Silverman from the
Company.
(6) Ms. Lipton and Mr. Corigliano ceased being executive officers of the
Company at the Effective Time.
(7) Ms. Lipton and Mr. Corigliano received stock options for all or part of
their respective salaries and/or bonuses during 1995.
Each participant in the Insurance Program is provided ordinary life
insurance coverage and enters into a split-dollar agreement with the Company.
The Company pays the full premium of the policy. The participant is the owner of
the policy and is obligated to pay tax on the value of a portion of the
coverage. The Company retains an interest in the policy equal to the accumulated
premiums paid. Upon Messrs. Forbes', Shelton's and McLeod's retirement, and upon
the Company's termination of their respective policies in the case of Mr.
Corigliano and Ms. Lipton (each a "Termination Date"), the Company is entitled
to recover all of its previous premium payments, and any remaining cash outlays
by the Company will cease. Any cash value in the policy in excess of the
premiums recovered by the Company is retained by the participant. In the event
of the participant's death prior to the Termination Date, the Company is
entitled to recover all premium payments from the death benefit and the balance
of the death benefit will be paid to the participant's estate.
Option Grants Table
The following tables summarize option grants during the last fiscal
year for the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------------------------------------
Number of % of Total Grant Date
Securities Options/SARs Exercise
Underlying Granted to or Base Value
-----
Options/SARs Employees in Price Expiration Grant Date
Name Granted(#)(1) Fiscal Year ($/Sh) Date Present
Value $(2)
--------------------- --------------- ----------- --------------- ------------------------
Walter A. Forbes 400,000(3,7) 0.52% $20.50 04/21/2007 $ 4,028,000
4,000,000(4,6,8) 5.16% $31.375 12/17/2007 $ 61,400,000
Henry R. Silverman 4,806,200(3,9) 6.20% $20.75 04/30/2007 $ 56,376,724
14,500,980(3,8) 18.69% $31.375 12/17/2007 $223,460,100
E. Kirk Shelton 400,000(3,7) 0.52% $20.50 04/21/2007 $ 4,028,000
1,800,000(5,6,8) 2.32% $31.375 12/17/2007 $ 27,738,000
Christopher K. McLeod 400,000(3,7) 0.52% $20.50 04/21/2007 $ 4,028,000
1,800,000(5,6,8) 2.32% $31.375 12/17/2007 $ 27,738,000
Cosmo Corigliano 230,000(3,7) 0.30% $20.50 04/21/2007 $ 2,316,100
600,000(5,6,8) 0.77% $31.375 12/17/2007 $ 9,246,000
Amy N. Lipton 230,000(3,7) 0.30% $20.50 04/21/2007 $ 2,316,100
600,000(5,6,8) 0.77% $31.375 12/17/2007 $ 9,246,000
(1) Options granted to the named Executive Officers expire ten years after
grant. The new Compensation Committee retains discretion to modify the
terms of outstanding options provided that the options, as modified, do
not violate the terms of the respective plan under which they were
granted.
(2) The values assigned to each reported option on this table are computed
using the Black-Scholes option pricing model. The calculations for
options granted on April 21, 1997 assume a risk-free rate of return of
6.86%, which represents the ten-year yield of United States Treasury
Notes on the option grant date. The calculations for options granted on
April 30, 1997 assume a risk free rate of return of 6.71% which
represents the ten-year yield of United States Treasury Notes on the
option grant date. The calculations for options granted on December 17,
1997 assume a risk-free rate of return of 5.80%, which represents the
ten-year yield of United States Treasury Notes on the option grant
date. The calculations for both April 1997 grant dates also assume a
28.5% volatility and the December 1997 grant date assumes a 30.8%
volatility; however, there can be no assurance as to the actual
volatility of the Common Stock in the future. The calculations for all
grant dates also assume no dividend payout, a straight-line, and a five
year expected life. In assessing these option values, it should be kept
in mind that no matter what theoretical value is placed on a stock
option on the date of grant to a Named Executive Officer, its ultimate
value will depend on the market value of the Common Stock at a future
date.
(3) Options were immediately exercisable upon grant (in the case of Mr.
Silverman)or (in the case of the other Named Executive Officers) became
exercisable at the Effective Time.
(4) Options are scheduled to vest and become exercisable in yearly
increments of 33 1/3%, commencing on January 1, 1999.
(5) Options are scheduled to vest and become exercisable in yearly
increments of 25%, commencing on January 1, 1999.
(6) The vesting of these options also accelerates under certain
circumstances (including a change of control of the Company occurring
after the Effective Time) under the terms of the named Executive
Officers' respective employment agreements. See "Employment Contracts
and Termination, Severance and Change of Control Arrangements."
(7) Granted April 21, 1997. The fair market value of Common Stock on the
date of grant, in accordance with the applicable stock option plan,
was $20.50.
(8) Granted December 17, 1997. The fair market value of Common
Stock on the date of grant, in accordance with the applicable stock
option plan, was $31.375.
(9) Granted April 30, 1997 by HFS. The fair market value of Common Stock on
the date of grant, in accordance with the applicable stock option plan,
was $20.75. At the Effective Time, Mr. Silverman's options were
adjusted to reflect the conversion of each share of HFS Common Stock
into 2.4031 shares of the Company's Common Stock.
Option Exercises and Year-End Option Value Table
The following table summarizes the exercise of options by the Named
Executive Officers during the last fiscal year and the value of unexercised
options held by such named executives as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Shares Acquired Options/SARs at FY-End ($)(1)
On Exercise Value Realized at FY-End (#) Exercisable/Unexercisable
Name (#) ($) Exercisable/Unexercisable
- --------------------------- ----------------- ------------------- ----------------------------- ----------------------------
Walter E. Forbes 11,026 289,828 2,486,093 / 4,000,000 49,078,122 / 9,250,000
Henry R. Silverman 1,123,449 27,058,239 46,300,002 / 0 832,972,289 / 0
E. Kirk Shelton 282,658 5,970,340 1,884,063 / 1,800,000 34,687,560 / 4,162,500
Christopher K. McLeod 464,065 8,575,428 1,630,941 / 1,800,000 29,351,738 / 4,162,500
Cosmo Corigliano 0 0 880,207 / 600,000 15,465,391 / 1,387,500
Amy N. Lipton 57,192 917,921 815,937 / 600,000 14,096,276 / 1,387,500
- ------------------------
(1) Based upon the closing price of the Common Stock on the NYSE on December 31,
1997, and applicable option exercise prices.
Employment Contracts and Termination, Severance and Change of Control
Arrangements
Each Named Executive Officer is employed by the Company pursuant to a
written employment agreement. Mr. Forbes serves as Chairman of the Board
pursuant to an amended and restated employment agreement (the "Forbes Employment
Agreement"), which became effective at the Effective Time and replaced and
superseded his former employment agreement (the "Old Forbes Employment
Agreement"). Under the Forbes Employment Agreement, Mr. Forbes will be employed
for a five-year period (the "Period of Employment"), beginning on the Effective
Time, which term will be extended automatically on each anniversary of the
Effective Time for an additional year unless either the Company or Mr. Forbes
gives written notice that the Period of Employment will end at the end of the
then-existing Period of Employment. During the Period of Employment through
December 31, 1999, Mr. Forbes will serve as Chairman of the Board and as
Chairman of the Executive Committee, and from and after January 1, 2000, as
President and Chief Executive Officer. During the Period of Employment, Mr.
Forbes will be paid an annual base salary of not less than $1,250,000 and an
annual bonus equal to the lesser of (i) 0.75% of the Company's "EBITDA" (as
defined in the Old Forbes Employment Agreement) or (ii) 100% of his annual base
salary. Under the Forbes Employment Agreement, at the Effective Time, Mr. Forbes
received a grant of stock options with respect to four million shares of Common
Stock with an exercise price equal to $31.375 per share, vesting in three equal
installments on each of the first three anniversaries of the Effective Time. Mr.
Forbes will be eligible to participate in the Company's other compensation and
employee benefit plans or programs, and to receive perquisites no less favorable
than those provided to the Chief Executive Officer of the Company (or, at such
times as Mr. Forbes is serving as Chief Executive Officer, those provided to the
Chairman of the Board).
The Forbes Employment Agreement provides for the continuation of
certain provisions of the Old Forbes Employment Agreement, including an
arrangement for split dollar life insurance; provisions for death, disability
and retirement; certain restrictive covenants, including a covenant not to
compete with the Company; and a provision that, in the event of a "Change of
Control" (as defined in the Old Forbes Employment Agreement), all then unvested
stock options and restricted stock held by Mr. Forbes will vest. The arrangement
for split dollar life insurance requires the Company to pay premiums of
approximately $538,000 per year until Mr. Forbes reaches the age of 60.
Under the Forbes Employment Agreement, if the Company were to fail to
appoint and maintain Mr. Forbes as Chief Executive Officer from and after
January 1, 2000 for the balance of the Period of Employment (for any reason
other than his death, disability, retirement or resignation) or, if before
January 1, 2002, Mr. Forbes' employment were to be terminated by the Company
other than in the event of a Termination for Cause (as defined below) or by Mr.
Forbes in a Constructive Discharge (as defined below), the Company has agreed to
pay Mr. Forbes $25,000,000 in cash, and grant him stock options to acquire
Common Stock having a Black-Scholes value of $12,500,000 (such options to be
fully vested upon grant and to remain exercisable for their term notwithstanding
the termination of Mr. Forbes' employment). In addition, in such event, any then
unvested stock options and restricted stock held by Mr. Forbes would vest and
such stock options would remain exercisable for the remainder of their terms.
For these purposes: (i) "Termination for Cause" means a termination of Mr.
Forbes' employment by the Company by written notice to him specifying the event
relied upon for such termination, due to Mr. Forbes's serious, willful
misconduct with respect to his duties under the Forbes Employment Agreement
(including but not limited to conviction for a felony or perpetration of a
common law fraud) which has resulted or is likely to result in material economic
damage to the Company and which is not cured (if such breach is capable of being
cured) within 30 days after written notice thereof to Mr. Forbes; and (ii)
"Constructive Discharge" means a termination of Mr. Forbes' employment by him
because of a failure of the Company to fulfill its obligations under the Forbes
Employment Agreement, including any reduction of his compensation, failure to
maintain him in the positions specified above, any other material change by the
Company in the functions, duties or responsibilities of the position which would
reduce the ranking or level, dignity, responsibility, importance or scope of the
position, or the relocation of Mr. Forbes by the Company to a place of
employment that is more than 15 miles from the city limits of Stamford,
Connecticut.
Under the Forbes Employment Agreement, in the event of a termination of
Mr. Forbes' employment for any reason, in addition to the payments described in
the preceding paragraph, he will be entitled to receive $10,000,000 as a cash
retirement benefit, together with earned but unpaid base salary and incentive
compensation awards on a pro rata basis for the year of termination; all then
unvested stock options and restricted stock will vest; all then unpaid premiums
with respect to the split dollar life insurance maintained on his behalf by the
Company will be contributed to an escrow agent; and welfare benefits for Mr.
Forbes and his spouse will continue for five years. Such benefits would have
been payable to Mr. Forbes upon termination of his employment following
consummation of the Merger under the Old Forbes Employment Agreement.
The Forbes Employment Agreement provides that Mr. Forbes will be made
whole on an after-tax basis with respect to certain excise taxes which may in
certain cases be imposed upon payments under the agreement.
Mr. Silverman serves as President and Chief Executive Officer of the
Company pursuant to an amendment (the "Silverman Amendment") to the employment
agreement between HFS and Mr. Silverman, as amended and restated as of June 30,
1996 and further amended as of January 27, 1997 (the "Silverman Employment
Agreement"), which amendment became effective at the Effective Time.
The Silverman Amendment provides for the employment of Mr. Silverman by
the Company from and after the consummation of the Merger. The Silverman
Amendment provides that Mr. Silverman will be employed for the Period of
Employment, which term will be extended automatically on each anniversary of
December 17, 1997 (the "Closing Date") for an additional year unless either the
Company or Mr. Silverman gives written notice that the Period of Employment will
end at the end of the then-existing Period of Employment. During the Period of
Employment through December 31, 1999, Mr. Silverman will serve as President and
Chief Executive Officer of the Company, and thereafter he will serve as Chairman
of the Board and Chairman of the Executive Committee of the Company.
The Silverman Employment Agreement provides for Mr. Silverman to
receive an annual base salary of not less than $1,500,000 and an annual bonus
equal to the lesser of (i) .75% of the Company's "EBITDA" (as defined in the
Silverman Employment Agreement) for the applicable fiscal year or (ii) 150% of
his annual base salary. The Silverman Employment Agreement also provides for the
annual grant to Mr. Silverman, on each of July 1, 1998, 1999 and 2000, of
options to acquire 2 million shares of Common Stock, which will be fully vested
upon grant, at an exercise price equal to the fair market value of the Common
Stock on the grant date. Under the Silverman Employment Agreement, upon the
occurrence of the Change of Control (as defined in the Silverman Employment
Agreement) in which shareholders receive consideration substantially in the form
of stock or other equity securities, Mr. Silverman would receive a lump sum
amount, payable, in the case of the Merger, in cash or shares of Common Stock,
equal to the value of any such options that have not yet been granted (the
"Remaining Options"). The Merger constituted a Change of Control giving rise to
such payment under the Silverman Employment Agreement. In consideration of Mr.
Silverman's waiver of his right to such payment, the Silverman Amendment
provided for the grant of options to acquire 14,500,000 shares of Common Stock.
In addition, the Silverman Amendment contains a provision consistent with the
Silverman Employment Agreement that, in the event of a Change of Control other
than the Merger, Mr. Silverman would receive, in cancellation of any such
options then held, cash in an amount (or in certain stock transactions, stock or
other equity securities having a value) equal to the value of such options, if
that value were to exceed the excess of the aggregate value of the underlying
shares over the aggregate exercise price under the options. The Silverman
Amendment provides that Mr. Silverman is entitled during the Period of
Employment to receive perquisites no less favorable than those provided to the
Chairman of the Board of Directors of the Company (or, at such times as Mr.
Silverman is serving as such Chairman of the Board, those provided to the Chief
Executive Officer). Mr. Silverman's compensation will not be changed as a result
of the Silverman Amendment.
The Silverman Amendment provides that if Mr. Silverman resigns his
employment in connection with a breach by the Company of the Silverman Agreement
(as amended by the Silverman Amendment), or if he is terminated by the Company
without Cause (as defined below), he will be entitled to receive a lump sum cash
payment equal to (i) the lesser of (a) 150% of his annual base salary or (b) the
sum of his annual base salary plus .75% of "EBITDA" (as defined in the Silverman
Employment Agreement) for the 12 months preceding the date of termination, times
(ii) the number of years and partial years remaining in the Period of
Employment. In addition, Mr. Silverman would be entitled to continued health and
welfare benefits during the remaining Period of Employment and the vesting of
any options and restricted stock. Under the Silverman Amendment, if the Company
were to fail to comply with the requirement that Mr. Silverman serve as Chairman
of the Board and Chairman of the Executive Committee of the Company from and
after January 1, 2000 for any reason other than Mr. Silverman's death,
disability or resignation, or if Mr. Silverman's employment is terminated before
January 1, 2002 by the Company other than for Cause or by Mr. Silverman in
connection with a breach by the Company of the Silverman Employment Agreement
(as amended by the Silverman Amendment), the Company has agreed to pay Mr.
Silverman $25,000,000 is cash, and grant him stock options to acquire Common
Stock having a Black-Scholes value $12,500,000 (such options to be fully vested
upon grant and to remain exercisable for their term notwithstanding the
termination of Mr. Silverman's employment). For these purposes, "Cause" means
(i) the willful and continued failure by Mr. Silverman substantially to perform
his duties under the Current Silverman Employment Agreement (as amended by the
Silverman Amendment) (other than any such failure resulting from Mr. Silverman's
incapacity due to physical or mental illness); (ii) any act of fraud,
misappropriation, dishonesty, embezzlement or similar conduct against the
Company, as finally determined through arbitration or final judgment of a court
of competent jurisdiction (which arbitration or judgment, due to the passage of
time or otherwise, is not subject to further appeal); or (iii) conviction of a
felony or any crime involving moral turpitude (which conviction, due to the
passage of time or otherwise, is not subject to further appeal).
The Silverman Amendment further provides that Mr. Silverman will be
made whole on an after-tax basis with respect to certain excise taxes which may
in certain cases be imposed upon payments under the Silverman Employment
Agreement (as amended by the Silverman Amendment) and other compensation and
benefit arrangements.
The Company has entered into employment arrangements with Mr. Shelton,
Mr. McLeod, Mr. Corigliano, and Ms. Lipton (such agreements, respectively, the
"New Shelton Employment Agreement," the "New McLeod Employment Agreement," the
"New Corigliano Employment Agreement," and the "New Lipton Employment
Agreement," and collectively, the "New Employment Agreements"). Like the Forbes
Employment Agreement, each New Employment Agreement with the Company became
effective at the Effective Time and replaced and superseded the executive's
prior employment agreement with the Company upon the consummation of the Merger,
and provide for a Period of Employment beginning on the Closing Date with
automatic one-year extensions unless a notice of nonrenewal is given.
Each New Employment Agreement specifies the position and duties of the
executive during the Period of Employment. Mr. Shelton will serve as Vice
Chairman of the Company, and President and Chief Executive Officer of its
Cendant Membership Services, Inc. subsidiary. Mr. McLeod will serve as Vice
Chairman of the Company and President of its Cendant Software subsidiary. Mr.
Corigliano will serve as Chief Financial Officer of Cendant Membership Services
through December 31, 1999, and thereafter, as Chief Financial Officer of the
Company. Ms. Lipton will serve as General Counsel of Cendant Membership Services
and Deputy General Counsel of the Company through December 31, 1999, and
thereafter as General Counsel of the Company.
Each New Employment Agreement specifies the compensation and benefits
to be provided to the executive during the respective Period of Employment. Mr.
Shelton and Mr. McLeod will be paid annual base salaries of not less then
$650,000 and will be eligible for annual bonuses based on a target bonus of
$650,000; they each received a grant of stock options with respect to 1.8
million shares of Common Stock with an exercise price equal to $31.375 per share
at the Effective Time, vesting in four equal installments on each of the first
four anniversaries of the Closing Date. Mr. Corigliano and Ms. Lipton will each
be paid annual base salaries of not less than $300,000, and will be eligible for
an annual bonus based on a target bonus of $200,000 and $150,000, respectively;
they each received a grant of stock options with respect to 600,000 shares of
Common Stock on the same terms and conditions as the grants to Messrs. Shelton
and McLeod. All four executives will be eligible to participate in all of the
Company's other compensation and employee benefit plans or programs.
The New Employment Agreements provide for continuation of certain
provisions of the executive's respective corresponding prior employment
agreements, including the arrangement with respect to split dollar life
insurance for Messrs. Shelton and McLeod which requires the Company to pay
premiums of approximately $270,000 per year for each of Messrs. Shelton and
McLeod until they reach the age of 60; provisions for death, disability and
retirement; certain restrictive covenants, including a covenant not to compete
with the Company; and certain provisions entitling the executives to certain
benefits upon a Change of Control (as defined in the applicable agreement),
which provisions have been amended in the New Employment Agreements to refer to
any Change of Control other than in connection with the Merger. Under these
amended Change of Control provisions, in the event of a Change of Control (other
than the Merger) all then-unvested stock options and restricted stock held by
each of the four executives would vest.
Each New Employment Agreement provides for certain payments in the
event of termination of the executive's employment under various circumstances.
The New Shelton Employment Agreement provides that if, before January 1, 2002,
Mr. Shelton's employment were to be terminated by the Company other than for
Cause (as defined below) or by Mr. Shelton in a Constructive Discharge (as
defined below), the Company has agreed to pay Mr. Shelton $12,500,000 in cash,
and grant him stock options to acquire Common Stock having a Black-Scholes value
of $7,500,000 (such options to be fully vested upon grant and to remain
exercisable for their term notwithstanding the termination of Mr. Shelton's
employment). In addition, if Mr. Shelton's employment were to be terminated by
the Company other than for Cause or by Mr. Shelton in a Constructive Discharge,
regardless of when such termination occurs, or if Mr. Shelton were to resign for
any reason, he would be entitled to receive a lump sum cash payment equal to
500% of the sum of (i) his annual base salary and (ii) the highest annual bonus
he has received for any of the three preceding years (or $520,000, if higher)
plus any earned but unpaid base salary and incentive compensation, and his
benefits and perquisites would continue 36 months. In the case of a termination
without Cause or a Constructive Discharge, all stock options and restricted
stock previously granted to him would vest; in the case of a resignation, any
options and restricted stock that would have vested in the 36 months following
such resignation would vest. For these purposes, Cause and Constructive
Discharge are defined in substantially the same manner as in the Forbes
Employment Agreement, except that Mr. Shelton will also be considered to have
grounds for Constructive Discharge if Mr. Forbes' employment is terminated by
either the Company or Mr. Forbes for any reason before January 1, 2002; if the
Company fails to maintain Mr. Forbes as Chief Executive Officer of the Company
for the whole of the years 2000 and 2001; if Mr. Shelton fails to be assigned,
from and after January 1, 2000, duties and responsibilities with respect to the
Company that are substantially the same as Mr. Shelton's prior duties and
responsibilities with respect to the operations of the Company; or any
individual other than Mr. Shelton, Mr. Forbes or, prior to January 1, 2000, Mr.
Silverman is appointed President or Chief Operating Officer of the Company or to
any other position reporting directly to the Chief Executive Officer of the
Company, which position has a rank or status higher than that of Mr.
Shelton's.
The New McLeod Employment Agreement provides that if Mr. McLeod's
employment were to be terminated by the Company other than for Cause or by Mr.
McLeod in a Constructive Discharge, or if Mr. McLeod were to resign for any
reason, he would be entitled to receive a lump sum cash payment equal to 500% of
the sum of (i) his annual base salary and (ii) the highest annual bonus he
received for any of the three preceding years (or $520,000, if higher), plus any
earned but unpaid base salary and incentive compensation, and his benefits and
perquisites for would continue for 36 months. In addition, all stock options and
restricted stock previously granted to him would vest. For these purposes, Cause
and Constructive Discharge are defined in the same manner as in the Forbes
Employment Agreement.
The New Corigliano Employment Agreement and the New Lipton Employment
Agreement contain substantially similar severance provisions as the New McLeod
Employment Agreement with multiples of base salary and bonus ranging from 200%
to 500% becoming payable, depending upon the circumstances giving rise to the
termination, and providing for vesting of stock awards, and continuation of
benefits for a specified period of up to 60 months.
Each of the New Employment Agreements further provides that the
executive will be made whole on an after-tax basis with respect to certain
excise taxes which may in certain cases be imposed upon payments under the
agreement.
As described above, the New Employment Agreements replaced and
superseded the corresponding employment agreements at the Effective Time. These
prior employment agreements contain, among other things, provisions under which,
as a result of the consummation of the Merger, each of the executives would have
been entitled to terminate his or her own employment and receive specified
severance benefits, if he or she had not entered into a New Employment
Agreement.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following compensation
committee report on executive compensation and performance graph shall not be
incorporated by reference into any such filings.
PRE-MERGER COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
Compensation Process
This is a report submitted by the four member Pre-Merger Compensation
Committee of the Board of Directors addressing the Company's compensation
policies for 1997 as they affected the Named Executive Officers (other than Mr.
Silverman). Decisions on compensation during 1997 of the Company's Named
Executive Officers (other than Mr. Silverman) were made by the Pre-Merger
Compensation Committee. The Pre-Merger Compensation Committee members were all
Non-Employee Directors who have considerable experience by way of service on
other Boards of Directors; several members have served on compensation
committees of other corporations. The full Board reviewed all decisions of the
Pre-Merger Compensation Committee relating to the compensation of the Company's
executive officers prior to the Effective Time, except for decisions about
awards under certain of the Company's stock-based compensation plans, which were
made solely by the Pre-Merger Compensation Committee pursuant to the terms of
such plans.
As noted above, at the Effective Time, the Company changed its fiscal
year end from year ended January 31 to year ended December 31. All references in
this Pre-Merger Compensation Committee Report to "1996" shall refer to the
fiscal year ended January 31, 1997; all references to "1995" shall refer to the
fiscal year ended January 31, 1996, and so forth.
Also, at the Effective Time, Mr. Forbes ceased serving as the Company's
Chief Executive Officer and Mr. Silverman then began serving as such. Mr. Forbes
continues to serve as Chairman of the Company's Board of Directors and also
serves as Chairman of the New Executive Committee.
Compensation Philosophy and Objectives
The Pre-Merger Compensation Committee's executive officer compensation
philosophy and objectives were designed to provide competitive levels of
compensation that linked pay with the Company's annual and long-term performance
goals, rewarded executive officers for above-average corporate performance,
recognized individual initiative and achievements, and assisted the Company in
attracting and retaining qualified executives. The Pre-Merger Compensation
Committee sought to provide compensation fair and equitable to both the employee
and the Company.
The Pre-Merger Compensation Committee members believe that stock
ownership by management is beneficial in aligning management's and shareholders'
interests in enhancing shareholder value; therefore, the Pre-Merger Compensation
Committee included a stock-based element in the Company's compensation packages
for its executive officers, although the Pre-Merger Compensation Committee did
not have specific target ownership levels for Company equity holdings by
executives.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, precludes a public corporation from taking a tax
deduction for certain compensation in excess of $1 million paid to its chief
executive officer or any of its four other highest-paid executive officers. This
limitation, however, does not apply to certain performance-based compensation.
Based on regulations issued by the Internal Revenue Service ("IRS") on
December 20, 1995 to implement Section 162(m), including detailed descriptions
of what constitutes performance-based compensation under Section 162(m) with
respect to stock option grants, the Company will not be precluded as a result of
Section 162(m) of the Code from deducting compensation expense derived in 1997
pursuant to the exercise of stock option grants under the Company's 1987 Plan by
the Named Executive Officers, because these stock options were granted under and
pursuant to a performance-based plan. The Company will be precluded, however,
from deducting a portion of the cash compensation (salary and bonus) paid in
1997 to certain of its executive officers and certain expenses derived in 1997
pursuant to the exercises of stock options granted other than under the 1987
Plan by certain of such executive officers. Also, compensation expense arising
out of the vesting during 1997 (upon the Effective Time) of restricted stock
held by certain of the Named Executive Officers does not qualify for tax
deductibility.
The Pre-Merger Compensation Committee is aware of and has taken into
account the deduction limits under Section 162(m) when making executive
compensation decisions.
The Company anticipates that the compensation philosophy and objectives
of the New Compensation Committee will not differ materially from the philosophy
and objectives of the Pre-Merger Compensation Committee.
Components of Executive Officer Compensation
The three primary components of executive officer compensation have
been:
- - Base Salary
- - Annual Bonus
- - Equity-Based Compensation
These three elements were structured by the Pre-Merger Compensation
Committee to provide the Company's executive officers with levels of total
compensation consistent with the Pre-Merger Compensation Committee's executive
officer compensation philosophy and objectives described above.
The Company does not anticipate that the New Compensation Committee
will materially change the primary components of executive officer compensation.
Base Salary
The Company's executive officer salary levels were subjectively
determined by the Pre-Merger Compensation Committee based on the experience of
the Pre-Merger Compensation Committee members and were intended to be consistent
with competitive practices and the executive's level of responsibility,
professional qualifications, business experience, expertise and their resultant
combined value to the Company's performance and growth (with salary increases
reflecting competitive and economic trends, the overall financial performance of
the Company and the performance of the individual executive). Salary levels for
the Company's executive officers have generally been determined annually. The
Pre-Merger Compensation Committee, in calculating the executive officer's annual
salary for each year, has taken into consideration the base salary previously
paid to such executive officer and the responsibilities assigned to such
executive.
The Pre-Merger Compensation Committee has attempted to keep the
Company's executive officer salary increases as low as possible, preferring to
emphasize the importance of the annual bonus and equity-based compensation
aspects of an executive's compensation when considering an increase in overall
compensation, which accords with the Pre-Merger Compensation Committee's policy
of trying to integrate executive pay with the performance of the Company on an
annual and long-term basis. These limitations on salary increases are tied to
the Company's policy of emphasizing the incentive-based components of total
compensation of executive officers. Factors considered in gauging the Company's
overall financial performance include the Company's revenues and profits. Base
salary paid to each of the Company's Named Executive Officers (other than Mr.
Silverman) during 1997 was determined by the Pre-Merger Compensation Committee
and the Board in January 1997.
Annual Bonus
Annual bonus amounts paid to each of the Company's executive officers
(other than those individuals who became executive officers at the Effective
Time) have been determined by the Pre-Merger Compensation Committee. Factors
taken into account in awarding annual bonuses are described below. Although
annual bonuses generally are not set within a specified percentage range of base
salary, they generally do not exceed 100% of the base salary. For the Named
Executive Officers, bonuses averaged approximately 47% of their 1997 total
salary and bonus compensation. Annual bonuses paid to each of the Company's
executive officers during 1997 were determined by the Pre-Merger Compensation
Committee and the Board in 1997.
Equity-Based Compensation
Stock options are periodically granted to the Company's executive
officers under the Company's 1987 Plan, the 1997 Stock Incentive Plan and the
1997 Stock Option Plan, and grants of restricted stock have been made to the
Company's executive officers (other than those individuals who became executive
officers at the Effective Time) under the Company's 1989 Restricted Stock Plan
twice during the past ten years. No specific formulas or executive officer stock
ownership targets are used in determining stock option or restricted stock
grants, which are made to encourage executives to retain stock-based incentives
and to enhance the importance of aligning their interests with those of the
Company and its shareholders, as ownership of stock options and restricted stock
rewards executives as well as shareholders as the price of the Common Stock
increases. Factors taken into account in awarding stock options and shares of
restricted stock have generally been the same as those used in awarding annual
bonuses and are described below. The numbers of options and shares of restricted
stock previously awarded to and held by executive officers and the expected
contribution of such executives to the Company's future performance were also
reviewed in determining the size of current option grants.
The number of stock options granted to the Company's executive officers
during 1997 was determined by the Pre-Merger Compensation Committee in April and
May 1997 (for executive officers other than those individuals who became
executive officers at the Effective Time). In awarding options to the Named
Executive Officers at the Effective Time, the Pre-Merger Compensation Committee
also considered the Named Executive Officers' efforts in negotiating and
consummating the Merger and the responsibilities the Named Executives Officers
would have with respect to the merged entity, a larger and more diversified
company than CUC.
Relationship Of Corporate Performance To Executive Officer Compensation
The factors which the Pre-Merger Compensation Committee considered in
awarding annual bonuses and equity-based compensation have been based on the
Company's performance and the individual executive officer's performance. The
evaluation of these factors has been largely subjective and based on the
Pre-Merger Compensation Committee's substantial knowledge of the Company,
familiarity with the Company's objectives and strategy, and long-term working
relationship with the Company's executive officers. Factors considered have
included: (1) the Company's targeted versus actual annual operating budget; (2)
the individual executive officer's ability to undertake special projects,
facilitate strategic acquisitions and (in the case of certain of these executive
officers) develop new distribution channels for the Company's products; (3) the
Company's after-tax earnings-per-share growth over the last fiscal year; and (4)
the Company's compound annual rate of total shareholder return over the last
five fiscal years. The Pre-Merger Compensation Committee did not use any
specific formulas or weightings in considering any of these factors.
Targeted Versus Actual Operating Budget
Targeted versus actual operating performance has been a major factor
used to determine the extent to which annual bonuses were paid and awards made
under the Company's stock-based compensation plans to the Company's executive
officers (other than those individuals who became executive officers at the
Effective Time). The performance of individual executive officers has generally
been reviewed either as to the Company as a whole, or, for those executives in
charge of an operating unit, as to such executive's particular operating unit.
Performance targets have been based on business plans developed by the Company's
management and approved by the Board at the start of each fiscal year. In
developing these business plans, the Pre-Merger Compensation Committee
considered the challenges posed by integrating the business of any recently
acquired subsidiaries, divisions or businesses and expanding the Company's mix
of services and distribution channels.
In determining annual bonus and stock-based compensation for the Named
Executive Officers in 1997 (other than Mr. Silverman) the Pre-Merger
Compensation Committee reviewed, among other things, targeted versus actual
operating performance in 1997, and noted that, in virtually all cases, targeted
goals were either met or exceeded.
Special Projects; Strategic Acquisitions; New Distribution Channels
and Responsiveness To Evolving Market Conditions
The Pre-Merger Compensation Committee took into account the executive
officers' (other than Mr. Silverman's) performance in special projects
undertaken during the past year, contribution to strategic acquisitions and
alliances and development of new distribution channels for the Company's
products. The Pre-Merger Compensation Committee evaluated the executive
officers' ability to exploit new opportunities and respond quickly to evolving
marketplace conditions.
In determining annual bonus and stock-based compensation for executive
officers in 1997, the Pre-Merger Compensation Committee noted particularly the
Company's acquisitions of Davidson & Associates, Inc., Sierra On-Line, Inc. and
Ideon Group, Inc. in 1996; the 1996 expansion of offerings available from the
Company to Internet shoppers; the rapid growth in 1996 of the Company's
innovative Transfer Plus program (which links consumers to a Company service for
which they have an affinity); the successful launch in 1996 of the Entertainment
Gold Awards program; and expansion of the Company's international business
through new partnerships with major European banks, the renegotiation of the
Company's Japanese license; the launch of the Company's Europe Tax-Free Shopping
memberships and the rapid growth, generally, of international memberships. The
Pre-Merger Compensation Committee also took notice of the following significant
events which took place in 1997 and through the date of determination of the
executive officer's annual bonus or stock option award, as the case may be: the
Company's acquisition of Knowledge Adventure, Inc. and Berkeley Systems,
Incorporated (each a subsidiary of Cendant Software Corporation); and certain
acquisitions in the heritage products and interactive personal introduction
areas.
After-Tax Earnings-Per-Share Growth
In addition, the Pre-Merger Compensation Committee considered the
growth in after-tax earnings per share of Common Stock in determining the annual
bonus and stock-based portions of executive officer compensation.
In determining annual bonus and stock-based compensation for executive
officers in 1997 (other than those individuals who became executive officers at
the Effective time), the Pre-Merger Compensation Committee noted that, before
one-time charges, after-tax earnings per share of Common Stock were $.70 in the
most recently completed full fiscal year of the Company at the time of such
determination (1996), as compared to $.53 per share in the Company's prior
completed fiscal year (1995).
Compound Rate of Total Shareholder Return
Another consideration in determining the annual bonus and stock-based
portions of executive officer compensation is the compound rate of total
shareholder return over the last five years. Compound rate of total shareholder
return is determined by comparing the average market value of a share of Common
Stock in the first year of the five-year period with the average market value of
a share of Common Stock in the last year of the period.
In determining annual bonus and stock-based compensation for executive
officers in 1997, the Committee noted the increase of the average market value
of a share of the Common Stock to an average of $23.70 in 1996, the most
recently completed full fiscal year of the Company at the time of such
determination, from an average of $6.69 in 1992, an increase of 254%.
The Company anticipates that the New Compensation Committee's view on
the relationship of corporate performance to executive officer compensation will
not differ materially from the view of the Pre-Merger Compensation Committee on
this matter.
1997 Compensation of Chief Executive Officer
As noted above, Mr. Forbes was Chief Executive Officer of the Company
until the Effective Time, at which time Mr. Silverman became Chief Executive
Officer. In addition to the factors mentioned above, the Pre-Merger Compensation
Committee's general approach in setting Mr. Forbes' annual compensation was to
reward Mr. Forbes' strategic management abilities in spearheading the Company's
global expansion efforts and its development and exploitation of new
distribution channels and technologies.
Mr. Forbes' annual salary increase in 1997 (from $757,228 in 1996 to
$782,773 in 1997) was based primarily on the Company's overall performance
generally and Mr. Forbes' performance in 1996. Specifically, in determining Mr.
Forbes' annual salary for 1997, the Pre-Merger Compensation Committee considered
Mr. Forbes' qualifications, experience and expertise and his responsibilities as
Chief Executive Officer in overseeing the Company's acquisitions and growing
interactive and international activities, as well as the Company's overall
business and performance.
The annual bonus paid to Mr. Forbes during 1997 ($780,000) was largely
based on the Pre-Merger Compensation Committee's subjective evaluation of Mr.
Forbes' performance and the performance of the Company during 1997 and through
the date of determination of Mr. Forbes' annual bonus. Specifically, in
determining Mr. Forbes' annual bonus during 1997, the Pre-Merger Compensation
Committee noted the Company's acquisitions of Davidson & Associates, Inc.,
Sierra On-Line, Inc. and Ideon Group, Inc. in 1996; the 1996 expansion of
offerings available from the Company to Internet shoppers; the rapid growth in
1996 of the Company's Transfer Plus program; the successful launch in 1996 of
the Entertainment Gold Awards program; and the expansion of the Company's
international business through new partnerships with major European banks, the
renegotiation of the Company's Japanese license, the launch of the Company's
Europe Tax-Free Shopping memberships and the rapid growth, generally, of
international memberships. The Pre-Merger Compensation Committee also considered
the performance of the Company's Common Stock, which the Pre-Merger Compensation
Committee believes reflects Mr. Forbes' significant contribution. In assessing
the Company's overall performance to determine Mr. Forbes' annual bonus, the
Pre-Merger Compensation Committee considered all of the factors above but did
not use any specific formulas or weightings in considering any of the factors.
The awards to Mr. Forbes during 1997 of stock options to acquire an
aggregate of 4,400,000 shares of the Company's Common Stock were also largely
based on the Pre-Merger Compensation Committee's subjective evaluation of Mr.
Forbes' performance and the performance of the Company during 1996 and through
the dates of determination of Mr. Forbes' stock option grants. In awarding
options to Mr. Forbes at the Effective Time, the Pre-Merger Compensation
Committee also considered Mr. Forbes' efforts in negotiating and consummating
the Merger and the responsibilities Mr. Forbes would have with respect to the
merged entity, a larger and more diversified company than CUC.
In addition to the factors discussed in the preceding paragraphs, which
the Pre-Merger Compensation Committee took into account when determining Mr.
Forbes' stock option awards, the Pre-Merger Compensation Committee also
considered Mr. Forbes' performance and an informal comparison by Pre-Merger
Compensation Committee members of his overall compensation package relative to
that of other chief executives of publicly-traded corporations of which the
Pre-Merger Compensation Committee members are aware, including through their
experience by way of service on other Boards of Directors and through their
knowledge of public information (although no particular corporations were
identified for comparative purposes by the Pre-Merger Compensation Committee as
a whole). This grant epitomizes the Pre-Merger Compensation Committee's
compensation philosophy and objectives by promoting management retention while
further aligning shareholders' and management's interest in the performance of
the Company's Common Stock.
The Pre-Merger Compensation Committee
Robert P. Rittereiser, Chair
Bartlett Burnap Stephen A. Greyser
Stanley M. Rumbough, Jr.
Compensation Committee Interlocks and Insider Participation
Directors Barlett Burnap, Stephen A. Greyser, Robert P. Rittereiser
(Chairman) and Stanley M. Rumbough, Jr. served on the Pre-Merger Compensation
Committee of the Company. Messrs. Burnap, Greyser, Rittereiser and Rumbough were
not employees of the Company during 1997 or before. Directors Robert F. Smith
(Chairman), Anthony Petrello, Leonard Schutzman and Robert T. Tucker serve on
the New Compensation Committee of the Company. Messrs. Smith, Petrello and
Schutzman were not employees of the Company during 1997 or before. Mr. Tucker
serves as a Vice Chairman and Secretary of the Company.
Performance Graph
The following graph assumes $100 invested on December 31, 1992, and
compares (a) the yearly percentage change in the Company's cumulative total
shareholder return on the Common Stock (as measured by dividing (i) the sum of
(A) the cumulative amount of dividends, assuming dividend reinvestment during
the five years commencing on the last trading day before January 1, 1993, and
ending on December 31, 1997, and (B) the difference between the Company's share
price at the end and the beginning of the periods presented; by (ii) the share
price at the beginning of the periods presented) with (b) (i) the Standard &
Poor's 500 Index (the "S&P 500 Index"), (ii) the Standard & Poor's Services
(Commercial & Consumer) Index (the "S&P SVCS Index"), and (iii) a Peer Group
Index. The Peer Group consists of H&R Block, Inc.; CPI Corporation; Metromedia
International Group, Inc. (formerly The Actava Group. Inc. and prior to that
Fuqua Industries, Inc.); Rollins, Incorporated; Service Corporation
International (all of which comprise the Dow Jones Consumer Services
Non-Cyclical Index) and, for the period prior to its acquisition in 1996 by the
Company, Ideon Group, Inc. (formerly SafeCard Services, Inc.), and is weighted
by market capitalization. Stock prices are adjusted for stock splits and stock
dividends. The Company is changing the comparison of the Company's Common Stock
performance from the Peer Group to the S&P SVCS Index as a result of the Merger
and the composition of the Company's business units resulting therefrom.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CENDANT CORPORATION, THE S&P 500 INDEX,
THE S&P SVCS INDEX AND A PEER GROUP
EDGAR REPRESENTATION OF DATAPOINTS USED IN PRINTED GRAPHIC
Cendant S&P 500 Index S&P SVCS Index Peer Group
-------- ------------- -------------- ----------
Dec-92 $100.00 $100.00 $ 100.00 $ 100.00
Dec-93
186.20 110.08 96.90 114.37
Dec-94
171.98 111.53 88.71 111.15
Dec-95
264.75 153.45 119.82 141.21
Dec-96
282.21 188.68 123.74 143.52
Dec-97
400.03 251.64 169.79 194.52
- --------------------------------
* Assumes $100 invested on December 31, 1992 in the Common Stock, the S&P SVCS
Index, Peer Group and the S&P 500 Index.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Chartwell
On November 22, 1994 (the "Chartwell Effective Date"), HFS distributed
to its stockholders one (1) share of the common stock of Chartwell, then a
wholly owned subsidiary of HFS, for every ten (10) shares of Common Stock held
of record as of November 14, 1994 (the "Distribution"). On the Chartwell
Effective Date, HFS also transferred the assets and liabilities of its business
of financing and developing casino gaming and entertainment facilities (the
"Casino Development Business") to Chartwell and made (and agreed to make) cash
capital contributions to Chartwell aggregating $50 million. As a result of the
Distribution, Chartwell became an independent publicly traded corporation and
ceased to be a subsidiary of HFS.
In connection with the Distribution and for purposes of (i) governing
certain of the ongoing relationships between HFS and Chartwell after the
Distribution, (ii) providing mechanisms for an orderly transition and (iii)
providing HFS with a means of participating in the economic benefits of future
gaming projects, HFS and Chartwell entered into certain agreements, including
the Distribution Agreement, the Financing Agreement, the Marketing Services
Agreement, the Advisory Agreement, the Corporate Services Agreement, the
Facility Lease and the Tax Sharing Agreement on the Chartwell Effective Date.
Copies of such agreements were filed with the Securities and Exchange Commission
as exhibits to Chartwell's Current Report on Form 8-K dated December 2, 1994. As
indicated herein under the captions "ELECTION OF DIRECTORS - Information
Regarding Nominees for the Term Expiring in 2001" and "EXECUTIVE OFFICERS,"
certain of the Company's directors and executive officers served during 1997, as
directors and executive officers of Chartwell. Each of these directors and
executive officers also owned certain options to purchase shares of common stock
of Chartwell, which, except for the options which were granted to Mr. Edelman
and Mr. Smith, were cancelled on or before February 1, 1996.
On December 20, 1995, Chartwell Leisure Associates L.P. II, a general
partnership affiliated with the Fisher Brothers and Gordon Getty ("Chartwell
Leisure II") acquired approximately 17% of the outstanding common stock of
Chartwell. Mr. Edelman is a partner in Chartwell Leisure II, owning in the
aggregate a 4.8% beneficial interest in that partnership. On January 23, 1996,
the Company acquired the Travelodge(R) and Thriftlodge(R) lodging franchise
system (the "Travelodge System") and the related trademarks and trade names in
North America from Forte Hotels, Inc. and Forte Plc and immediately subsequent
to such acquisition, Chartwell acquired Forte Hotels, Inc., including in such
purchase approximately 16 hotels and joint venture interests in 96 hotels, which
are now licensed as part of the Travelodge System. As a result, Chartwell is the
largest franchisee of the Travelodge System. Under the applicable franchise
agreements, Chartwell is required to pay to Travelodge Hotels, Inc. ("THI"), a
wholly owned subsidiary of the Company, annual franchise fees equal to four
percent of gross room revenues for the owned hotel properties plus four percent
of gross room revenues of such properties as marketing and reservation fees. In
addition, the Company is required to pay to THI a license fee equal to four
percent of gross room revenues multiplied by Chartwell's percentage interest in
each of the hotel properties owned by joint ventures in which Chartwell acquired
an interest. In connection with such acquisition, in accordance with the
Financing Agreement, the Company guaranteed $75 million of borrowings by
Chartwell under a $125 million revolving credit facility with certain banks. The
Company receives an annual guaranty fee of 2% of the $75 million credit
extension. In connection with the Travelodge acquisition, the Advisory Agreement
and the Marketing Services Agreement were terminated, and the Corporate Services
Agreement was modified to provide for a fixed fee of $1.5 million per year, the
provision of certain corporate services only through September 1996 and the
requirement of the Company to provide corporate transaction advisory services.
The Company also received an advisory fee of approximately $2 million from
Chartwell for advisory services in connection with the acquisition by Chartwell
of Forte Hotels, Inc. as described below.
In November 1996, HFS and Chartwell agreed to terminate the Corporate
Services Agreement in return for the payment by Chartwell to HFS of $9,265,000.
$2,500,000 of such amount was paid in cash and the balance was paid by delivery
of a promissory note in the principal amount of $7 million, payable over seven
years commencing on January 1, 1999, bearing interest at the per annum rate of
6%, and payable in semi-annual installments commencing July 1, 1997. The
promissory note was repaid in full on March 20, 1998.
In 1996, HFS and affiliates of Chartwell entered into master license
relationships with respect to the Travelodge brands in Canada and Mexico under
which such affiliates assumed responsibility for providing services to the
Canadian and Mexican franchisees other than reservation services, which will
continue to be provided by the Company. The Company will receive royalties and
fees for providing certain marketing and reservation services under the master
license agreements. Rio Grande Associates LLC (of which Mr. Edelman is
affiliated) replaced Chartwell under the foregoing agreements in connection with
the sale of Chartwell on March 25, 1998. Chartwell has guaranteed the
obligations of the affiliates under the master license agreements. The master
license in Canada replaced an agreement with Royco Hotels & Resorts Ltd.
acquired from FHI.
Relationship with Avis Rent A Car, Inc.
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, the Company announced its strategy to dilute its interest in Avis
Rent A Car Systems, Inc. ("ARAC") car rental operations while retaining assets
associated with the franchise business, including trademarks, reservation system
assets and franchise agreements with ARAC and other licensees. In September
1997, the Company completed an initial public offering ("IPO") of Avis Rent A
Car, Inc., the company that operated the car rental operations of Cendant Car
Rental Inc., a wholly owned subsidiary of the Company, which diluted the
Company's equity interest in such subsidiary to approximately 27.5%. The Company
received no proceeds from the IPO. However, the Company licenses the Avis
trademark to ARAC pursuant to a 50-year master license agreement and receives
royalty fees based upon 4% of ARAC revenue, escalating to 4.5% of ARAC revenue
over a 5-year period. In addition, the Company operates the telecommunications
and computer processing system which services ARAC for reservations, rental
agreement processing, accounting and fleet control for which the Company charges
ARAC at cost. Messr. Monaco, Holmes and Edelman currently serve on the Board of
Directors of Avis Rent A Car, Inc. On March 23, 1998, the Company sold 1,000,000
shares of ARAC which diluted the Company's equity interest to 20.4%.
Relationship with NRT
During the third quarter of 1997, the Company acquired $182.0 million
of preferred stock of NRT Incorporated ("NRT"), a newly formed corporation
created to acquire residential real estate brokerage firms. The Company acquired
$216.1 million of certain intangible assets including trademarks associated with
real estate brokerage firms acquired by NRT in 1997. The Company, at its
discretion, may acquire up to $81.3 million of additional NRT preferred stock
and may also purchase up to $229.9 million of certain intangible assets of real
estate brokerage firms acquired by NRT.
In September 1997, NRT acquired the real estate brokerage business and
operations of National Realty Trust (the "Trust"), and two other regional real
estate brokerage businesses. The Trust is an independent trust to which the
Company contributed the brokerage offices formerly owned by Coldwell Banker
Corporation in connection with the Company's acquisition of Coldwell Banker
Corporation. NRT is the largest residential brokerage firm in the United States.
Mr. Monaco serves on the Board of Directors of NRT.
Other Relationships
Mr. Edelman is of counsel to Battle Fowler, a New York City law firm.
Battle Fowler represented HFS (the Company's predecessor) in certain
transactions in 1997. It is expected that Battle Fowler will continue to
represent the Company in connection with certain matters from time to time in
the future.
Mr. Edelman is also a partner in Chartwell Hotels Associates
("Chartwell Hotels"), a general partnership affiliated with the Fisher Brothers
and Gordon Getty, and its affiliate Chequers Investment Associates, which have
acquired certain hotels and mortgages secured by hotels from the Resolution
Trust Corporation. In two transactions with Chartwell Hotels, entered into in
November 1992 and May 1993, and each amended in December 1994, which have
resulted in and will result in the addition of properties to the Company's
franchise systems, the Company has advanced approximately $10 million, and has
agreed to advance up to an additional $4 million if certain additional property
conversions and other requirements are met, in return for Chartwell Hotels
agreeing to franchise the properties with one of the Company's brands. All
Chartwell Hotels properties will pay royalties once they become part of the
Company's franchise systems and these royalties will be credited toward the
recovery of the advance. Certain properties which cannot be converted to Company
brands will also pay a percentage of gross room sales in lieu of royalties as
specified in the agreements. Each advance is required to be fully recovered over
a maximum five year period following the advance. In addition, as individual
properties convert to Company brands, the Company will make additional advances
to the franchisee of such properties to fund costs incurred in connection with
such conversion. Such advances are required to be repaid with interest by the
franchisee over a three year period and such repayment has been guaranteed by
Chartwell Hotels.
Mr. Edelman is also a partner in Chartwell Leisure II. Chartwell
Leisure has contracted with Funtricity Vicksburg Family Entertainment Park,
Inc., a wholly-owned subsidiary of Six Flags Theme Parks, Inc., to develop a
high quality family entertainment center (the "Project") on land which is ground
leased by Chartwell Leisure II from affiliates of Rainbow Casino Corporation
(collectively, "Rainbow"). As an inducement to Chartwell Leisure II to provide
the financing for the Project, commencing May 1, 1995, the opening of the
project, Chartwell Leisure shares principal and interest payments on a loan to
Rainbow with Chartwell Leisure II ranging from 14% to 27% of such payments
adjusted annually in accordance with a schedule to the agreement. The Company
shares marketing fees from Rainbow with Chartwell Leisure II based on the same
scheduled percentages. Chartwell Leisure II has agreed to share with the Company
50% of the net cash flow payable to Chartwell Leisure II in respect of the
Project and the Company has agreed to share such amounts pro-rata with Chartwell
Leisure based on the relative amounts paid by the Company and Chartwell,
respectively, to Chartwell Leisure II each year. Mr. Pittman was the Chairman
and Chief Executive Officer of Six Flags Entertainment Corporation, the parent
of Six Flags Theme Parks, Inc. until September 12, 1995. During 1997, the
Company paid Chartwell Leisure II $625,102 and received from Chartwell Leisure
II (net of payments to Chartwell Leisure) $3,032,545 under this agreement.
On March 31, 1995, the Company acquired a 1% general partnership
interest in a limited partnership which develops, promotes and franchises the
Wingate Inn franchise system, a new construction hotel brand. Through December
31, 1995, an additional $15 million of capital was invested in the partnership
through a private placement of limited partnership unit interests, which units
were sold for $50,000 each. The Company has an option to acquire the limited
partner investment at a 30% compounded annual rate of return plus additional
outstanding capital loans and an additional call premium equal to approximately
1.5 times annual royalty revenue, as defined. The limited partners may require
the Company to acquire the limited partner interest on August 29, 2001. The
Company also agreed to finance additional limited partner capital contributions
up to $60 million at the prime lending rate, upon the occurrence of certain
events, including the addition of open and operating Wingate Inn properties.
Certain executives of the Company purchased limited partnership units, as
follows: Messrs. Silverman and Snodgrass, 10 units each; and Messrs. Buckman,
Holmes and Pittman, 2 units. In addition, the Company has agreed to guarantee up
to $36 million of borrowings by a subsidiary of the Partnership, which
borrowings will be used to provide financing for franchises to develop Wingate
Inn facilities. The Company expects to exercise its option to acquire the
limited partnership interests on April 1, 1998.
In April 1995, the Company and Ramada Franchise Systems, Inc. ("RFS"),
a wholly-owned subsidiary of the Company ("RFS"), entered into a license
agreement with Preferred Equities Corporation ("PEC"), the owner, developer and
operator of interval ownership resort facilities, pursuant to which PEC was
licensed to use certain Ramada servicemarks in connection with its facilities in
the United States. PEC has paid RFS $1 million in initial fees and will pay a
percentage of Gross Sales (as defined) of interval ownership interests during
the term of the agreement. Mr. Nederlander is the Chairman and a significant
shareholder of MEGO Financial Corp., of which PEC is a wholly-owned subsidiary.
The Company anticipates entering into an agreement with PEC during the second
quarter of 1998 whereby RCI Travel, Inc. a subsidiary of the Company, will
provide corporate and leisure services to PEC, including its owners, members and
employees.
The Company has arranged to make available to Mr. Snodgrass a
one-quarter interest in a Hawker 1000 aircraft. Further, as of June 30, 1998,
the Company will have the right to require Mr. Snodgrass to purchase such
interest, and Mr. Snodgrass shall have the right to require the Company to sell
such interest to him, in each case for $705,052.
The Company plans to enter into certain arrangements with Mr. Snodgrass
during 1998 whereby Mr. Snodgrass would purchase a minority equity interest in a
subsidiary which would own all of the outstanding shares of Jackson Hewitt, Inc.
The Company would retain approximately 92.5% of the equity of such subsidiary.
The Company also plans to enter a consulting agreement with Mr. Snodgrass
relating the development of the Jackson Hewitt franchise system. The terms of
such arrangement have not been finalized and no assurance can be given that such
transaction will be consummated.
Mr. Rosenwald serves as Vice Chairman of The Bear Stearns Companies, Inc.
an investment banking firm. During 1997, The Bear Stearns Companies, Inc.
provided underwriting and advisory services to the Company, including services
to HFS in connection the Merger.
During 1997, Mr. Tucker provided legal services to the Company for which he
received aggregate compensation of $181,240.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and
the New York Stock Exchange. Officers, directors and greater than ten percent
owners are required to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for a specified fiscal year, except as set
forth below, the Company believes that all its officers, directors, and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during 1997.
On March 4, 1998, the New Directors filed an amendment to their Form 3s
correcting a typographical error in the exercise price of certain option grants.
On March 4, 1998, Ken Williams, as a former director of the Company, filed a
Form 5, which was late. On January 9, 1998, Mr. Snodgrass filed an amendment to
Form 3 correcting a typographical error in his share holdings. On December 31,
1997, Mr. Rosenwald filed an amendment to Form 3 correcting a typographical
error in his share holdings. On March 31, 1998, Mr. Kunisch filed an amendment
to a Form 4 correcting a typographical error in his share holdings.
APPROVAL OF 1998 STOCK OPTION PLAN
[Proposal No. 2]
Introduction
Stockholders are being asked to approve the Company's 1998 Stock Option
Plan, a copy of which is attached hereto as Annex A (the "1998 Plan"). The
following description of the 1998 Plan is qualified in its entirety by reference
to the 1998 Plan.
Subject to adjustment as provided in the 1998 Plan, the 1998 Plan
initially reserves for issuance up to 20 million shares of Common Stock through
(i) incentive stock options ("ISOs") and non-qualified stock options ("NQOs")
(in each case, with or without related stock appreciation rights ("SARs")), to
acquire Common Stock, and (ii) awards of restricted shares of Common Stock
("Restricted Stock") (collectively, "Awards") to such directors, officers and
other employees of the Company and its affiliates as may be designated by the
Compensation Committee of the Board or such other committee as the Board may
designate (the "Compensation Committee"). The number of Shares available for
issuance under the 1998 Plan shall automatically increase on the first trading
day of each fiscal year during the term of the 1998 Plan, beginning with the
1999 fiscal year, by an amount equal to 1.5% of the Shares outstanding on
September 30 of the immediately preceding fiscal year. However, each such annual
increase shall be subject to reduction to the extent necessary so that the
maximum number of Shares reserved for options granted and available for grant,
SARs granted and available for grant and Shares awarded and available for award
under the 1998 Plan shall not exceed 10% of the shares outstanding as of
September 30 of the immediately preceding fiscal year, subject to adjustment for
certain changes in the Company's capital structure (the "10% Limitation"). For
the purpose of calculating the 10% Limitation (a) options that are 50% or more
in-the-money (the current market price of an underlying Share exceeds the per
share exercise price by 50% or more on average for twenty (20) consecutive
trading days on or prior to the determination date) shall not be deemed to be
outstanding under the 1998 Plan ("Qualified Options") and (b) the Shares
underlying such Qualified Option shall be deemed to be outstanding Shares. This
determination shall be made on and as of September 30 of the immediately
preceding fiscal year. If any Shares that have been awarded or granted cease to
be subject to an award or grant, if any Shares that are subject to an award or
grant are forfeited, or if an award or grant otherwise terminates without
issuance of Shares being made to the awardee or optionee, such Shares may again
be available for distribution in connection with awards under the 1998 Plan.
All directors, officers and employees of the Company and its affiliates
who are responsible for or contribute to the management, growth and
profitability of the business of the Company and its affiliates are eligible to
receive Awards under the 1998 Plan; provided that non-employee directors are
eligible to receive only NQOs, as described below, and Restricted Stock. No
participant in the 1998 Plan may be granted Awards covering in excess of 10
million shares of Common Stock in any five-year consecutive period. The closing
price of a share of Common Stock on the NYSE on March 20, 1998 was $40.00.
The 1998 Plan was adopted by the Executive Committee of the Board of
Directors of the Corporation on March 24, 1998. The Executive Committee has
directed that the 1998 Plan be submitted to the stockholders of the Company for
their approval. Approval of the 1998 Plan will require the affirmative vote of a
majority of the shares of Common Stock outstanding and entitled to vote at the
Annual Meeting.
The Board of Directors believes that the Company's future success
depends upon its ability to attract and retain the highest caliber personnel and
to use their capabilities to the fullest extent possible by encouraging their
dedication to the Corporation's interest and welfare. The Board believes that
one of the best ways to attain these objectives is to give key employees an
opportunity to acquire a proprietary interest in the Company by purchasing
shares of Common Stock through the exercise of options granted under
arrangements such as the 1998 Plan.
ADMINISTRATION AND SUMMARY OF THE 1998 PLAN
The Compensation Committee will administer the 1998 Plan, approve the
eligible participants who will receive Awards, determine the form and terms of
the Awards and have the power to fix vesting periods.
Section 162(m) of the Code provides that publicly traded companies may
not deduct compensation paid to the chief executive officer or any of the four
most highly compensated other officers ("Covered Employees") to the extent such
compensation exceeds $1,000,000 in any one tax year, unless the payments, among
other things, are made based upon the attainment of objective performance goals
that are established by a committee of the Board, comprised solely of two or
more outside directors, based upon business criteria and other material terms
approved by stockholders. The 1998 Plan is designed so that options and SARs
granted with a fair market value exercise price, and awards of Restricted Stock
designated as "Performance Awards" (as described below), that are made to
Covered Employees will be considered performance-based and hence fully
deductible. However, the Compensation Committee will have the discretion to
grant awards to Covered Employees that will not qualify for the exemption from
Section 162(m). Moreover, in certain cases such as death or disability (as
described below), Performance Awards may become payable even though the
performance goals are not met, in which event the Performance Awards will not be
exempt from Section 162(m) and the Company might lose part or all of its tax
deduction.
Under the terms of the 1998 Plan, the Compensation Committee may from
time to time grant options to purchase shares of Common Stock at a price
(generally payable in cash and/or shares of Common Stock) determined by the
Compensation Committee which may not be less than the Fair Market Value (as
defined in the 1998 Plan) of the shares of Common Stock, as determined by the
Committee in good faith, taking into account the trading price of the Common
Stock on the NYSE. Generally, options may not be exercised later than ten years
after the date of grant. The Compensation Committee may also grant SARs related
to the options granted under the 1998 Plan. An SAR would entitle the holder
thereof to receive, upon exercise, the appreciation from the option price to the
fair market value of the shares of Common Stock on the date of exercise, such
appreciation being payable in cash and/or in shares of Common Stock as
determined by the Compensation Committee. Exercise of an SAR cancels the related
option to the extent of such exercise, and the shares of Common Stock related
thereto are not available for future grants under the 1998 Plan.
The Compensation Committee will determine the times at which an option
may be exercised. Except as otherwise determined and as set forth below, an
option may only be exercised during employment or generally during the three
months following termination of employment for any reason other than death,
permanent disability or retirement. Stock options generally may be exercised
during the period of one year after termination of employment due to death or
disability if the optionee is still in the employ of the Company or any of its
affiliates at the time of death or disability, provided that in the event of
death prior to expiration of the option term following termination of employment
for disability, options generally may be exercised during the period of one year
following the date of death. After an optionee retires from the Company or any
of its affiliates, the optionee's stock options generally may thereafter be
exercised to the extent to which they were exercisable at the time of the
optionee's retirement and may be exercised at any time during the five-year
period following retirement (or such shorter period as the Compensation
Committee determines); provided that in the event of death prior to the
expiration of the option, options generally may be exercised during the period
of one year following the date of death.
The 1998 Plan provides that the Compensation Committee may establish
option exercise procedures for purposes of permitting an optionee to defer
receipt of compensation beyond the date of the option exercise.
Under the 1998 Plan, the Compensation Committee may also make awards of
Restricted Stock. The Committee may condition the grant or vesting of such
awards on the attainment of certain performance goals and/or upon the
participant's continued service with the Company or any of its affiliates.
During the period (the "Restricted Period") commencing with the grant of
Restricted Stock and ending on attainment of the applicable performance goals or
satisfaction of the requisite period of service, the participant is not
permitted to sell, transfer, assign or otherwise dispose of the Restricted
Stock. The participant generally has the right during the Restricted Period to
vote the Restricted Stock and to receive cash dividends paid thereon. However,
the Compensation Committee may determine that such cash dividends be deferred
and reinvested in additional Restricted Stock and that dividends payable in
Common Stock be paid in Restricted Stock. Upon termination of employment prior
to the end of the Restricted Period, the Restricted Stock will be forfeited,
although the Compensation Committee may waive any remaining restrictions upon
termination of employment due to retirement or involuntary termination of
employment other than for cause.
The Compensation Committee may designate an award of Restricted Stock
to a Covered Employee as a qualified performance-based award ("Performance
Award") and condition the vesting of such awards upon the attainment of
specified levels of one or more of the following performance goals: earnings per
share, sales, net profit after tax, gross profit, operating profit, cash
generation, return on equity, change in working capital, and/or shareholder
return. The Compensation Committee will not have the power to waive achievement
of such goals, except upon the death or disability of the participant. Approval
of the 1998 Plan by stockholders will be considered to constitute approval of
these goals for purposes of Section 162(m) of the Code.
At the time any Award under the 1998 Plan is granted, the Compensation
Committee may grant the participant the right to receive a cash payment in an
amount specified by the Compensation Committee, to be paid when the award
results in compensation income to the participant and to help the participant
pay the resulting taxes. Awards under the 1998 Stock Plan may be transferable
under certain circumstances described in the 1998 Plan.
The 1998 Plan provides for the use of authorized but unissued shares or
treasury shares. To the extent that treasury shares are not used, authorized but
unissued shares of Common Stock have been reserved for issuance upon exercise of
options or distribution of Awards granted under the 1998 Plan.
No Awards may be granted under the 1998 Plan after the tenth
anniversary of the 1998 Plan's approval by the stockholders of the Company, but
Awards theretofore granted may extend beyond that date. The 1998 Plan may be
amended or discontinued by the Board at any time, but no termination may impair
the rights of any holders or options or awards granted prior thereto without
such holder's consent. Subject to certain limitations, the Compensation
Committee may amend the terms of any Award retroactively or prospectively, but
the 1998 Plan does not permit the Compensation Committee to cause a Performance
Award to fail to be exempt from Section 162(m) or impair the rights of any
holder without the holder's consent. The Compensation Committee has the power to
interpret the Plan and to make all other determinations necessary or advisable
for its administration.
Except as otherwise described herein, benefits under the 1998 Plan to
the Chief Executive Officer and the other executive officers and to the
non-employee directors and other employees of the Company are not currently
determinable because the 1998 Plan is discretionary.
Federal Income Tax Considerations
The following discussion addresses only the general federal income tax
consequences of Awards. It does not address the impact of state and local taxes,
the federal alternative minimum tax, and securities laws restrictions, and is
not intended as tax advice to participants in the 1998 Plan, who should consult
their own tax advisors.
Non-Qualified Options. Generally, an optionee will not recognize any
taxable income, and the Company will not be allowed a tax deduction, upon the
granting of an NQO. Upon the exercise of an NQO, the optionee realizes ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired at the time the NQO is exercised over the exercise price for
such shares. At that time, the Company will be allowed a tax deduction equal to
the amount of ordinary taxable income recognized by the optionee, subject to the
limitations described below.
When an optionee exercises an NQO by paying the exercise price solely
in cash, the basis in the shares acquired is equal to the fair market value of
the shares on the date ordinary income is recognized, and the holding period for
such shares begins on the day after the shares are received. When an optionee
exercises an NQO by exchanging previously acquired shares of Common Stock held
as capital assets in partial or full payment of the exercise price, shares of
Common Stock received by the optionee equal in number to the previously acquired
shares exchanged therefor will be received free of tax and will have the same
basis and holding period as such previously acquired shares. The optionee will
recognize ordinary taxable income equal to the fair market value of any
additional shares received by the optionee, less the amount of any cash paid by
the optionee in payment of the exercise price. The optionee will have a basis in
such additional shares equal to their fair market value on the date ordinary
income is recognized and the holding period of such shares will commence on the
day after the shares are received.
Upon subsequent disposition of shares acquired upon exercise of an NQO,
the difference between the amount realized on the sale and the basis in the
shares is treated as long-term or short-term capital gain or loss, depending on
the holding period for the shares. The Code limits the deductibility of capital
losses. The subsequent disposition of shares acquired by exercise of an NQO will
not result in any additional tax consequences to the Company.
Incentive Stock Options. Generally, an optionee will not recognize any
taxable income and the Company will not be allowed a tax deduction upon the
granting of an ISO. Upon the exercise of an ISO, the optionee will not realize
ordinary taxable income and the Company will not be allowed a tax deduction, as
long as the optionee is an employee of the Company (or of a participating
subsidiary) from the time of the grant through the date three months before the
ISO was exercised. (The foregoing requirement is waived with respect to
exercises by the estate of an optionee who dies while employed, or within three
months after the termination of his or her employment, and the three-month
period is extended to one year in the case of a termination because of total and
permanent disability.) If the foregoing requirement is not met, the exercise of
an ISO is treated in the same manner as the exercise of an NQO (see above). The
basis for the shares so acquired equals the exercise price, and the holding
period for the shares begins on the day after the date the shares are received.
Generally, upon the disposition of shares acquired through the exercise
of an ISO, the optionee will recognize long-term capital gain or loss to the
extent the amount realized on the sale of such shares is greater than or less
than the exercise price, as long as the disposition is not a "disqualifying
disposition." A "disqualifying disposition" generally occurs if shares acquired
upon exercise of an ISO are disposed of by the optionee prior to the expiration
of two years from the date of grant of the option or within one year of the date
of transfer of shares to the optionee. (However, disposition by the estate of a
deceased employee is not considered a disqualifying disposition even if it
occurs before these dates). Upon a disqualifying disposition, the optionee will
realize ordinary taxable income (and the Company will be allowed a tax
deduction, subject to the limitations described below) in an amount equal to the
excess, if any, of (i) the lesser of (a) the fair market value of the shares on
the date the ISO is exercised, or (b) the amount realized on such disqualifying
disposition over (ii) the exercise price. The excess, if any, of the amount
realized upon such qualifying disposition over the fair market value of the
shares on the date of exercise will be taxed as long-term or short-term capital
gain depending on the holding period involved.
Generally, if the optionee exchanges previously acquired shares of
Common Stock in partial or full payment of the exercise price of an ISO, the
exchange will not affect the ISO treatment of the exercise and, except as
otherwise described herein, no gain or loss or other income will be recognized
upon the disposition of the previously acquired shares. Shares of Common Stock
received by the optionee equal in number to the previously acquired shares
exchanged therefor will have the same basis (increased by the amount of ordinary
income, if any, recognized on the exchange) and the same holding period for
capital gains purposes as the previously acquired shares. Optionees will not,
however, be able to use the old holding period for purposes of satisfying the
holding period requirement for avoiding a disqualifying disposition of the ISO.
Shares of Common Stock received by the optionee in excess of the number of
previously acquired shares will have a basis of zero and holding period which
commences on the day after the date the shares are received upon exercise of the
ISO. If payment of the exercise price is made using shares of Common Stock
acquired upon exercise of an ISO, the delivery to the Company of these
previously acquired shares will be considered a disposition of the shares for
the purpose of determining whether a disqualifying disposition has occurred.
Stock Appreciation Rights. Generally, a participant will not recognize
any taxable income, and the Company will not be allowed a tax deduction, upon
the granting of the SAR. Upon exercise of an SAR, the holder generally will
realize ordinary taxable income in an amount equal to the sum of any cash
received and the fair market value of any Common Stock received. The optionee's
basis in any shares of Common Stock received is equal to the amount of ordinary
income recognized with respect to such shares, and, upon subsequent disposition,
any further gain or loss is either short-term or long-term capital gain or loss
depending on the holding period of the shares. The holding period for such
shares commences on the day after the shares are received. The Company will be
allowed a tax deduction equal to the amount of ordinary income recognized by the
holder, subject to the limitations described below.
Restricted Stock. Generally, a participant will not recognize any
taxable income, and the Company will not be allowed a tax deduction, upon the
grant of Restricted Stock. Upon the lapsing of restrictions on Restricted Stock,
the holder will recognize ordinary income equal to the fair market value of the
shares on the date of such lapse. Alternatively, the participant may elect,
within 30 days after the grant of Restricted Stock to recognize ordinary income
at any time of the grant, in which event the amount of such ordinary income will
be equal to the fair market value of the shares on the date of grant. In either
event, at the time the participant recognizes income with respect to the
Restricted Stock, the Company is entitled to a deduction in an equal amount,
subject to the limitations described below.
Withholding. The Company has a right to withhold any sums required by
federal, state, local or foreign tax laws with respect to the exercise of any
option or SAR or the lapse of restrictions on any Restricted Stock, or to
require payment of such amount before delivery of shares.
Limitations on the Company's Ability to Take Deductions. The Company
applicable federal tax reporting requirements with respect to Awards in order to
be entitled to the deductions described above. In addition, Section 162(m) of
the Code provides that compensation of an individual who is a Covered Employee
may not be deducted to the extent such compensation exceeds $1 million in any
taxable year, unless such compensation qualifies as "performed-based" under
Section 162(m). The 1998 Plan permits the making of awards that would not
qualify as performance-based compensation. Furthermore, there can be no
assurance that awards thereunder that are intended to be performance-based
within the meaning of Section 162(m) will in fact so qualify.
If Awards are granted, accelerated or enhanced in connection with a
change of control of the Company, all or a portion of the value of such Awards
may constitute "excess parachute payments." The Company would not be permitted
to deduct excess parachute payments, and the recipient of such a payment would
be subject to a 20 percent federal excise tax. Furthermore, excess parachute
payments to Covered Employees would be subject to the $1 million limitation on
deduction of their compensation by an equal amount, and thus could result in
other compensation to such individuals being nondeductible.
The foregoing discussion is intended for general information purposes
only, not as specific tax advice. It does not address the impact of state and
local taxes, the federal alternative minimum tax, and securities laws
restrictions.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY
THE COMPANY WILL BE VOTED IN FAVOR OF THE 1998 PLAN.
RATIFICATION OF APPOINTMENT OF AUDITORS
[Proposal No. 3]
Subject to ratification by the stockholders at the Annual Meeting,
Deloitte & Touche LLP has been appointed by the Board of Directors as the
auditors for the Company's financial statements for 1998. A representative of
Deloitte & Touche LLP is expected to be present at the Meeting and will have the
opportunity to make a statement if he desires to do so and will be available to
respond to appropriate questions of stockholders.
On January 20, 1998, in connection with the Company's previously
announced plan to name a successor independent accountant following the Merger
with HFS Incorporated, the Company engaged Deloitte & Touche LLP, the auditor of
HFS Incorporated prior to the Merger, as its new principal independent
accountants. Ernst & Young LLP, the Company's former principal independent
accountants, reported on the results of operations of the Company's former CUC
businesses for the year ended December 31, 1997. The reports of Ernst & Young
LLP on the financial statements for the past two fiscal years of the Company
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Audit
Committee of the Company's Board of Directors participated in and approved the
decision to change independent accountants. In connection with its audit for the
two most recent fiscal years and through January 20, 1998, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Ernst & Young LLP would
have caused Ernst & Young LLP to make reference thereto in their report on the
financial statements for such years. During the two most recent fiscal years and
through January 20, 1998, there were no reportable events, as that term is
defined in Item 304 (a)(1)(v) of Regulation S-K. The Company requested that
Ernst & Young LLP furnish it with a letter addressed to the Commission stating
whether or not it agrees with the above statements. A copy of such letter, dated
January 22, 1998, is filed as Exhibit 16 to the Company's Form 8-K dated January
22, 1998.
During the two most recent fiscal years and through January 20, 1998,
the Company has not consulted with Deloitte & Touche LLP regarding either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the registrant nor oral advice was provided that Deloitte
& Touche concluded was an important factor considered by the Company in reaching
a decision as to the accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a disagreement, as the
term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
Pursuant to applicable Delaware law, the ratification of the
appointment of auditors of the Company requires the affirmative vote of the
holders of a majority of the shares of Common Stock present at the Meeting, in
person or by proxy, and entitled to vote. Abstentions and broker non-votes will
be counted and will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the Company's
1999 annual meeting of stockholders must be received by the Company for
inclusion in the proxy statement and form of proxy for that meeting no later
than January 20, 1999.
By Order of the Board of Directors
/s/ Robert T. Tucker
ROBERT T. TUCKER
Secretary
Dated: March 31, 1998
EXHIBIT 1
1998 STOCK OPTION PLAN OF
CENDANT CORPORATION
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give the Corporation a competitive advantage
in attracting, retaining and motivating directors, officers and employees and to
provide the Corporation and its Affiliates with a stock plan providing
incentives to plan participants directly linked to the profitability of the
Corporation's businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
(a) "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Corporation.
(b) "Award" means the grant of a Stock Appreciation Right, Stock Option or
Restricted Stock pursuant to the Plan.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Cause: means (except as otherwise provided by the Committee in the
agreement relating to any Award) (1) conviction of a participant for committing
a felony under federal law or the law of the state in which such action
occurred, (2) dishonesty in the course of fulfilling a participant's employment
duties or (3) willful and deliberate failure on the part of a participant to
perform his employment duties in any material respect. Notwithstanding the
foregoing, if a participant is a party to an employment agreement with the
Corporation or any Affiliate that contains a definition of "Cause," such
definition shall apply to such participant for purposes of the Plan except to
the extent otherwise provided by the Committee in the agreement relating to any
Award.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(f) "Commission" means the Securities and Exchange Commission or any
successor agency.
(g) "Committee" means the Committee referred to in Section 2.
(h) "Common Stock" means common stock, par value $0.01 per share, of the
Corporation.
(i) "Corporation" means Cendant Corporation, a Delaware corporation.
(j) "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
(k) "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(m) "Fair Market Value" means, as of any given date, the fair market value
of the Common Stock as determined by the Committee in good faith, taking into
account the trading price of the Common Stock on the New York Stock Exchange
Composite Tape, or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is listed, or on NASDAQ, or in any
other regular public trading market for the Common Stock which may exist as of
such date. The determination of the Committee shall be conclusive in determining
the fair market value of the Common Stock.
(n) "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
(o) "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
(p) "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(q) "Qualified Performance-Based Award" means an Award of Restricted Stock
designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee" within
the meaning of Section 162(m)(3) of the Code in the year in which the
Corporation would expect to be able to claim a tax deduction with respect to
such Restricted Stock and (ii) the Committee wishes such Award to qualify for
the Section 162(m) Exemption.
(r) "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock. In the case of
Qualified Performance-Based Awards, (i) such goals shall be based on the
attainment of specified levels of one or more of the following measures:
earnings per share, sales, net profit after tax, gross profit, operating profit,
cash generation, return on equity, change in working capital, return on capital
or shareholder return, and (ii) such Performance Goals shall be set by the
Committee within the time period prescribed by Section 162(m) of the Code and
related regulations.
(s) "Plan" means the Cendant Corporation 1998 Stock Option Plan, as set
forth herein and as hereinafter amended from time to time.
(t) "Restricted Stock" means an Award granted under Section 7.
(u) "Retirement' means retirement from active employment with the
Corporation or an Affiliate at or after age 65.
(v) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
(w) "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
(x) "Stock Appreciation Right" means an Award granted under Section 6.
(y) "Stock Option" means an Award granted under Section 5.
(z) "Termination of Employment" means the termination of the participant's
employment with the Corporation and its Affiliates. A participant employed by an
Affiliate shall also be deemed to incur a Termination of Employment if such
Affiliate ceases to be an Affiliate and the participant does not immediately
thereafter become an employee of the Corporation or another Affiliate. Temporary
absences from employment because of illness, vacation or leave of absence and
transfers among the Corporation and its Affiliates shall not be considered
Terminations of Employment.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. Administration
The Plan shall be administered by the Compensation Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and who shall be appointed by and serve at the pleasure
of the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to directors, officers and employees of the Corporation and
its Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the directors, officers and employees to whom Awards may from
time to time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)
hereof), any vesting condition, restriction or limitation (which may be related
to the performance of the participant, the Corporation or any Affiliate) and any
vesting acceleration or forfeiture waiver regarding any Award and the shares of
Common Stock relating thereto), based on such factors as the Committee shall
determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not adjust upwards the amount payable
with respect to a Qualified Performance-Based Award or waive or alter the
Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash
or Common Stock under Section 5(j) and 6(b)(ii).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number or
any officer of the Corporation to execute and deliver documents on behalf of the
Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Corporation and Plan participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Award or transaction to become subject to (or lose an exemption under)
the short-swing profit recovery provisions of Section 16 of the Exchange Act or
cause an award designated as a Qualified Performance-Based Award not to qualify
for, or to cease to qualify for, the Section 162(m) Exemption. To the extent
that any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
SECTION 3. Common Stock Subject to Plan
(a) Stock Authorized. The total number of shares of Common Stock initially
reserved and available for grant under the Plan shall be twenty million
(20,000,000). No participant may be granted Awards under the Plan covering in
excess of ten million (10,000,000) shares of Common Stock over any consecutive
five (5) year period. Shares subject to an Award under the Plan may be
authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited, or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares of
Common Stock subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.
(b) Annual Increase. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of
each fiscal year during the term of the Plan, beginning with the 1999 fiscal
year, by an amount equal to 1.5% of the shares of Common Stock outstanding on
September 30 of the immediately preceding fiscal year. However, each such annual
increase shall be subject to reduction to the extent necessary so that the
maximum number of shares of Common Stock reserved for options granted and
available for grant, Stock Appreciation Rights granted and available for grant,
and Restricted Stock awarded and available for award under the Plan shall not
exceed 10% of the Common Stock outstanding as of September 30 of the immediately
preceding fiscal year (the "Determination Date"), subject to adjustment for
certain changes in the Company's capital structure as specified in (c) below
occurring on or after the Determination Date (the "10% Limitation"). For the
purpose of calculating the 10% Limitation (i) Stock Options that are 50% or more
in-the-money (the current market price of a share of underlying Common Stock
exceeds the per share exercise price by 50% or more on average for twenty (20)
consecutive trading days on or prior to the determination date) shall not be
deemed to be outstanding under the Plan ("Qualified Options") and (ii) the
Shares underlying such Qualified Options shall be deemed to be outstanding
shares of Common Stock on the Determination Date.
(c) Adjustment of Shares. In the event of any change in corporate
capitalization, such as a stock split or a corporate transaction, or any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Corporation, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Corporation, the Committee
or Board may make such substitution or adjustments in the aggregate number and
kind of shares reserved for issuance under the Plan, in the number, kind and
option price of shares subject to outstanding Stock Options and Stock
Appreciation Rights, in the number and kind of shares subject to other
outstanding Awards granted under the Plan and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to any Award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Corporation upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility
Directors, officers and employees of the Corporation and its Affiliates who
are responsible for or contribute to the management, growth and profitability of
the business of the Corporation and its Affiliates are eligible to be granted
Awards under the Plan.
SECTION 5. Stock Options
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and NonQualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Corporation and its subsidiaries (within the meaning of
Section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a NonQualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement relating to a grant of
Incentive Stock Options shall indicate on its face whether it is intended to be
an agreement for an Incentive Stock Option. The grant of a Stock Option shall
occur on the date the Committee by resolution selects an individual to be a
participant in any grant of a Stock Option, determines the number of shares of
Common Stock to be subject to such Stock Option to be granted to such individual
and specifies the terms and provisions of the Stock Option (or such later date
as is specified in such resolution). The Corporation shall notify a participant
of any grant of a Stock Option, and a written option agreement or agreements
shall be duly executed and delivered by the Corporation to the participant. Such
agreement or agreements shall become effective upon execution by the
Corporation.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, and shall not be less than the Fair Market Value of the Common
Stock subject to the Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten (10)
years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Corporation specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Corporation may
accept. If approved by the Committee, payment, in full or in part, may also be
made in the form of unrestricted Common Stock already owned by the optionee of
the same class as the Common Stock subject to the Stock Option (based on the
Fair Market Value of the Common Stock on the date the Stock Option is
exercised); provided, however, that, in the case of an Incentive Stock Option,
the right to make a payment in the form of already owned shares of Common Stock
of the same class as the Common Stock subject to the Stock Option may be
authorized only at the time the Stock Option is granted and provided, further,
that such already owned shares have been held by the optionee for at least six
(6) months at the time of exercise.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Corporation, together with a copy of the irrevocable instructions to a
broker to deliver promptly to the Corporation the amount of sale or loan
proceeds necessary to pay the purchase price, and, if requested, the amount of
any federal, state, local or foreign withholding taxes. To facilitate the
foregoing, the Corporation may enter into agreements for coordinated procedures
with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in Section 5(k) below, an optionee shall
have all of the rights of a shareholder of the Corporation holding the class or
series of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section
11(a).
(e) Transferability of Stock Options. Stock Options 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: (i) by will or the laws of descent and
distribution; (ii) pursuant to a domestic relations order, as defined in the
Code or Title 1 of the Employee Retirement Income Security Act, as amended, or
the regulations thereunder; or (iii) 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
Section 5(e) or in Sections 5(f), (g) and (h) below, Stock 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.
(f) Termination by Death or Disability. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of death or
Disability, any Stock Option held by such optionee may thereafter be exercised,
whether or not it was exercisable at the time of such termination, for a period
of twenty-four (24) months (or such other period as the Committee may specify in
the option agreement) from the date of such termination or until the expiration
of the stated term of such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Retirement. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of Retirement, any
Stock Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of such Retirement, or on such
accelerated basis as the Committee may determine, for a period of five (5) years
(or such other period as the Committee may specify in the option agreement) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided, however,
that if the optionee dies within such period any unexercised Stock Option held
by such optionee shall, notwithstanding the expiration of such period, continue
to be exercisable to the extent to which it was exercisable at the time of death
for a period of twenty-four (24) months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. Any Stock Option not vested as of the date of Retirement and not
accelerated by action of the Committee shall be cancelled as of the date of
Retirement.
(h) Other Termination. Unless otherwise determined by the Committee, if an
optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee, to the extent
then exercisable, or on such accelerated basis as the Committee may determine,
may be exercised for the lesser of twelve (12) months from the date of such
Termination of Employment or the balance of such Stock Option's term; provided,
however, that if the optionee dies within such twelve (12) month period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such twelve (12) month period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a period of
twenty-four (24) months from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. Any Stock
Option not vested as of the date of such Termination of Employment and not
accelerated by action of the Committee shall be cancelled as of the date of such
Termination of Employment.
(i) Post-Employment Exercise of Incentive Stock Option. In the event of any
Termination of Employment, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a NonQualified Stock
Option.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of the shares of
Common Stock for which a Stock Option is being exercised by paying the optionee
an amount, in cash or Common Stock, as determined by the Committee, equal to the
excess of the Fair Market Value of the Common Stock over the option price times
the number of shares of Common Stock for which the Option is being exercised on
the effective date of such cash-out.
(k) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the shares subject to such Option and/or to receive cash at such later time
or times in lieu of such deferred shares, all on such terms and conditions as
the Committee shall determine. If any such deferrals are permitted, then
notwithstanding Section 5(d) above, an optionee who elects such deferral shall
not have any rights as a stockholder with respect to such deferred shares unless
and until certificates representing such shares are actually delivered to the
optionee with respect thereto, except to the extent otherwise determined by the
Committee.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be
entitled to receive an amount in cash, shares of Common Stock or both, in value
equal to the excess of the Fair Market Value of one share of Common Stock over
the option price per share specified in the related Stock Option multiplied by
the number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the form of
payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in Section 3
on the number of shares of Common Stock to be issued under the Plan, but only to
the extent of the number of shares covered by the Stock Appreciation Right at
the time of exercise based on the value of the Stock Appreciation Right at such
time.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee shall
determine the directors, officers and employees to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of shares of
Restricted Stock to be awarded to any participant (subject to the aggregate
limit on grants to individual participants set forth in Section 3), the
conditions for vesting, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the name
of such participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Cendant Corporation 1998 Stock Option Plan and a Restricted
Stock Agreement. Copies of such Plan and Agreement are on file at the offices of
Cendant Corporation."
"This security has not been registered under the Securities Act of 1933, as
amended. Neither this security nor any interest or participation herein may be
reoffered, sold, assigned, transferred, pledged, encumbered or otherwise
disposed of in the absence of such registration unless an exemption from such
registration is available."
The Committee may require that the certificates evidencing such shares of
Restricted Stock be held in custody by the Corporation until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an Award
of Restricted Stock as a Qualified Performance-Based Award, in which event it
shall condition the grant or vesting, as applicable, of such Restricted Stock
upon the attainment of Performance Goals. If the Committee does not designate an
Award of Restricted Stock as a Qualified Performance-Based Award, it may also
condition the grant or vesting thereof upon the attainment of Performance Goals.
Regardless of whether an Award of Restricted Stock is a Qualified
Performance-Based Award, the Committee may also condition the grant or vesting
thereof upon the continued service of the participant. The conditions for grant
or vesting and the other provision of Restricted Stock Awards (including,
without limitation, any applicable Performance Goals) need not be the same with
respect to each participant. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that is a
Qualified Performance-Based Award, the applicable Performance Goals shall have
been satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vii), during the period, if any, set by
the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"), and
until the later of (i) the expiration of the Restriction Period and (ii) the
date the applicable Performance Goals (if any) are satisfied, the participant
shall not be permitted to sell, assign, transfer, pledge or otherwise encumber
shares of Restricted Stock received pursuant to such Award; provided that the
foregoing shall not prevent a participant from pledging Restricted Stock
received pursuant to such Award as security for a loan, the sole purpose of
which is to provide funds to pay the exercise price for Stock Options.
(iii) Except as provided in this paragraph 7(iii) and Sections 7(c)(i) and
7(c)(ii) and the Restricted Stock Agreement, the participant shall have, with
respect to the shares of Restricted Stock, all of the rights of a stockholder of
the corporation holding the class or series of Common Stock that is the subject
of the Restricted Stock, including, if applicable, the right to vote the shares
and the right to receive any cash dividends. If so determined by the Committee
in the applicable Restricted Stock Agreement and subject to Section 11(e) of the
Plan, (A) cash dividends on the class or series of Common Stock that is the
subject of the Restricted Stock Award shall be automatically deferred and
reinvested in additional Restricted Stock, held subject to the vesting of the
underlying Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends, and (B) dividends payable in Common Stock shall be
paid in the form of Restricted Stock of the same class as the Common Stock with
which such dividend was paid, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals applicable only
to dividends.
(iv) Except to the extent otherwise provided in the applicable Restricted
Stock Agreement and Sections 7(c)(i), 7(c)(ii), and 7(c)(v), upon a
participant's Termination of Employment for any reason during the Restriction
Period or before the applicable Performance Goals are satisfied, all shares of
Restricted Stock still subject to restriction shall be forfeited by the
participant.
(v) In the event of a participant's Retirement, or if such participant's
employment is involuntarily terminated (other than for Cause), the Committee
shall have the discretion to waive, in whole or in part, any or all remaining
restrictions (other than, in the case of Restricted Stock with respect to which
a participant is a Covered Employee, satisfaction of the applicable Performance
Goals unless the participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's shares of
Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted Stock,
unlegended certificates for shares of Common Stock that are the subject of the
Restricted Stock Award shall be delivered to the participant upon surrender of
the legended certificates.
(vii) Each Award of Restricted Stock shall be confirmed by, and be subject
to, the terms of a Restricted Stock Agreement executed by the Corporation.
SECTION 8. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the participant receiving such Award the right to receive
a cash payment in an amount specified by the Committee, to be paid at such time
or times (if ever) as the Award results in compensation income to the
participant, for the purpose of assisting the participant to pay the resulting
taxes, all as determined by the Committee and on such other terms and conditions
as the Committee shall determine.
SECTION 9. Term, Amendment and Termination
The Plan will terminate ten (10) years after the effective date of the
Plan. Under the Plan, Awards outstanding as of such date shall not be affected
or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right or
Restricted Stock Award theretofore granted without the optionee's or recipient's
consent, except such an amendment made to cause the Plan to qualify for any
exemption provided by Rule 16b-3. In addition, no such amendment shall be made
without the approval of the Corporation's stockholders to the extent such
approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 10. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 11. General Provisions
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Corporation in writing
that such person is acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such shares
on the New York Stock Exchange, Inc., or such other securities exchange as may
at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary or
advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
Affiliate from adopting other or additional compensation arrangements for its
employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any Affiliate to terminate the employment of any employee at any
time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Corporation, or make arrangements satisfactory to the Corporation regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Corporation, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement. The obligations of the Corporation under the Plan shall
be conditional on such payment or arrangements, and the Corporation and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant. The Committee may
establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time of
any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of an Affiliate of
the Corporation, the Corporation may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
Affiliate, for such lawful consideration as the Committee may specify, upon the
condition or understanding that the Affiliate will transfer the shares of Common
Stock to the employee in accordance with the terms of the Award specified by the
Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
(i) Anything in this Plan to the contrary notwithstanding, the Board may,
without further approval by the stockholders, substitute new options for, or
assume, prior options of any corporation which engages with the Corporation or
any of its Affiliates in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an incentive
stock option), or any parent or any subsidiary of such corporation.
(j) With respect to optionees subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange 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.
SECTION 12. Effective Date of Plan
The Plan shall be effective as of the date it is approved by at least a
majority of the shares of Common Stock of the Corporation voted with respect to
such approval.
C E N D A N T C O R P O R A T I O N
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting of Stockholders,
you can ensure your shares are represented at the Meeting by promptly
completing, signing and returning your proxy (attached below) to ChaseMellon
Shareholder Services L.L.C., in the enclosed postage-paid envelope. We urge you
to return your proxy as soon as possible. AS AN ALTERNATIVE TO COMPLETING THIS
FORM, YOU MAY ENTER YOUR VOTE INSTRUCTION BY TELEPHONE. CALL TOLL FREE
1-800-840-1208 AND FOLLOW THE SIMPLE INSTRUCTIONS. Thank you for your attention
to this important matter.
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Detach Here
CENDANT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1998
The undersigned stockholder of Cendant Corporation ("Cendant")
hereby appoints Walter A. Forbes, Henry R. Silverman, and James E.
Buckman, and each of them individually, with full power of
substitution, attorneys and proxies for the undersigned and authorizes
them to represent and vote, as designated below, all of the shares of
common stock of Cendant ("Cendant Common Stock") which the undersigned
may be entitled, in any capacity, to vote at the Annual Meeting of
Stockholders to be held at The New York Palace Hotel, New York, New
York, on May 19, 1998, at 9:00 a.m. and at any adjournments or
postponements of such meeting, for the following purposes, and with
discretionary authority as to any other matters that may properly come
before the meeting, all in accordance with, and as described in, the
Notice and accompanying Proxy Statement. The undersigned acknowledges
receipt of the Notice of Annual Meeting of Shareholders dated March 31,
1998, and the accompanying Proxy Statement. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NAMED
NOMINEES AND FOR PROPOSALS 2 and 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
See Reverse Side
[x] PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE FOR THE ELECTION AS
DIRECTORS OF THE NAMED NOMINEES AND FOR PROPOSALS 2 AND 3.
1. ELECTION OF DIRECTORS
NOMINEES: E. Kirk Shelton, Robert D. Kunisch, John D. Snodgrass,
Robert T. Tucker, Stephen A. Greyser, Dr. Carole G.
Hankin, The Rt. Hon. Brian Mulroney, P.C., LL.D,
Burton C. Perfit, Robert W. Pittman and E. John Rosenwald, Jr.
FOR WITHHELD
ALL NOMINEES FOR ALL NOMINEES
/ / / /
For all nominees, except vote withheld from the following:
2. To approve the 1998 Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify and approve the appointment of Deloitte & Touche LLP as the
Company's Independent Auditors for year ending December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears. If signing for trusts, estates or
corporations, capacity or title should be stated. If shares are owned jointly,
both owners must sign. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
Signature: Date:
Signature if held jointly: ___________________________ Date:
