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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 27, 1997
CUC INTERNATIONAL INC.
______________________
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-10308 06-0918165
________ _______ __________
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
707 SUMMER STREET, STAMFORD, CONNECTICUT 06901
________________________________________ ______
(Address of Principal Executive Offices) (Zip Code)
(203) 324-9261
______________
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
______________
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. Other Events.
A. On May 27, 1997, CUC International Inc., a Dela-
ware Corporation (the "Company"), and HFS Incorporated, a Dela-
ware corporation ("HFS"), issued a joint press release announc-
ing that they entered into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which HFS will be merged (the
"Merger") with and into the Company, with the Company as the
surviving corporation. In the Merger, each share of HFS common
stock issued and outstanding immediately prior to the effective
time of the Merger (other than certain shares which will be
cancelled) will be converted into 2.4031 shares of Company com-
mon stock. Consummation of the Merger is conditioned upon,
among other things, the requisite approval of the holders of
common stock of each of the Company and HFS and customary regu-
latory and governmental approvals. The foregoing description
of the Merger Agreement and Press Release is qualified in its
entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Exhibit 2.1 and is incorporated herein by
reference, and to the Press Release, a copy of which is at-
tached hereto as Exhibit 99.1 and is incorporated herein by
reference.
In connection with the Merger, HFS and the Company
have set forth certain provisions relating to governance of the
Company following the effective time of the Merger in a "Plan
for Corporate Governance" which is attached hereto as Exhibit
99.2 and is incorporated herein by reference. In addition cer-
tain changes will be made to the Certificate of Incorporation
and By-Laws of the Company in connection with the Merger and
Plan for Corporate Governance and forms of the Restated Cer-
tificate of Incorporation and Amended and Restated Bylaws are
attached hereto as Exhibits 99.3 and 99.4, respectively, and
are incorporated herein by reference.
B. Separately on May 27, 1997, the Company entered
into an agreement (the "Davidson Agreement") with Janice and
Robert Davidson, formerly directors of the Company and formerly
officers of Davidson & Associates, Inc., and certain of their
family trusts (collectively, the "Davidsons"). The Davidson
Agreement relates to, among other things, certain employment
related matters involving certain of the Davidsons; the
amendment of certain agreements between the Company and certain
of the Davidsons, including a registration rights agreement and
a non-competition agreement; matters pertaining to the sale by
certain of the Davidsons of Company common stock and the res-
ignation of Robert and Janice Davidson from the Board of Direc-
tors of the Company as of May 27,1997.
2
ITEM 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits.
2.1 Agreement and Plan of Merger between CUC Inter-
national Inc. and HFS Incorporated, dated as of
May 27, 1997
99.1 Press Release issued by the Company and HFS
Incorporated on May 27, 1997
99.2 Plan for Corporate Governance of CUC Interna-
tional Inc. Following the Effective Time
99.3 Form of Restated Certificate of Incorporation
99.4 Form of Amended and Restated By-Laws
3
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the un-
dersigned hereunto duly authorized.
CUC INTERNATIONAL INC.
By: /s/ E. Kirk Shelton
Name: E. Kirk Shelton
Title: President and Chief
Operating Officer
Dated: May 28, 1997
4
EXHIBIT INDEX
Exhibit No. Page No.
2.1 Agreement and Plan of Merger
between CUC International Inc.
and HFS Incorporated, dated as
of May 27, 1997
99.1 Press Release issued by the
Company and HFS Incorporated on
May 27, 1997
99.2 Plan for Corporate Governance of
CUC International Inc. Following
the Effective Time
99.3 Form of Restated Certificate of
Incorporation
99.4 Form of Amended and Restated
By-Laws
5
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
CUC INTERNATIONAL INC.
AND
HFS INCORPORATED
DATED AS OF MAY 27, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.1. The Merger.................................. 2
SECTION 1.2. Closing..................................... 2
SECTION 1.3. Effective Time.............................. 2
SECTION 1.4. Effects of the Merger....................... 2
SECTION 1.5. Certificate of Incorporation and By-laws.... 2
SECTION 1.6. Boards, Committees and Officers............. 3
SECTION 1.7. Name of the Surviving Corporation........... 3
SECTION 1.8. Reservation of Right to Revise
Transaction................................. 4
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock..................... 4
SECTION 2.2. Exchange of Certificates.................... 5
SECTION 2.3. Certain Adjustments......................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of HFS....... 11
(a) Organization, Standing and
Corporate Power........................ 11
(b) Subsidiaries........................... 12
(c) Capital Structure...................... 12
(d) Authority; Noncontravention............ 14
(e) SEC Documents; Undisclosed
Liabilities............................ 16
(f) Information Supplied................... 16
(g) Absence of Certain Changes or Events... 17
(h) Compliance with Applicable Laws;
Litigation............................. 18
(i) Absence of Changes in Benefit Plans.... 19
(j) ERISA Compliance....................... 20
(k) Taxes.................................. 22
(l) Voting Requirements.................... 23
(m) State Takeover Statutes................ 23
(n) Accounting Matters..................... 24
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PAGE
(o) Brokers................................ 24
(p) Opinion of Financial Advisor........... 24
(q) Ownership of CUC Common Stock.......... 24
(r) Intellectual Property.................. 25
(s) Certain Contracts...................... 25
SECTION 3.2. Representations and Warranties of CUC....... 26
(a) Organization, Standing and Corporate
Power.................................. 26
(b) Subsidiaries........................... 27
(c) Capital Structure...................... 27
(d) Authority; Noncontravention............ 29
(e) SEC Documents; Undisclosed
Liabilities............................ 30
(f) Information Supplied................... 31
(g) Absence of Certain Changes or Events... 32
(h) Compliance with Applicable Laws;
Litigation............................. 33
(i) Absence of Changes in Benefit Plans.... 34
(j) ERISA Compliance....................... 34
(k) Taxes.................................. 37
(l) Voting Requirements.................... 38
(m) State Takeover Statutes................ 38
(n) Accounting Matters..................... 39
(o) Brokers................................ 39
(p) Opinion of Financial Advisor........... 39
(q) Ownership of HFS Common Stock.......... 39
(r) Intellectual Property.................. 40
(s) Certain Contracts...................... 40
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business........................ 41
SECTION 4.2. No Solicitation by HFS..................... 48
SECTION 4.3. No Solicitation by CUC..................... 51
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint
Proxy Statement; Stockholders Meetings..... 54
SECTION 5.2. Letters of HFS's Accountants............... 56
SECTION 5.3. Letters of CUC's Accountants............... 56
SECTION 5.4. Access to Information; Confidentiality..... 57
SECTION 5.5. Best Efforts............................... 57
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PAGE
SECTION 5.6. Stock Options.............................. 58
SECTION 5.7. HFS Stock Plans and Certain
Employee Matters........................... 60
SECTION 5.8. Indemnification, Exculpation and
Insurance.................................. 61
SECTION 5.9. Fees and Expenses.......................... 62
SECTION 5.10. Public Announcements....................... 63
SECTION 5.11. Affiliates................................. 64
SECTION 5.12. NYSE Listing............................... 64
SECTION 5.13. Stockholder Litigation..................... 65
SECTION 5.14. Tax Treatment.............................. 65
SECTION 5.15. Pooling of Interests....................... 65
SECTION 5.16. Standstill Agreements; Confidentiality
Agreement.................................. 65
SECTION 5.17. Company Officers; Employment Contracts;
Equity Awards.............................. 65
SECTION 5.18. Post-Merger Operations..................... 67
SECTION 5.19. Conveyance Taxes........................... 67
SECTION 5.20. HFS Convertible Notes...................... 67
SECTION 5.21. Transition Planning........................ 68
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to
Effect the Merger.......................... 68
SECTION 6.2. Conditions to Obligations of CUC........... 70
SECTION 6.3. Conditions to Obligations of HFS........... 71
SECTION 6.4. Frustration of Closing
Conditions................................. 73
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination................................ 73
SECTION 7.2. Effect of Termination...................... 75
SECTION 7.3. Amendment.................................. 75
SECTION 7.4. Extension; Waiver.......................... 75
SECTION 7.5. Procedure for Termination, Amendment,
Extension or Waiver........................ 75
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PAGE
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and
Warranties................................. 76
SECTION 8.2. Notices.................................... 76
SECTION 8.3. Definitions................................ 77
SECTION 8.4. Interpretation............................. 78
SECTION 8.5. Counterparts............................... 79
SECTION 8.6. Entire Agreement; No Third-Party
Beneficiaries.............................. 79
SECTION 8.7. Governing Law.............................. 79
SECTION 8.8. Assignment................................. 79
SECTION 8.9. Consent to Jurisdiction.................... 79
SECTION 8.10. Headings................................... 80
SECTION 8.11. Severability............................... 80
Exhibit A-1 Certificate of Incorporation of Surviving
Corporation
Exhibit A-2 Amended and Restated By-laws of the Surviving
Corporation
Exhibit B Corporate Governance of Surviving Corporation
Following the Effective Time
Exhibit C Form of Affiliate Letter
Exhibit D CUC Tax Representations
Exhibit E HFS Tax Representations
-iv-
AGREEMENT AND PLAN OF MERGER dated as of May 27,
1997, between CUC INTERNATIONAL INC., a Delaware corporation
("CUC"), and HFS INCORPORATED, a Delaware corporation ("HFS").
WHEREAS, the respective Boards of Directors of CUC
and HFS have each approved the merger of HFS with and into CUC
(the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $.01 per share, of
HFS ("HFS Common Stock"), other than shares owned by CUC or
HFS, will be converted into the right to receive the Merger
Consideration (as defined in Section 1.8);
WHEREAS, the respective Boards of Directors of CUC
and HFS have each determined that the Merger and the other
transactions contemplated hereby are consistent with, and in
furtherance of, their respective business strategies and goals
and are in the best interests of their respective stockholders;
WHEREAS, CUC and HFS desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger;
WHEREAS, for federal income tax purposes, it is
intended that the Merger will qualify as a reorganization under
the provisions of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is
intended that the Merger will be accounted for as a pooling of
interests transaction under United States generally accepted
accounting principles ("GAAP").
NOW, THEREFORE, in consideration of the repre-
sentations, warranties, covenants and agreements contained in
this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject
to the conditions set forth in this Agreement, and in
accordance with the Delaware General Corporation Law (the
"DGCL"), HFS shall be merged with and into CUC at the Effective
Time (as defined in Section 1.3). Following the Effective
Time, CUC shall be the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights
and obligations of HFS in accordance with the DGCL.
SECTION 1.2. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to be
specified by the parties (the "Closing Date"), which shall be
no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VI, unless
another time or date is agreed to by the parties hereto. The
Closing will be held at such location in the City of New York
as is agreed to by the parties hereto.
SECTION 1.3. Effective Time. Subject to the
provisions of this Agreement, as soon as practicable on the
Closing Date, the parties shall cause the Merger to be
consummated by filing a certificate of merger or other
appropriate documents (in any such case, the "Certificate of
Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at
such time as the Certificate of Merger is duly filed with the
Secretary of State of Delaware, or at such subsequent date or
time as CUC and HFS shall agree and specify in the Certificate
of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.4. Effects of the Merger. The Merger
shall have the effects set forth in Section 259 of the DGCL.
SECTION 1.5. Certificate of Incorporation and By-
laws of the Surviving Corporation. The restated certificate of
incorporation of CUC, as in effect immediately prior to the
Effective Time, shall be amended as of
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the Effective Time as described in Exhibit A-1 and, as so
amended, such restated certificate of incorporation shall be
the restated certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided
therein or by applicable law (as so amended, the "Restated
Certificate"). The by-laws of CUC, as in effect immediately
prior to the Effective Time, shall be amended as of the
Effective Time as described in Exhibit A-2 and, as so amended,
such by-laws shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law (as so amended, the "Restated By-laws"). Such
amendment and restatement of CUC's certificate of incorporation
and by-laws are referred to herein as the "Certificate Amend-
ment" and the "By-laws Amendment," respectively.
SECTION 1.6. Boards, Committees and Officers. Prior
to the Effective Time, CUC shall adopt resolutions in the form
attached hereto as part of Exhibit B, establishing the Board of
CUC and committees thereof from and after the Effective Time.
From and after the Effective Time, the members of the Board of
Directors, the committees of the Board of Directors, the
composition of such committees (including chairmen thereof) and
the officers of the Surviving Corporation shall be as set forth
on or designated in accordance with the Restated Certificate,
the Restated By-laws and Exhibit B hereto until the earlier of
the resignation or removal of any individual set forth on or
designated in accordance with the Restated Certificate, the
Restated By-laws and Exhibit B or until their respective
successors are duly elected and qualified, as the case may be,
or until as otherwise provided in the Restated Certificate, the
Restated By-laws and Exhibit B. If any officer set forth on or
designated in accordance with Exhibit B ceases to be a full-
time employee of either HFS or CUC at or before the Effective
Time, CUC, in the case of any such employee of CUC on the date
hereof or any such employee to be designated by CUC, or HFS, in
the case of any such employee of HFS on the date hereof or any
such employee to be designated by HFS, shall designate another
person to serve in such person's stead.
SECTION 1.7. Name of the Surviving Corporation. The
name of the Surviving Corporation shall be as agreed to
between the parties prior to the Effective Time.
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SECTION 1.8. Reservation of Right to Revise
Transaction. If each of HFS and CUC agree, the parties hereto
may change the method of effecting the business combination
between CUC and HFS, and each party shall cooperate in such
efforts, including to provide for (a) a merger of a wholly
owned subsidiary of CUC with and into HFS, or (b) mergers (to
occur substantially simultaneously) of separate subsidiaries of
a Delaware corporation jointly formed by CUC and HFS for such
purpose into each of CUC and HFS; provided, however, that no
such change shall (i) alter or change the amount or kind of
consideration to be issued to holders of HFS Common Stock as
provided for in this Agreement (the "Merger Consideration"),
other than, in the case of clause (b) above, the issuer
thereof, (ii) adversely affect the proposed accounting
treatment for the Merger or the tax treatment to CUC, HFS or
their respective stockholders as a result of receiving the
Merger Consideration, or (iii) materially delay receipt of any
approval referred to in Section 6.1(c) or the consummation of
the transactions contemplated by this Agreement.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock. As of the
Effective Time, by virtue of the Merger and without any action
on the part of the holder of any shares of HFS Common Stock:
(a) Cancellation of Treasury Stock and CUC-Owned
Stock. Each share of HFS Common Stock that is owned by HFS or
CUC shall automatically be cancelled and retired and shall
cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) Conversion of HFS Common Stock. Subject to
Section 2.2(e), each issued and outstanding share of HFS Common
Stock (other than shares to be cancelled in accordance with
Section 2.1(a)) shall be converted into the right to receive
2.4031 (the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share
("CUC Common Stock"), of
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CUC. As of the Effective Time, all such shares of HFS Common
Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of HFS Common
Stock shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration and any
cash in lieu of fractional shares of CUC Common Stock to be
issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.2, without interest.
SECTION 2.2. Exchange of Certificates. (a)
Exchange Agent. As of the Effective Time, CUC shall enter into
an agreement with such bank or trust company as may be
designated by CUC and reasonably satisfactory to HFS (the
"Exchange Agent"), which shall provide that CUC shall deposit
with the Exchange Agent as of the Effective Time, for the
benefit of the holders of shares of HFS Common Stock, for
exchange in accordance with this Article II, through the
Exchange Agent, certificates representing the shares of CUC
Common Stock (such shares of CUC Common Stock, together with
any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares (as
defined in Section 2.2(e)) and any cash (including cash
proceeds from the sale of the Excess Shares) payable in lieu of
any fractional shares of CUC Common Stock being hereinafter
referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of HFS Common
Stock.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall
mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented
outstanding shares of HFS Common Stock (the "Certificates")
whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions
as CUC and HFS may reasonably specify) and (ii) instructions
for use in surrendering the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for
cancellation to the Ex-
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change Agent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of CUC Common Stock
which such holder has the right to receive pursuant to the
provisions of this Article II, certain dividends or other
distributions in accordance with Section 2.2(c) and cash in
lieu of any fractional share of CUC Common Stock in accordance
with Section 2.2(e), and the Certificate so surrendered shall
forthwith be cancelled. Notwithstanding anything to the
contrary contained herein, no certificate representing CUC
Common Stock or cash in lieu of a fractional share interest
shall be delivered to a person who is an affiliate of HFS for
purposes of qualifying the Merger for pooling of interests
accounting treatment under Opinion 16 of the APB and applicable
Securities and Exchange Commission ("SEC") rules and
regulations, unless such person has executed and delivered an
agreement in the form of Exhibit C hereto. In the event of a
surrender of a Certificate representing shares of HFS Common
Stock which are not registered in the transfer records of HFS
under the name of the person surrendering such Certificate, a
certificate representing the proper number of shares of CUC
Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such
issuance shall pay any transfer or other taxes required by
reason of the issuance of shares of CUC Common Stock to a
person other than the registered holder of such Certificate or
establish to the satisfaction of CUC that such tax has been
paid or is not applicable. Until surrendered as contemplated
by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration which the
holder thereof has the right to receive in respect of such
Certificate pursuant to the provisions of this Article II,
certain dividends or other distributions in accordance with
Section 2.2(c) and cash in lieu of any fractional share of CUC
Common Stock in accordance with Section 2.2(e). No interest
shall be paid or will accrue on any cash payable to holders of
Certificates pursuant to the provisions of this Article II.
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(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect to
CUC Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of CUC Common Stock represented
thereby, and, in the case of Certificates representing HFS
Common Stock, no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(e),
and all such dividends, other distributions and cash in lieu of
fractional shares of CUC Common Stock shall be paid by CUC to
the Exchange Agent and shall be included in the Exchange Fund,
in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of
applicable escheat or similar laws, following surrender of any
such Certificate there shall be paid to the holder of the
certificate representing whole shares of CUC Common Stock
issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of CUC
Common Stock and, in the case of Certificates representing HFS
Common Stock, the amount of any cash payable in lieu of a
fractional share of CUC Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions
with a record date after the Effective Time and with a payment
date subsequent to such surrender payable with respect to such
whole shares of CUC Common Stock.
(d) No Further Ownership Rights in HFS Common Stock.
All shares of CUC Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this
Article II (including any cash paid pursuant to this Article
II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of HFS
Common Stock, theretofore represented by such Certificates,
subject, however, to the Surviving Corporation's obligation to
pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared
or made by HFS on such shares of HFS Common Stock which remain
unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of HFS Common Stock which
were outstanding immediately prior
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to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and
exchanged as provided in this Article II, except as otherwise
provided by law.
(e) No Fractional Shares. (i) No certificates or
scrip representing fractional shares of CUC Common Stock shall
be issued upon the surrender for exchange of Certificates, no
dividend or distribution of CUC shall relate to such fractional
share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a
stockholder of CUC.
(ii) As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the excess
of (A) the number of whole shares of CUC Common Stock delivered
to the Exchange Agent by CUC pursuant to Section 2.2(a) over
(B) the aggregate number of whole shares of CUC Common Stock to
be distributed to former holders of HFS Common Stock pursuant
to Section 2.2(b) (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent
shall, on behalf of the former stockholders of HFS, sell the
Excess Shares at then-prevailing prices on the New York Stock
Exchange, Inc. ("NYSE"), all in the manner provided in Section
2.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange
Agent shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the
extent practicable. The Exchange Agent shall use reasonable
efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole
judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of Certificates formerly
representing HFS Common Stock, the Exchange Agent shall hold
such proceeds in trust for such holders (the "Common Shares
Trust"). The Surviving Corporation shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs,
-8-
including the expenses and compensation of the Exchange Agent
incurred in connection with such sale of the Excess Shares.
The Exchange Agent shall determine the portion of the Common
Shares Trust to which each former holder of HFS Common Stock is
entitled, if any, by multiplying the amount of the aggregate
net proceeds comprising the Common Shares Trust by a fraction,
the numerator of which is the amount of the fractional share
interest to which such former holder of HFS Common Stock is
entitled (after taking into account all shares of HFS Common
Stock held at the Effective Time by such holder) and the
denominator of which is the aggregate amount of fractional
share interests to which all former holders of HFS Common Stock
are entitled.
(iv) Notwithstanding the provisions of Section
2.2(e)(ii) and (iii), the Surviving Corporation may elect at
its option, exercised prior to the Effective Time, in lieu of
the issuance and sale of Excess Shares and the making of the
payments hereinabove contemplated, to pay each former holder of
HFS Common Stock an amount in cash equal to the product
obtained by multiplying (A) the fractional share interest to
which such former holder (after taking into account all shares
of HFS Common Stock held at the Effective Time by such holder)
would otherwise be entitled by (B) the average of the closing
prices of the CUC Common Stock as reported on the NYSE Com-
posite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported therein, any other authoritative
source) during the ten trading days preceding the fifth trading
day prior to the Closing Date (such average, the "Average CUC
Price"), and, in such case, all references herein to the cash
proceeds of the sale of the Excess Shares and similar
references shall be deemed to mean and refer to the payments
calculated as set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of
Certificates formerly representing HFS Common Stock with
respect to any fractional share interests, the Exchange Agent
shall make available such amounts to such holders of Certifi-
cates formerly representing HFS Common Stock subject
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to and in accordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of
the Certificates for six months after the Effective Time shall
be delivered to CUC, upon demand, and any holders of the
Certificates who have not theretofore complied with this
Article II shall thereafter look only to CUC for payment of
their claim for Merger Consideration, any dividends or
distributions with respect to CUC Common Stock and any cash in
lieu of fractional shares of CUC Common Stock.
(g) No Liability. None of CUC, HFS, the Surviving
Corporation or the Exchange Agent shall be liable to any person
in respect of any shares of CUC Common Stock, any dividends or
distributions with respect thereto, any cash in lieu of
fractional shares of CUC Common Stock or any cash from the
Exchange Fund, in each case delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as
directed by CUC, on a daily basis. Any interest and other
income resulting from such investments shall be paid to CUC.
(i) Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct
as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends
and distributions on shares of CUC Common Stock deliverable in
respect thereof and any cash in lieu of fractional shares, in
each case pursuant to this Agreement.
SECTION 2.3. Certain Adjustments. If between the
date hereof and the Effective Time, the outstanding shares of
HFS Common Stock or of CUC Common Stock shall
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be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within
such period, the Exchange Ratio shall be adjusted accordingly
to provide to the holders of HFS Common Stock the same economic
effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination,
exchange or dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of HFS.
Except as disclosed in the HFS Filed SEC Documents (as defined
in Section 3.1(g)) or as set forth on the Disclosure Schedule
delivered by HFS to CUC prior to the execution of this
Agreement (the "HFS Disclosure Schedule") and making reference
to the particular subsection of this Agreement to which
exception is being taken, HFS represents and warrants to CUC as
follows:
(a) Organization, Standing and Corporate Power. (i)
Each of HFS and its subsidiaries (as defined in Section 8.3) is
a corporation or other legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the juris-
diction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to
carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be
so organized, existing or in good standing individually or in
the aggregate would not have a material adverse effect (as
defined in Section 8.3) on HFS. Each of HFS and its
subsidiaries is duly qualified or licensed to do business and
is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation
of its properties makes such qualification or licensing neces-
sary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in
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good standing individually or in the aggregate would not have a
material adverse effect on HFS.
(ii) HFS has delivered to CUC prior to the execution
of this Agreement complete and correct copies of its
certificate of incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of
HFS contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the Board
of Directors and all committees of the Board of Directors of
HFS since January 1, 1995.
(b) Subsidiaries. Exhibit 21 to HFS's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and
Section 3.1(b) of the HFS Disclosure Schedule together include
all the subsidiaries of HFS which as of the date of this
Agreement are Significant Subsidiaries (as defined in Rule 1-02
of Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such
Significant Subsidiary have been validly issued and are fully
paid and nonassessable and are owned directly or indirectly by
HFS, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens") and free of any other
restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other
ownership interests).
(c) Capital Structure. The authorized capital stock
of HFS consists of 600,000,000 shares of HFS Common Stock and
10,000,000 shares of preferred stock, par value $1.00 per share
("HFS Preferred Stock"). At the close of business on May 21,
1997: (i) 158,291,401 shares of HFS Common Stock were issued
and outstanding; (ii) no shares of HFS Common Stock were held
by HFS in its treasury; (iii) no shares of HFS Preferred Stock
were issued and outstanding; (iv) 40,013,543 shares of HFS
Common Stock were reserved for issuance pursuant to the HFS
1992 Stock Option Plan and the HFS 1993 Stock Option Plan,
complete and correct copies of which have been delivered to CUC
(such plans, collectively, the "HFS Stock Plans"); and (v)
8,080,102 shares of HFS Common Stock were reserved for issuance
upon conversion of HFS's 4-1/2% Convertible
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Senior Notes due 1999 and 3,598,320 shares of HFS Common Stock
were reserved for issuance upon conversion of HFS's 4-3/4%
Convertible Senior Notes due 2003 (collectively, the "HFS
Convertible Securities"). Section 3.1(c) of the HFS Disclosure
Schedule sets forth a complete and correct list, as of May 21,
1997, of the number of shares of HFS Common Stock subject to
employee stock options or other rights to purchase or receive
HFS Common Stock granted under the HFS Stock Plans
(collectively, "HFS Employee Stock Options"), the dates of
grant and exercise prices thereof. All outstanding shares of
capital stock of HFS are, and all shares which may be issued
will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
Except as set forth in this Section 3.1(c) and except for
changes since May 21, 1997 resulting from the issuance of
shares of HFS Common Stock pursuant to the HFS Employee Stock
Options, the HFS Convertible Securities or as permitted by
Section 4.1(a)(i)(y) and 4.1(a)(ii), (x) there are not issued,
reserved for issuance or outstanding (A) any shares of capital
stock or other voting securities of HFS, (B) any securities of
HFS or any HFS subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of
HFS, (C) any warrants, calls, options or other rights to
acquire from HFS or any HFS subsidiary, and any obligation of
HFS or any HFS subsidiary to issue, any capital stock, voting
securities or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of HFS, and
(y) there are no outstanding obligations of HFS or any HFS
subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. There are no
outstanding (A) securities of HFS or any HFS subsidiary
convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities or ownership interests
in any HFS subsidiary, (B) warrants, calls, options or other
rights to acquire from HFS or any HFS subsidiary, and any
obligation of HFS or any HFS subsidiary to issue, any capital
stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable
for any capital stock, voting securities or ownership interests
in, any HFS subsidiary or (C) obligations of HFS or any HFS
subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of HFS subsidiaries or to issue, deliver
or sell, or cause to be
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issued, delivered or sold, any such securities. Neither HFS
nor any HFS subsidiary is a party to any agreement restricting
the transfer of, relating to the voting of, requiring
registration of, or granting any preemptive or, except as
provided by the terms of the HFS Employee Stock Options and the
HFS Convertible Securities, antidilutive rights with respect
to, any securities of the type referred to in the two preceding
sentences. Other than the HFS subsidiaries, HFS does not
directly or indirectly beneficially own any securities or other
beneficial ownership interests in any other entity except for
non-controlling investments made in the ordinary course of
business in entities which are not individually or in the
aggregate material to HFS and its subsidiaries as a whole.
(d) Authority; Noncontravention. HFS has all
requisite corporate power and authority to enter into this
Agreement and, subject, in the case of the Merger, to the HFS
Stockholder Approval (as defined in Section 3.1(l)) to
consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by HFS and the
consummation by HFS of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate
action on the part of HFS, subject, in the case of the Merger,
to the HFS Stockholder Approval. This Agreement has been duly
executed and delivered by HFS and, assuming the due
authorization, execution and delivery by CUC, constitutes the
legal, valid and binding obligation of HFS, enforceable against
HFS in accordance with its terms. The execution and delivery
of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with
the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Lien
upon any of the properties or assets of HFS or any of its
subsidiaries under, (i) the certificate of incorporation or by-
laws of HFS or the comparable organizational documents of any
of its subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license or similar
authorization applicable to HFS or any of its subsidiaries or
their
-14-
respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to HFS or any of its
subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a material
adverse effect on HFS or (y) reasonably be expected to impair
the ability of HFS to perform its obligations under this
Agreement. No consent, approval, order or authorization of,
action by or in respect of, or registration, declaration or
filing with, any federal, state, local or foreign government,
any court, administrative, regulatory or other governmental
agency, commission or authority or any nongovernmental self-
regulatory agency, commission or authority (a "Governmental
Entity") is required by or with respect to HFS or any of its
subsidiaries in connection with the execution and delivery of
this Agreement by HFS or the consummation by HFS of the
transactions contemplated by this Agreement, except for (1) the
filing of a pre-merger notification and report form by HFS
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); (2) the filing with the SEC of (A)
a proxy statement relating to the HFS Stockholders Meeting (as
defined in Section 5.1(b)) (such proxy statement, together with
the proxy statement relating to the CUC Stockholders Meeting
(as defined in Section 5.1(c)), in each case as amended or
supplemented from time to time, the "Joint Proxy Statement"),
and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement;
(3) the filing of the Certificate of Merger with the Secretary
of State of Delaware and appropriate documents with the
relevant authorities of other states in which HFS is qualified
to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or
"blue sky" laws; and (4) such consents, approvals, orders or
authorizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a material
adverse effect on HFS or (y) reasonably be expected to impair
the ability of HFS to perform its obligations under this
Agreement.
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(e) SEC Documents; Undisclosed Liabilities. HFS has
filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated
therein) with the SEC since December 31, 1994 (the "HFS SEC
Documents"). As of their respective dates, the HFS SEC
Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to such HFS SEC Documents, and none of the HFS SEC
Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The financial statements of each of HFS
or PHH Corporation ("PHH") included in the HFS SEC Documents
comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with
GAAP (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position
of HFS and its consolidated subsidiaries (and PHH, where
applicable) as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and except that, in the case of
financial statements included therein which were later restated
to account for one or more business combinations accounted for
as poolings-of-interest, such original financial statements do
not reflect such restatements). Except (i) as reflected in such
financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, neither HFS nor any of its
subsidiaries has any liabilities or obligations of any nature
which, individually or in the aggregate, would have a material
adverse effect on HFS.
(f) Information Supplied. None of the information
supplied or to be supplied by HFS specifically for
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inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by CUC in
connection with the issuance of CUC Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy
Statement will, at the date it is first mailed to HFS's
stockholders or at the time of the HFS Stockholders Meeting,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
The Joint Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no
representation or warranty is made by HFS with respect to
statements made or incorporated by reference therein based on
information supplied by CUC specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby and except as permitted by
Section 4.1(a), since December 31, 1996, HFS and its
subsidiaries have conducted their business only in the ordinary
course or as disclosed in any HFS SEC Document filed since such
date and prior to the date hereof, and there has not been (i)
any material adverse change (as defined in Section 8.3) in HFS,
(ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with
respect to any of HFS's capital stock, (iii) any split,
combination or reclassification of any of HFS's capital stock
or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution
for shares of HFS's capital stock, except for issuances of HFS
Common Stock upon conversion of HFS Convertible Securities or
upon the exercise of HFS Employee Stock Options, in each case
awarded prior to the date hereof in accordance with their
present terms or issued pursuant to Section 4.1(a), (iv)(A) any
granting by HFS or any of its subsidiaries to any current or
former director, executive officer or other key employee
-17-
of HFS or its subsidiaries of any increase in compensation,
bonus or other benefits, except for normal increases as a
result of promotions, normal increases of base pay in the
ordinary course of business or as was required under any
employment agreements in effect as of December 31, 1996, (B)
any granting by HFS or any of its subsidiaries to any such
current or former director, executive officer or key employee
of any increase in severance or termination pay, or (C) any
entry by HFS or any of its subsidiaries into, or any amendment
of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any
such current or former director, executive officer or key
employee, (v) except insofar as may have been disclosed in HFS
SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date hereof, the "HFS Filed
SEC Documents") or required by a change in GAAP, any change in
accounting methods, principles or practices by HFS materially
affecting its assets, liabilities or business, (vi) except
insofar as may have been disclosed in the HFS Filed SEC
Documents, any tax election that individually or in the
aggregate would have a material adverse effect on HFS or any of
its tax attributes or any settlement or compromise of any
material income tax liability, or (vii) any action taken by HFS
or any of the HFS subsidiaries during the period from January
1, 1997 through the date of this Agreement that, if taken
during the period from the date of this Agreement through the
Effective Time would constitute a breach of Section 4.1(a).
(h) Compliance with Applicable Laws; Litigation.
(i) HFS, its subsidiaries and employees hold all permits,
licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for
the operation of the businesses of HFS and its subsidiaries
(the "HFS Permits"), except where the failure to have any such
HFS Permits individually or in the aggregate would not have a
material adverse effect on HFS. HFS and its subsidiaries are
in compliance with the terms of the HFS Permits and all
applicable statutes, laws, ordinances, rules and regulations,
except where the failure so to comply individually or in the
aggregate would not have a material adverse effect on HFS. As
of the date of this Agreement, except as disclosed in the HFS
Filed SEC Documents, no action,
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demand, requirement or investigation by any Governmental Entity
and no suit, action or proceeding by any person, in each case
with respect to HFS or any of its subsidiaries or any of their
respective properties is pending or, to the knowledge (as de-
fined in Section 8.3) of HFS, threatened, other than, in each
case, those the outcome of which individually or in the
aggregate would not (A) have a material adverse effect on HFS
or (B) reasonably be expected to impair the ability of HFS to
perform its obligations under this Agreement or prevent or
materially delay the consummation of any of the transactions
contemplated by this Agreement.
(ii) Neither HFS nor any HFS subsidiary is subject
to any outstanding order, injunction or decree which has had
or, insofar as can be reasonably foreseen, individually or in
the aggregate will have a material adverse effect on HFS.
(i) Absence of Changes in Benefit Plans. HFS has
delivered to CUC true and complete copies of (i) all severance
and employment agreements of HFS with directors, executive
officers or key employees, (ii) all severance programs and
policies of each of HFS and each HFS subsidiary, and (iii) all
plans or arrangements of HFS and each HFS subsidiary relating
to its employees which contain change in control provisions.
Since December 31, 1996, there has not been any adoption or
amendment in any material respect by HFS or any of its subsid-
iaries of any collective bargaining agreement, employment
agreement, consulting agreement, severance agreement or any
material bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding providing benefits to any
current or former employee, officer or director of HFS or any
of its wholly owned subsidiaries (collectively, the "HFS
Benefit Plans"), or any material change in any actuarial or
other assumption used to calculate funding obligations with
respect to any HFS pension plans, or any material change in the
manner in which contributions to any HFS pension plans are made
or the basis an which such contributions are determined.
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(j) ERISA Compliance. (i) With respect to the HFS
Benefit Plans, no event has occurred and, to the knowledge of
HFS, there exists no condition or set of circumstances, in
connection with which HFS or any of its subsidiaries could be
subject to any liability that individually or in the aggregate
would have a material adverse effect on HFS under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
the Code or any other applicable law.
(ii) Each HFS Benefit Plan has been administered in
accordance with its terms, except for any failures so to
administer any HFS Benefit Plan that individually or in the
aggregate would not have a material adverse effect on HFS.
HFS, its subsidiaries and all the HFS Benefit Plans have been
operated, and are, in compliance with the applicable provisions
of ERISA, the Code and all other applicable laws and the terms
of all applicable collective bargaining agreements, except for
any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on HFS.
Each HFS Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and
each trust established in connection with any HFS Benefit Plan
that is intended to be exempt from federal income taxation
under Section 501(a) of the Code has received a determination
letter from the IRS that such trust is so exempt. To the
knowledge of HFS, no fact or event has occurred since the date
of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such HFS
Benefit Plan or the exempt status of any such trust.
(iii) Neither HFS nor any of its subsidiaries has
incurred any unsatisfied liability under Title IV of ERISA
(other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No HFS
Benefit Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of
the Code) whether or not waived. To the knowledge of HFS,
there are not any facts or
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circumstances that would materially change the funded status of
any HFS Benefit Plan that is a "defined benefit" plan (as
defined in Section 3(35) of ERISA) since the date of the most
recent actuarial report for such plan. No HFS Benefit Plan is
a "multiemployer plan" within the meaning of Section 3(37) of
ERISA.
(iv) With respect to each of the HFS Benefit Plans
(other than any multiemployer plan) that is subject to Title IV
of ERISA, the present value of accrued benefits under each such
plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan, did not, as of its
latest valuation date, exceed the then current value of the
aggregate assets of such plans allocable to such accrued bene-
fits in any material respect. With respect to any HFS Benefit
Plan that is a multiemployer plan, (A) none of HFS nor any of
its subsidiaries has any contingent liability under Section
4204 of ERISA, and no circumstances exist that present a
material risk that any such plan will go into reorganization,
and (B) the aggregate withdrawal liability of HFS and its
subsidiaries, computed as if a complete withdrawal by HFS and
any of its subsidiaries had occurred under each such HFS
Benefit Plan on the date hereof, would not be material.
(v) No HFS Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former
employees after retirement or other termination of service
(other than coverage mandated by applicable law or benefits,
the full cost of which is borne by the current or former
employee) other than individual arrangements the amounts of
which are not material.
(vi) As of the date of this Agreement, neither HFS
nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons
employed by HFS or any of its subsidiaries and no collective
bargaining agreement is being negotiated by HFS or any of its
subsidiaries. As of the date of this Agreement, there is no
labor dispute, strike or work stoppage
-21-
against HFS or any of its subsidiaries pending or, to the
knowledge of HFS, threatened which may interfere with the
respective business activities of HFS or any of its
subsidiaries, except where such dispute, strike or work
stoppage individually or in the aggregate would not have a
material adverse effect on HFS. As of the date of this
Agreement, to the knowledge of HFS, none of HFS, any of its
subsidiaries or any of their respective representatives or
employees has committed any material unfair labor practice in
connection with the operation of the respective businesses of
HFS or any of its subsidiaries, and there is no material charge
or complaint against HFS or any of its subsidiaries by the Na-
tional Labor Relations Board or any comparable governmental
agency pending or threatened in writing.
(vii) No employee of HFS will be entitled to any
material payment, additional benefits or any acceleration of
the time of payment or vesting of any benefits under any HFS
Benefit Plan as a result of the transactions contemplated by
this Agreement (either alone or in conjunction with any other
event such as a termination of employment), except that all HFS
Employee Stock Options will vest as of the Effective Time as a
result of the Merger.
(k) Taxes. (i) Each of HFS and its subsidiaries
has filed all material tax returns and reports required to be
filed by it and all such returns and reports are complete and
correct in all material respects, or requests for extensions to
file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures
to file, to be complete or correct or to have extensions
granted that remain in effect individually or in the aggregate
would not have a material adverse effect on HFS. HFS and each
of its subsidiaries has paid (or HFS has paid on its behalf)
all taxes (as defined herein) shown as due on such returns, and
the most recent financial statements contained in the HFS Filed
SEC Documents reflect an adequate reserve in accordance with
GAAP for all taxes payable by HFS and its subsidiaries for all
taxable periods and portions thereof accrued through the date
of such financial statements.
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(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against HFS or any of its
subsidiaries that are not adequately reserved for, except for
deficiencies that individually or in the aggregate would not
have a material adverse effect on HFS. No federal income tax
returns of HFS and each of its subsidiaries consolidated in
such returns have closed by virtue of the applicable statute of
limitations.
(iii) Neither HFS nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger
from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall
include all (x) federal, state, local or foreign income,
property, sales, excise and other taxes or similar governmental
charges, including any interest, penalties or additions with
respect thereto, (y) liability for the payment of any amounts
of the type described in (x) as a result of being a member of
an affiliated, consolidated, combined or unitary group, and (z)
liability for the payment of any amounts as a result of being
party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other person
with respect to the payment of any amounts of the type
described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote at
the HFS Stockholders Meeting (the "HFS Stockholder Approval")
of (i) the holders of a majority of all outstanding shares of
HFS Common Stock to adopt this Agreement is the only vote of
the holders of any class or series of HFS's capital stock
necessary to approve and adopt this Agreement and the
transactions contemplated hereby, including the Merger and (ii)
the holders of a majority of all shares of HFS Common Stock
casting votes is the only vote of the holders of any class or
series of HFS's capital stock necessary to approve the New CUC
Stock Plan (as defined in Section 5.17(e)).
(m) State Takeover Statutes. The Board of Directors
of HFS has approved this Agreement and the
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transactions contemplated hereby and, assuming the accuracy of
CUC's representation and warranty contained in Section 3.2(q),
such approval constitutes approval of the Merger and the other
transactions contemplated hereby by the HFS Board of Directors
under the provisions of Section 203 of the DGCL such that
Section 203 of the DGCL does not apply to this Agreement and
the transactions contemplated hereby. To the knowledge of HFS,
no other state takeover statute is applicable to the Merger or
the other transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither
HFS nor any of its affiliates (as such term is used in Section
5.11) has taken or agreed to take any action that would prevent
the business combination to be effected by the Merger from
being accounted for as a pooling of interests and HFS has no
reason to believe that the Merger will not qualify for "pooling
of interests" accounting.
(o) Brokers. No broker, investment banker,
financial advisor or other person other than Bear Stearns & Co.
Inc. ("Bear Stearns"), the fees and expenses of which will be
paid by HFS, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of HFS. HFS has furnished to
CUC true and complete copies of all agreements under which any
such fees or expenses are payable and all indemnification and
other agreements related to the engagement of the persons to
whom such fees are payable.
(p) Opinion of Financial Advisor. HFS has received
the opinion of Bear Stearns dated the date of this Agreement,
to the effect that, as of such date, the Exchange Ratio for the
conversion of HFS Common Stock into CUC Common Stock is fair
from a financial point of view to holders of shares of HFS
Common Stock (other than CUC and its affiliates), a signed copy
of which opinion has been delivered to CUC, it being understood
and agreed by CUC that such opinion is for the benefit of the
Board of Directors of HFS and may not be relied upon by CUC,
its affiliates or any of their respective stockholders.
(q) Ownership of CUC Common Stock. As of the date
hereof, neither HFS nor, to its knowledge without
-24-
independent investigation, any of its affiliates, (i)
beneficially owns (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, or (ii) is party to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case,
shares of capital stock of CUC.
(r) Intellectual Property. HFS and its subsidiaries
own or have a valid license to use all trademarks, service
marks, trade names, patents and copyrights (including any
registrations or applications for registration of any of the
foregoing) (collectively, the "HFS Intellectual Property")
necessary to carry on its business substantially as currently
conducted except for such HFS Intellectual Property the failure
of which to own or validly license individually or in the
aggregate would not have a material adverse effect on HFS.
Neither HFS nor any such subsidiary has received any notice of
infringement of or conflict with, and, to HFS's knowledge,
there are no infringements of or conflicts (i) with the rights
of others with respect to the use of, or (ii) by others with
respect to, any HFS Intellectual Property that individually or
in the aggregate, in either such case, would have a material
adverse effect on HFS.
(s) Certain Contracts. Except as set forth in the
HFS Filed SEC Documents, neither HFS nor any of its
subsidiaries is a party to or bound by (i) any "material
contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC), (ii) any non-competition agreement
or any other agreement or obligation which purports to limit in
any material respect the manner in which, or the localities in
which, all or any material portion of the business of HFS and
its subsidiaries (including, for purposes of this Section
3.1(s), CUC and its subsidiaries, assuming the Merger has taken
place), taken as a whole, is or would be conducted, or (iii)
any contract or other agreement which would prohibit or materi-
ally delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of
the type described in clauses (i) and (ii) being referred to
herein as "HFS Material Contracts"). Each HFS Material Contract
is valid and binding on HFS (or, to the extent an HFS
subsidiary is a party, such subsidiary) and is in full force
and effect, and HFS and each HFS subsidiary have in all
material respects performed all obligations required to be
performed by them
-25-
to date under each HFS Material Contract, except where such
noncompliance, individually or in the aggregate, would not have
a material adverse effect on HFS. Neither HFS nor any HFS
subsidiary knows of, or has received notice of, any violation
or default under (nor, to the knowledge of HFS, does there
exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or
default under) any HFS Material Contract.
SECTION 3.2. Representations and Warranties of CUC.
Except as disclosed in the CUC Filed SEC Documents (as defined
in Section 3.2(g)) or as set forth on the Disclosure Schedule
delivered by CUC to HFS prior to the execution of this
Agreement (the "CUC Disclosure Schedule") and making reference
to the particular subsection of this Agreement to which
exception is being taken, CUC represents and warrants to HFS as
follows:
(a) Organization, Standing and Corporate Power. (i)
Each of CUC and its subsidiaries is a corporation or other
legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such
concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as
the case may be, and authority to carry on its business as now
being conducted, except, as to subsidiaries, for those
jurisdictions where the failure to be so organized, existing or
in good standing individually or in the aggregate would not
have a material adverse effect on CUC. Each of CUC and its
subsidiaries is duly qualified or licensed to do business and
is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation
of its properties makes such qualification or licensing
necessary, except for those jurisdictions where the failure to
be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material
adverse effect on CUC.
(ii) CUC has delivered to HFS prior to the execution
of this Agreement complete and correct copies of its
certificate of incorporation and by-laws, as amended to date.
-26-
(iii) In all material respects, the minute books of
CUC contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the Board
of Directors and all committees of the Board of Directors of
CUC since January 1, 1995.
(b) Subsidiaries. Exhibit 21 to CUC's Annual Report
on Form 10-K for the fiscal year ended January 31, 1997
includes all the subsidiaries of CUC which as of the date of
this Agreement are Significant Subsidiaries. All the
outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are
owned directly or indirectly by CUC, free and clear of all
Liens and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock
of CUC consists of 600,000,000 shares of CUC Common Stock and
1,000,000 shares of preferred stock, par value $.01 per share,
of CUC ("CUC Preferred Stock"). At the close of business on
May 22, 1997: (i) 409,329,930 shares of CUC Common Stock were
issued and outstanding (including shares of restricted CUC
Common Stock); (ii) 6,168,405 shares of CUC Common Stock were
held by CUC in its treasury; (iii) no shares of CUC Preferred
Stock were issued and outstanding; (iv) 62,155,579 shares of
CUC Common Stock were reserved for issuance pursuant to the CUC
1990 Director Stock Option Plan, the CUC 1992 Directors Stock
Option Plan, the CUC 1994 Directors Stock Option Plan, the CUC
1992 Employee Stock Option Plan, the CUC 1992 Bonus and Salary
Replacement Stock Option Plan, the CUC 1987 Stock Option Plan,
the 1989 Restricted Stock Plan, the 1994 Employee Stock
Purchase Plan, the 1997 Stock Option Plan, certain CUC non-
plans options, the Sierra 1987 Stock Option Plan, the Sierra
1995 Stock Option Plan and Award Plan, the Knowledge Adventure,
Inc. 1993 Stock Option Plan (and related non-plan options), the
Papyrus Design Group, Inc. 1992 Stock Option Plan and the
Entertainment Publications, Inc. 1988 Nonqualified Stock Option
Plan, complete and correct copies of which have been delivered
to HFS (such plans, collectively, the "CUC Stock Plans"); and
(v) 21,705,925 shares of CUC Common Stock were reserved for
issuance upon conversion
-27-
of the 6-1/2% Convertible Subordinated Notes due 2001 of Sierra
On-Line, Inc. and the CUC 3% Convertible Subordinated Notes due
February 15, 2002 (including all of the foregoing in this
clause (v) and all convertible securities listed in Section
3.2(c) of the CUC Disclosure Schedule, the "CUC Convertible
Securities"). Section 3.2(c) of the CUC Disclosure Schedule
sets forth a complete and correct list, as of May 22, 1997, of
the number of shares of CUC Common Stock subject to employee
stock options or other rights to purchase or receive CUC Common
Stock granted under the CUC Stock Plans (collectively, "CUC
Employee Stock Options"), the dates of grant and exercise
prices thereof. All outstanding shares of capital stock of CUC
are, and all shares which may be issued pursuant to this
Agreement or otherwise will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in this Section 3.2(c)
and except for changes since May 22, 1997 resulting from the
issuance of shares of CUC Common Stock pursuant to the CUC
Employee Stock Options, the CUC Convertible Securities or as
permitted by Section 4.1(b)(i)(y) and 4.1(b)(ii), (x) there are
not issued, reserved for issuance or outstanding (A) any shares
of capital stock or other voting securities of CUC, (B) any
securities of CUC or any CUC subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or
voting securities of CUC, (C) any warrants, calls, options or
other rights to acquire from CUC or any CUC subsidiary, and any
obligation of CUC or any CUC subsidiary to issue, any capital
stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting
securities of CUC, and (y) there are no outstanding obligations
of CUC or any CUC subsidiary to repurchase, redeem or otherwise
acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities.
There are no outstanding (A) securities of CUC or any CUC
subsidiary convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities or ownership
interests in any CUC subsidiary, (B) warrants, calls, options
or other rights to acquire from CUC or any CUC subsidiary, and
any obligation of CUC or any CUC subsidiary to issue, any
capital stock, voting securities or other ownership interests
in, or any securities convertible into or exchangeable or
exercisable for any capital stock, voting securities or
ownership interests in, any CUC subsidiary or (C) obligations
of
-28-
CUC or any CUC subsidiary to repurchase, redeem or otherwise
acquire any such outstanding securities of CUC subsidiaries or
to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities. Neither CUC nor any CUC subsidiary
is a party to any agreement restricting the transfer of,
relating to the voting of, requiring registration of, or
granting any preemptive or, except as provided by the terms of
the CUC Employee Stock Options and the CUC Convertible
Securities, antidilutive rights with respect to, any securities
of the type referred to in the two preceding sentences. Other
than the CUC subsidiaries, CUC does not directly or indirectly
beneficially own any securities or other beneficial ownership
interests in any other entity except for non-controlling
investments made in the ordinary course of business in entities
which are not individually or in the aggregate material to CUC
and its subsidiaries as a whole.
(d) Authority; Noncontravention. CUC has all
requisite corporate power and authority to enter into this
Agreement and, subject to the CUC Stockholder Approval (as
defined in Section 3.2(l)), to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement by CUC and the consummation by CUC of the
transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of
CUC, subject, in the case of the Merger and the issuance of CUC
Common Stock in connection with the Merger, to the CUC
Stockholder Approval. This Agreement has been duly executed
and delivered by CUC and, assuming the due authorization,
execution and delivery by HFS, constitutes the legal, valid and
binding obligations of CUC, enforceable against CUC in
accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result
in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Lien
upon any of the properties or assets of CUC or any of its
subsidiaries under, (i) the certificate of incorporation or by-
laws of CUC or the comparable organizational documents of any
of its subsidiaries, (ii) any loan or credit agree-
-29-
ment, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license
or similar authorization applicable to CUC or any of its
subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to CUC
or any of its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not (x) have a
material adverse effect on CUC or (y) reasonably be expected to
impair the ability of CUC to perform its obligations under this
Agreement. No consent, approval, order or authorization of,
action by, or in respect of, or registration, declaration or
filing with, any Governmental Entity is required by or with
respect to CUC or any of its subsidiaries in connection with
the execution and delivery of this Agreement by CUC or the
consummation by CUC of the transactions contemplated by this
Agreement, except for (1) the filing of a pre-merger
notification and report form by CUC under the HSR Act; (2) the
filing with the SEC of (A) the Joint Proxy Statement relating
to the CUC Stockholders Meeting, (B) the Form S-4 and (C) such
reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement;
(3) the filing of the Certificate of Merger with the Secretary
of State of Delaware and appropriate documents with the
relevant authorities of other states in which CUC is qualified
to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or
"blue sky" laws; (4) such filings with and approvals of the
NYSE to permit the shares of CUC Common Stock that are to be
issued in the Merger and under the HFS Stock Plans to be listed
on the NYSE; and (5) such consents, approvals, orders or autho-
rizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a material
adverse effect on CUC or (y) reasonably be expected to impair
the ability of CUC to perform its obligations under this
Agreement.
(e) SEC Documents; Undisclosed Liabilities. CUC has
filed all required registration statements, prospectuses,
reports, schedules, forms, statements and
-30-
other documents (including exhibits and all other information
incorporated therein) with the SEC since December 31, 1994 (the
"CUC SEC Documents"). As of their respective dates, the CUC
SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such CUC SEC Documents,
and none of the CUC SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of CUC included in the CUC SEC Documents
comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with
GAAP (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position
of CUC and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and
except that, in the case of financial statements included
therein which were later restated to account for one or more
business combinations accounted for as poolings-of-interest,
such original financial statements do not reflect such
restatements). Except (i) as reflected in such financial
statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the transactions
contemplated hereby, neither CUC nor any of its subsidiaries
has any liabilities or obligations of any nature which,
individually or in the aggregate, would have a material adverse
effect on CUC.
(f) Information Supplied. None of the information
supplied or to be supplied by CUC specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the
-31-
statements therein not misleading or (ii) the Joint Proxy
Statement will, at the date it is first mailed to CUC's
stockholders or at the time of the CUC Stockholders Meeting,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
The Form S-4 and the Joint Proxy Statement will comply as to
form in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and
regulations thereunder, except that no representation or
warranty is made by CUC with respect to statements made or
incorporated by reference therein based on information supplied
by HFS specifically for inclusion or incorporation by reference
in the Form S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, and except as permitted by
Section 4.1(b), since January 31, 1997, CUC and its
subsidiaries have conducted their business only in the ordinary
course or as disclosed in any CUC SEC Document filed since such
date and prior to the date hereof, and there has not been (i)
any material adverse change in CUC, (ii) any declaration,
setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of
CUC's capital stock, (iii) any split, combination or reclassi-
fication of any of CUC's capital stock or any issuance or the
authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of CUC's
capital stock, except for issuances of CUC Common Stock upon
conversion or redemption of CUC Convertible Securities or the
exercise of CUC Employee Stock Options, in each case, awarded
prior to the date hereof in accordance with their present terms
or issued pursuant to Section 4.1(b), (iv)(A) any granting by
CUC or any of its subsidiaries to any current or former
director, executive officer or other key employee of CUC or its
subsidiaries of any increase in compensation, bonus or other
benefits, except for normal increases as a result of
promotions, normal increases of base pay in the ordinary course
of business or as was required under any employment agreements
in effect as of January 31, 1997, (B) any granting by CUC or
any of its subsidiaries to any such current or former director,
executive officer or key
-32-
employee of any increase in severance or termination pay, or
(C) any entry by CUC or any of its subsidiaries into, or any
amendment of, any employment, deferred compensation consulting,
severance, termination or indemnification agreement with any
such current or former director, executive officer or key
employee, (v) except insofar as may have been disclosed in CUC
SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date hereof, the "CUC Filed
SEC Documents") or required by a change in GAAP, any change in
accounting methods, principles or practices by CUC materially
affecting its assets, liabilities or business, (vi) except
insofar as may have been disclosed in the CUC Filed SEC
Documents, any tax election that individually or in the
aggregate would have a material adverse effect on CUC or any of
its tax attributes or any settlement or compromise of any
material income tax liability or (vii) any action taken by CUC
or any of the CUC subsidiaries during the period from January
31, 1997 through the date of this Agreement that, if taken
during the period from the date of this Agreement through the
Effective Time would constitute a breach of Section 4.1(b).
(h) Compliance with Applicable Laws; Litigation.
(i) CUC, its subsidiaries and employees hold all permits,
licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for
the operation of the businesses of CUC and its subsidiaries
(the "CUC Permits") except where the failure to have any such
CUC Permits individually or in the aggregate would not have a
material adverse effect on CUC. CUC and its subsidiaries are in
compliance with the terms of the CUC Permits and all applicable
statutes, laws, ordinances, rules and regulations, except where
the failure so to comply individually or in the aggregate would
not have a material adverse effect on CUC. As of the date of
this Agreement, except as disclosed in the CUC Filed SEC Docu-
ments, no action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any
person, in each case with respect to CUC or any of its
subsidiaries or any of their respective properties, is pending
or, to the knowledge of CUC, threatened, other than, in each
case, those the outcome of which individually or in the
aggregate would not (A) have a material adverse
-33-
effect on CUC or (B) reasonably be expected to impair the
ability of CUC to perform its obligations under this Agreement
or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(ii) Neither CUC nor any CUC subsidiary is subject
to any outstanding order, injunction or decree which has had
or, insofar as can be reasonably foreseen, individually or in
the aggregate will have a material adverse effect on CUC.
(i) Absence of Changes in Benefit Plans. CUC has
delivered to HFS true and complete copies of (i) all severance
and employment agreements of CUC with directors, executive
officers or key employees, (ii) all severance programs and
policies of each of CUC and each CUC subsidiary, and (iii) all
plans or arrangements of CUC and each CUC subsidiary relating
to its employees which contain change in control provisions.
Since January 31, 1997, there has not been any adoption or
amendment in any material respect by CUC or any of its subsid-
iaries of any collective bargaining agreement or any material
bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding providing benefits to any
current or former employee, officer or director of CUC or any
of its wholly owned subsidiaries (collectively, the "CUC
Benefit Plans"), or any material change in any actuarial or
other assumption used to calculate funding obligations with
respect to any CUC pension plans, or any material change in the
manner in which contributions to any CUC pension plans are made
or the basis on which such contributions are determined. Since
January 1, 1996, none of CUC nor any CUC subsidiary has amended
any CUC Employee Stock Options or any CUC Stock Plans to
accelerate the vesting of, or release restrictions on, awards
thereunder, or to provide for such acceleration in the event of
a change in control.
(j) ERISA Compliance. (i) With respect to the CUC
Benefit Plans, no event has occurred and, to the knowledge of
CUC, there exists no condition or set of circumstances, in
connection with which CUC
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or any of its subsidiaries could be subject to any liability
that individually or in the aggregate would have a material
adverse affect on CUC under ERISA, the Code or any other
applicable law.
(ii) Each CUC Benefit Plan has been administered in
accordance with its terms, except for any failures so to
administer any CUC Benefit Plan that individually or in the
aggregate would not have a material adverse effect on CUC.
CUC, its subsidiaries and all the CUC Benefit Plans have been
operated, and are, in compliance with the applicable provisions
of ERISA, the Code and all other applicable laws and the terms
of all applicable collective bargaining agreements, except for
any failures to be in such compliance that individually or in
the aggregate would not have a material adverse effect on CUC.
Each CUC Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and
each trust established in connection with any CUC Benefit Plan
that is intended to be exempt from federal income taxation
under Section 501(a) of the Code has received a determination
letter from the IRS that such trust is so exempt. To the
knowledge of CUC, no fact or event has occurred since the date
of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such CUC
Benefit Plan or the exempt status of any such trust.
(iii) Neither CUC nor any of its subsidiaries has
incurred any unsatisfied liability under Title IV of ERISA
(other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No CUC
Benefit Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of
the Code) whether or not waived. To the knowledge of CUC,
there are not any facts or circumstances that would materially
change the funded status of any CUC Benefit Plan that is a
"defined benefit" plan (as defined in Section 3(35) of ERISA)
since the date of the most recent actuarial report for such
plan. No CUC Benefit Plan is a
-35-
"multiemployer plan" within the meaning of Section 3(37) of
ERISA.
(iv) No CUC Benefit Plan is subject to Title IV of
ERISA.
(v) No CUC Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former
employees after retirement or other termination of service
(other than coverage mandated by applicable law or benefits,
the full cost of which is borne by the current or former
employee) other than individual arrangements the amounts of
which are not material.
(vi) As of the date of this Agreement, neither CUC
nor any of its subsidiaries is a party to any collective
bargaining or other labor union contract applicable to persons
employed by CUC or any of its subsidiaries and no collective
bargaining agreement is being negotiated by CUC or any of its
subsidiaries. As of the date of this Agreement, there is no
labor dispute, strike or work stoppage against CUC or any of
its subsidiaries pending or, to the knowledge of CUC,
threatened which may interfere with the respective business
activities of CUC or any of its subsidiaries, except where such
dispute, strike or work stoppage individually or in the
aggregate would not have a material adverse effect on CUC. As
of the date of this Agreement, to the knowledge of CUC, none of
CUC, any of its subsidiaries or any of their respective
representatives or employees has committed any material unfair
labor practice in connection with the operation of the
respective businesses of CUC or any of its subsidiaries, and
there is no material charge or complaint against CUC or any of
its subsidiaries by the National Labor Relations Board or any
comparable governmental agency pending or threatened in writ-
ing.
(vii) No employee of CUC will be entitled to any
material payment, additional benefits or any acceleration of
the time of payment or vesting of any benefits under any CUC
Benefit Plan as a result of the transactions contemplated by
this Agreement (either alone or in conjunction with any
-36-
other event such as a termination of employment), except that
CUC Employee Stock Options and shares of restricted stock under
the 1992 Bonus and Salary Replacement Stock Option Plan, the
1989 Restricted Stock Plan, the 1994 Directors Stock Option
Plan, the Sierra 1995 Stock Option Plan, the Papyrus Design
Group, Inc. 1992 Stock Option Plan and the Knowledge Adventure,
Inc. 1993 Stock Option Plan will vest as of the Effective Time
as a result of the Merger.
(k) Taxes. (i) Each of CUC and its subsidiaries
has filed all material tax returns and reports required to be
filed by it and all such returns and reports are complete and
correct in all material respects, or requests for extensions to
file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures
to file, to be complete or correct or to have extensions
granted that remain in effect individually or in the aggregate
would not have a material adverse effect on CUC. CUC and each
of its subsidiaries has paid (or CUC has paid on its behalf)
all taxes shown as due on such returns, and the most recent
financial statements contained in the CUC Filed SEC Documents
reflect an adequate reserve in accordance with GAAP for all
taxes payable by CUC and its subsidiaries for all taxable
periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against CUC or any of its
subsidiaries that are not adequately reserved for, except for
deficiencies that individually or in the aggregate would not
have a material adverse effect on CUC. The federal income tax
returns of CUC and each of its subsidiaries consolidated in
such returns for tax years through 1989 have closed by virtue
of the applicable statute of limitations.
(iii) Neither CUC nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger
from qualifying
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as a reorganization within the meaning of Section 368(a) of the
Code.
(l) Voting Requirements. The affirmative vote at
the CUC Stockholders Meeting (the "CUC Stockholder Approval")
of (i) the holders of a majority of all outstanding shares of
CUC Common Stock is the only vote of the holders of any class
or series of CUC's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby,
including the Merger, the issuance of the CUC Common Stock
pursuant to the Merger and the Certificate Amendment, and (ii)
the holders of a majority of all shares of CUC Common Stock
casting votes is the only vote of the holders of any class or
series of CUC's capital stock necessary to approve (A) in
accordance with the applicable rules of the NYSE, the,issuance
of CUC Common Stock pursuant to the Merger, and (B) the New CUC
Stock Plan.
(m) State Takeover Statutes; Certificate of
Incorporation. The Board of Directors of CUC (including the
Disinterested Directors thereof (as defined in Article 10 of
CUC's Certificate of Incorporation)) has unanimously approved
this Agreement, the transactions contemplated hereby, the
assumption of the Adjusted Options, the issuance of the options
to purchase shares of CUC Common Stock granted pursuant to
Section 5.17 and the issuance of the shares of CUC Common Stock
upon exercise of such Adjusted Options and other options and,
assuming the accuracy of HFS's representation and warranty con-
tained in Section 3.1(q), such approval constitutes approval of
the Merger and the other transactions contemplated hereby by
the CUC Board of Directors under the provisions of Section 203
of the DGCL and constitutes approval of the Merger, the other
transactions contemplated hereby, the assumption of the
Adjusted Options, the issuance of the options to purchase
shares of CUC Common Stock granted pursuant to Section 5.17 and
the issuance of the shares of CUC Common Stock upon exercise of
the Adjusted Options and other options under the provisions of
CUC's Certificate of Incorporation such that Section 203 and
the provision of Section 10 of CUC's Certificate of
Incorporation do not apply to this Agreement, the transactions
contemplated hereby, the assumption of the Adjusted Options,
the issuance of the options to purchase shares of CUC Common
Stock granted pursuant to Section 5.17 and the issuance of the
shares of CUC
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Common Stock upon exercise of the Adjusted Options and other
options. To the knowledge of CUC, no state takeover statute
other than Section 203 of the DGCL (which has been rendered
inapplicable) is applicable to the Merger or the other
transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither
CUC nor any of its affiliates (as such term is used in Section
5.11) has taken or agreed to take any action that would prevent
the business combination to be effected by the Merger from
being accounted for as a pooling of interests and CUC has no
reason to believe that the Merger will not qualify for "pooling
of interest" accounting.
(o) Brokers. No broker, investment banker,
financial advisor or other person, other than Goldman, Sachs &
Co. ("Goldman Sachs"), the fees and expenses of which will be
paid by CUC, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CUC. CUC has furnished to
HFS true and complete copies of all agreements under which any
such fees or expenses are payable and all indemnification and
other agreements related to the engagement of the persons to
whom such fees are payable.
(p) Opinion of Financial Advisor. CUC has received
the opinion of Goldman Sachs, dated the date of this Agreement,
to the effect that, as of such date, the Exchange Ratio for the
conversion of HFS Common Stock into CUC Common Stock is fair to
CUC, a signed copy of which opinion has been delivered to HFS,
it being understood and agreed by HFS that such opinion is for
the benefit of the Board of Directors of CUC and may not be
relied upon by HFS, its affiliates or any of their respective
stockholders.
(q) Ownership of HFS Common Stock. As of the date
hereof, neither CUC nor, to its knowledge without independent
investigation, any of its affiliates, (i) beneficially owns (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of HFS.
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(r) Intellectual Property. CUC and its subsidiaries
own or have a valid license to use all trademarks, service
marks, trade names, patents and copyrights (including any
registrations or applications for registration of any of the
foregoing) (collectively, the "CUC Intellectual Property")
necessary to carry on its business substantially as currently
conducted, except for such CUC Intellectual Property the
failure of which to own or validly license individually or in
the aggregate would not have a material adverse effect on CUC.
Neither CUC nor any such subsidiary has received any notice of
infringement of or conflict with, and, to CUC's knowledge,
there are no infringements of or conflicts (i) with the rights
of others with respect to the use of, or (ii) by others with
respect to, any CUC Intellectual Property that individually or
in the aggregate, in either such case, would have a material
adverse effect on CUC.
(s) Certain Contracts. Except as set forth in the
CUC Filed SEC Documents, neither CUC nor any of its
subsidiaries is a party to or bound by (i) any "material
contract" (as such term is defined in item 601(b)(10) of
Regulation S-K of the SEC), (ii) any non-competition agreement
or any other agreement or obligation which purports to limit in
any material respect the manner in which, or the localities in
which, all or any material portion of the business of CUC and
its subsidiaries (including HFS and its subsidiaries, assuming
the Merger had taken place), taken as a whole, is or would be
conducted, or (iii) any contract or other agreement which would
prohibit or materially delay the consummation of the Merger or
any of the transactions contemplated by this Agreement (all
contracts of the type described in clauses (i) and (ii) being
referred to herein as "CUC Material Contracts"). Each CUC
Material Contract is valid and binding on CUC (or, to the
extent a CUC subsidiary is a party, such subsidiary) and is in
full force and effect, and CUC and each CUC subsidiary have in
all material respects performed all obligations required to be
performed by them to date under each CUC Material Contract,
except where such noncompliance, individually or in the aggre-
gate, would not have a material adverse effect on CUC. Neither
CUC nor any CUC subsidiary knows of, or has received notice of,
any violation or default under (nor, to the knowledge of CUC,
does there exist any condition which with the passage of time
or the giving of notice or
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both would result in such a violation or default under) any CUC
Material Contract.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business. (a) Conduct of
Business by HFS. Except as set forth in Section 4.1(a) of the
HFS Disclosure Schedule, as otherwise expressly contemplated by
this Agreement or as consented to by CUC in writing, such
consent not to be unreasonably withheld or delayed, during the
period from the date of this Agreement to the Effective Time,
HFS shall, and shall cause its subsidiaries to, carry on their
respective businesses in the ordinary course consistent with
past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable
efforts to keep available the services of their current
officers and other key employees and preserve their
relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting
the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement
to the Effective Time, HFS shall not, and shall not permit any
of its subsidiaries to:
(i) other than dividends and distributions by a
direct or indirect wholly owned subsidiary of HFS to its
parent, or by a subsidiary that is partially owned by HFS or
any of its subsidiaries, provided that HFS or any such
subsidiary receives or is to receive its proportionate share
thereof, (x) declare, set aside or pay any dividends on, make
any other distributions in respect of, or enter into any
agreement with respect to the voting of, any of its capital
stock, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of HFS Common
Stock upon conversion of HFS Convertible
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Securities or upon the exercise of HFS Employee Stock Options,
in each case, outstanding as of the date hereof in accordance
with their present terms, including cashless exercise, or
issued pursuant to Section 4.1(a)(ii) or (z) purchase, redeem
or otherwise acquire any shares of capital stock of HFS or any
of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other
securities (except, in the case of clause (z), for (A) the
repurchase of up to 30,000 shares of HFS Common Stock as long
as such repurchases are made after consultation with CUC and in
compliance with Section 5.15 and (B) the deemed acceptance of
shares upon cashless exercise of HFS Employee Stock Options, or
in connection with withholding obligations relating thereto);
(ii) issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any shares of its capital
stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities (other than (x) the issuance of HFS capital stock or
warrants to purchase HFS capital stock in connection with any
acquisition permitted by Section 4.1(a)(iv) and in compliance
with Section 5.15, (y) the issuance of HFS Common Stock upon
conversion of HFS Convertible Securities in accordance with
their present terms at the option of the holders thereof, and
(z) the issuance of HFS Common Stock upon the exercise of HFS
Employee Stock Options, in each case, outstanding as of the
date hereof in accordance with their present terms or the
issuance of HFS Employee Stock Options (and shares of HFS
Common Stock upon the exercise thereof) granted after the date
hereof in the ordinary course of business consistent with past
practice (1) for new employees (so long as such additional
amount of HFS Common Stock subject to HFS Employee Stock
Options issued to new employees does not exceed 416,130 shares
of HFS Common Stock in the aggregate) or (2) in connection with
employee promotions;
(iii) amend its certificate of incorporation, by-
laws or other comparable organizational documents;
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(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
person, except for acquisitions within the scope of or related
to HFS's or CUC's existing businesses in which the aggregate
consideration is less than $1.5 billion in any single
acquisition or series of related acquisitions and less than
$2.0 billion in the aggregate for all such acquisitions, in
each case which would not materially delay or impair the
ability of HFS to perform its obligations under this Agreement
and which is reasonably expected to be accretive to HFS's
earnings within 12 months following consummation (for purposes
of this Section 4.1(a)(iv), "aggregate consideration" shall
equal the sum of (A)(1) the amount of cash paid, and (2) the
value of any shares of HFS Common Stock (valued at the closing
price of the HFS Common Stock on the NYSE on the day prior to
announcement of such acquisition) delivered, and (3) the fair
market value of any non-cash or non-HFS Common Stock
consideration (as determined by the HFS Board of Directors in
good faith as of the day prior to announcement of such
acquisition) delivered to the seller or its security holders in
connection with such acquisition, and (B) the amount of
liabilities directly or indirectly assumed by HFS or its
subsidiaries or retired or defeased in connection with such
acquisition, including contingent liabilities to the extent
they can be estimated by the HFS Board of Directors in good
faith as of the day prior to the announcement of such
acquisition);
(v) subject to compliance with Section 5.15, sell,
lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or
assets (including securitizations), other than (A) in the
ordinary course of business consistent with past practice or
(B) up to $50 million of such assets, in the aggregate;
(vi) take any action that would cause the
representations and warranties set forth in Section 3.1(g)
(with each reference therein to "ordinary course of business"
being deemed for purposes of this Section 4.1(a)(vi) to be
immediate-
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ly followed by "consistent with past practice") to no longer be
true and correct;
(vii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for the
obligations of any person for borrowed money, except for
indebtedness which does not cause a change in the ratings of
HFS's rated debt securities by Standard & Poor's Ratings
Services and by Moody's Investor Service, Inc. from those in
effect as of the date hereof; or
(viii) authorize, or commit or agree to take, any of
the foregoing actions;
provided that the limitations set forth in this Section 4.1(a)
(other than clause (iii)) shall not apply to any transaction
between HFS and any wholly owned subsidiary or between any
wholly owned subsidiaries of HFS.
(b) Conduct of Business by CUC. Except as set forth
in Section 4.1(b) of the CUC Disclosure Schedule, as otherwise
expressly contemplated by this Agreement or as consented to by
HFS in writing, such consent not to be unreasonably withheld or
delayed, during the period from the date of this Agreement to
the Effective Time, CUC shall, and shall cause its subsidiaries
to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material
respects with all applicable laws and regulations and, to the
extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, use
reasonable efforts to keep available the services of their
current officers and other key employees and preserve their
relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting
the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement
to the Effective Time, CUC shall not, and shall not permit any
of its subsidiaries to:
(i) other than dividends and distributions by a
direct or indirect wholly owned subsidiary of CUC to its
parent, or by a subsidiary that
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is partially owned by CUC or any of its subsidiaries, provided
that CUC or any such subsidiary receives or is to receive its
proportionate share thereof, (x) declare, set aside or pay any
dividends on, make any other distributions in respect of, or
enter into any agreement with respect to the voting of, any of
its capital stock, (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of CUC Common
Stock upon conversion or redemption of CUC Convertible
Securities or upon the exercise of CUC Employee Stock Options,
in each case, outstanding as of the date hereof in accordance
with their present terms, including cashless exercise, or
issued pursuant to Section 4.1(b)(ii) or (z) purchase, redeem
or otherwise acquire any shares of capital stock of CUC or any
of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other
securities (except, in the case of clause (z), for (A) the
repurchase of up to 30,000 shares of CUC Common Stock as long
as such repurchases are made after consultation with HFS and in
compliance with Section 5.15 and (B) the deemed acceptance of
shares upon cashless exercise of CUC Employee Stock Options, or
in connection with withholding obligations relating thereto);
(ii) issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien any shares of its capital
stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities (other than (x) the issuance of CUC capital stock or
warrants to acquire CUC capital stock in connection with any
acquisition permitted by Section 4.1(b)(iv) and in compliance
with Section 5.15, (y) the issuance of CUC Common Stock upon
conversion or redemption of CUC Convertible Securities in
accordance with their present terms at the option of the hold-
ers thereof, and (z) the issuance of CUC Common Stock upon the
exercise of CUC Employee Stock Options, in each case,
outstanding as of the date hereof in accordance with their
present terms or the issuance of CUC Employee Stock Options
(and shares
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of CUC Common Stock upon the exercise thereof) granted after
the date hereof in the ordinary course of business consistent
with past practice (1) for new employees (so long as such
additional amount of CUC Common Stock subject to CUC Employee
Stock Options issued to new employees does not exceed 1,000,000
shares of CUC Common Stock in the aggregate) or (2) in
connection with employee promotions;
(iii) except as contemplated hereby, amend its
certificate of incorporation, by-laws or other comparable
organizational documents;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
person, except for acquisitions within the scope of or related
to CUC's or HFS's existing businesses in which the aggregate
consideration is less than $1.5 billion in any single
acquisition or series of related acquisitions and less than
$2.0 billion in the aggregate for all such acquisitions, in
each case which would not materially delay or impair the
ability of CUC to perform its obligations under this Agreement
and which is reasonably expected to be accretive to CUC's
earnings within 12 months following consummation (for purposes
of this Section 4.1(b)(iv), "aggregate consideration" shall
equal the sum of (A)(1) the amount of cash paid, and (2) the
value of any shares of CUC Common Stock (valued at the closing
price of the CUC Common Stock on the NYSE on the day prior to
announcement of such acquisition) delivered, and (3) the fair
market value of any non-cash or non-CUC Common Stock
consideration (as determined by the CUC Board of Directors in
good faith as of the day prior to announcement of such
acquisition) delivered to the seller or its security holders in
connection with such acquisition, and (B) the amount of
liabilities directly or indirectly assumed by CUC or its
subsidiaries or retired or defeased in connection with such
acquisition, including contingent liabilities to the extent
they can be estimated by the CUC Board of Directors in good
faith as of the day prior to the announcement of such
acquisition);
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(v) subject to compliance with Section 5.15, sell,
lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or
assets (including securitizations), other than (A) in the
ordinary course of business consistent with past practice (B)
up to $50 million of such assets, in the aggregate;
(vi) take any action that would cause the
representations and warranties set forth in Section 3.2(g)
(with each reference therein to ordinary course of business,
being deemed for purposes of this Section 4.1(b)(vi) to be
immediately followed by "consistent with past practice") to no
longer be true and correct;
(vii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for the
obligations of any person for borrowed money, except for
indebtedness which does not cause a change in the ratings of
CUC's rated debt securities by Standard & Poor's Ratings
Services and by Moody's Investor Service, Inc. from those in
effect as of the date hereof; or
(viii) authorize, or commit or agree to take, any of
the foregoing actions;
provided that the limitations set forth in this Section 4.1(b)
(other than clause (iii)) shall not apply to any transaction
between CUC and any wholly owned subsidiary or between any
wholly owned subsidiaries of CUC.
(c) Other Actions. Except as required by law, HFS
and CUC shall not, and shall not permit any of their respective
subsidiaries to, voluntarily take any action that would, or
that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue
at the Effective Time, except as provided in the proviso in
Section 6.2(a) or Section 6.3(a), (ii) any of such
representations and warranties that are not so qualified
becoming untrue in any material respect at the Effective Time,
except as provided in the proviso in Section 6.2(a) or Section
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6.3(a), or (iii) any of the conditions to the Merger set forth
in Article VI not being satisfied.
(d) Advice of Changes. HFS and CUC shall promptly
advise the other party orally and in writing to the extent it
has knowledge of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming
untrue or inaccurate in any material respect, (ii) the failure
by it to comply in any material respect with or satisfy in any
material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement and (iii)
any change or event having, or which, insofar as can reasonably
be foreseen, could reasonably be expected to have a material
adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the
conditions set forth in Article VI to be satisfied; provided,
however, that no such notification shall affect the
representations, warranties, covenants or agreements of the
parties (or remedies with respect thereto) or the conditions to
the obligations of the parties under this Agreement.
SECTION 4.2 No Solicitation by HFS. (a) HFS shall
not, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or
any of its subsidiaries to, directly or indirectly through
another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any
proposal which constitutes any HFS Takeover Proposal (as
defined below) or (ii) participate in any discussions or
negotiations regarding any HFS Takeover Proposal; provided,
however, that if the Board of Directors of HFS determines in
good faith, based on the advice of outside counsel, that it is
necessary to do so in order to act in a manner consistent with
its fiduciary duties to HFS's stockholders under applicable
law, HFS may, in response to an HFS Superior Proposal (as
defined in Section 4.2(b)) which was not solicited by it, which
did not otherwise result from a breach of this Section 4.2(a)
and which is made or received prior to the obtaining of the HFS
Stockholder
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Approval, and subject to providing prior written notice of its
decision to take such action to CUC and compliance with Section
4.2(c), (x) furnish information with respect to HFS and its
subsidiaries to any person making an HFS Superior Proposal
pursuant to a customary confidentiality agreement (as
determined by HFS based on the advice of its outside counsel,
the terms of which are no more favorable to such person than
the Confidentiality Agreement (as defined herein)) and (y)
participate in discussions or negotiations regarding such HFS
Superior Proposal. For purposes of this Agreement, "HFS
Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or
purchase of a business that constitutes 50% or more of the net
revenues, net income or the assets of HFS and its subsidiaries,
taken as a whole, or 25% or more of any class of equity
securities of HFS, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 25%
or more of any class of equity securities of HFS, or any
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving HFS
or the HFS Common Stock (or any HFS subsidiary whose business
constitutes 50% or more of the net revenues, net income or the
assets of HFS and its subsidiaries, taken as whole), other than
the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section
4.2, neither the Board of Directors of HFS nor any committee
thereof shall (i) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to CUC, the approval or
recommendation by such Board of Directors or such committee of
the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any HFS Takeover Pro-
posal, or (iii) cause HFS to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar
agreement (each, an "HFS Acquisition Agreement") related to any
HFS Takeover Proposal. Notwithstanding the foregoing, at any
time prior to the obtaining of the HFS Stockholder Approval,
the Board of Directors of HFS, to the extent that it determines
in good faith, based upon the advice of outside counsel, that
it is necessary to do so in order to act in a manner consistent
with its fiduciary duties to HFS's stockholders under
applicable law, may (subject to this and the fol-
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lowing sentences) terminate this Agreement solely in order to
concurrently enter into an HFS Acquisition Agreement with
respect to any HFS Superior Proposal, but only at a time that
is after the fifth business day following CUC's receipt of
written notice advising CUC that the Board of Directors of HFS
is prepared to accept an HFS Superior Proposal, specifying the
material terms and conditions of such HFS Superior Proposal and
identifying the person making such HFS Superior Proposal. For
purposes of this Agreement, an "HFS Superior Proposal" means
any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the
shares of HFS Common Stock then outstanding or all or
substantially all the assets of HFS and otherwise on terms
which the Board of Directors of HFS determines in its good
faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to HFS's
stockholders than the Merger and for which financing, to the
extent required, is then committed or which, in the good faith
judgment of the Board of Directors of HFS based on the advice
of its financial advisor, is reasonably capable of being
obtained by such third party.
(c) In addition to the obligations of HFS set forth
in paragraphs (a) and (b) of this Section 4.2, HFS shall
immediately advise CUC orally and in writing of any request for
information or of any HFS Takeover Proposal, the material terms
and conditions of such request or HFS Takeover Proposal and the
identity of the person making such request or HFS Takeover
Proposal. HFS will keep CUC reasonably informed of the status
and details (including amendments or proposed amendments) of
any such request or HFS Takeover Proposal.
(d) Nothing contained in this Section 4.2 shall
prohibit HFS from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to HFS's
stockholders if, in the good faith judgment of the Board of
Directors of HFS, after consultation with outside counsel,
failure so to disclose would be inconsistent with its
obligations under applicable
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law; provided, however, that neither HFS nor its Board of
Directors nor any committee thereof shall withdraw or modify,
or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, an HFS
Takeover Proposal.
SECTION 4.3. No Solicitation by CUC. (a) CUC shall
not, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or
any of its subsidiaries to, directly or indirectly through
another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any
proposal which constitutes any CUC Takeover Proposal (as
defined below) or (ii) participate in any discussions or
negotiations regarding any CUC Takeover Proposal; provided,
however, that if the Board of Directors of CUC determines in
good faith, based on the advice of outside counsel, that it is
necessary to do so in order to act in a manner consistent with
its fiduciary duties to CUC's stockholders under applicable
law, CUC may, in response to a CUC Superior Proposal (as
defined in Section 4.3(b)) which was not solicited by it, which
did not otherwise result from a breach of this Section 4.3(a)
and which is made or received prior to the obtaining of the CUC
Stockholder Approval, and subject to providing prior written
notice of its decision to take such action to HFS and
compliance with Section 4.3(c) (x) furnish information with
respect to CUC and its subsidiaries to any person making a CUC
Superior Proposal pursuant to a customary confidentiality
agreement (as determined by CUC based on the advice of its
outside counsel, the terms of which are no more favorable to
such person than the Confidentiality Agreement) and (y)
participate in discussions or negotiations regarding such CUC
Superior Proposal. For purposes of this Agreement, "CUC
Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or
purchase of a business that constitutes 50% or more of the net
revenues, net income or the assets of CUC and its subsidiaries,
taken as a whole, or 25% or more of any class of equity securi-
ties of CUC, any tender offer or exchange offer that if
consummated would result in any person beneficially
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owning 25% or more of any class of equity securities of CUC, or
any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving CUC or the CUC Common Stock (or any CUC
subsidiary whose business constitutes 50% or more of the net
revenues, net income or the assets of CUC and its subsidiaries,
taken as a whole), other than the transactions contemplated by
this Agreement.
(b) Except as expressly permitted by this Section
4.3, neither the Board of Directors of CUC nor any committee
thereof shall (i) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to HFS, the approval or
recommendation by such Board of Directors or such committee of
the Merger, this Agreement or the issuance of CUC Common Stock
in connection with the Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any CUC Takeover
Proposal, or (iii) cause CUC to enter into any letter of
intent, agreement in principle, acquisition agreement or other
similar agreement (each, a "CUC Acquisition Agreement") related
to any CUC Takeover Proposal. Notwithstanding the foregoing, at
any time prior to the obtaining of the CUC Stockholder
Approval, the Board of Directors of CUC, to the extent that it
determines in good faith, based upon the advice of outside
counsel, that it is necessary to do so in order to act in a
manner consistent with its fiduciary duties to CUC's stockhold-
ers under applicable law, may (subject to this and the
following sentences) terminate this Agreement solely in order
to concurrently enter into any CUC Acquisition Agreement with
respect to any CUC Superior Proposal, but only at a time that
is after the fifth business day following HFS's receipt of
written notice advising HFS that the Board of Directors of CUC
is prepared to accept a CUC Superior Proposal, specifying the
material terms and conditions of such CUC Superior Proposal and
identifying the person making such CUC Superior Proposal. For
purposes of this Agreement, a "CUC Superior Proposal" means any
proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the
shares of CUC Common Stock then outstanding or all or
substantially all the assets of CUC
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and otherwise on terms which the Board of Directors of CUC
determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be
more favorable to CUC's stockholders than the Merger and for
which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of
CUC based on the advice of its financial advisor, is reasonably
capable of being obtained by such third party.
(c) In addition to the obligations of CUC set forth
in paragraphs (a) and (b) of this Section 4.3, CUC shall
immediately advise HFS orally and in writing of any request for
information or of any CUC Takeover Proposal, the material terms
and conditions of such request or CUC Takeover Proposal and the
identity of the person making such request or CUC Takeover
Proposal. CUC will keep HFS reasonably informed of the status
and details (including amendments or proposed amendments) of
any such request or CUC Takeover Proposal.
(d) Nothing contained in this Section 4.3 shall
prohibit CUC from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to CUC's
stockholders if, in the good faith judgment of the Board of
Directors of CUC, after consultation with outside counsel,
failure so to disclose would be inconsistent with its
obligations under applicable law; provided, however, that
neither CUC nor its Board of Directors nor any committee
thereof shall withdraw or modify, or propose publicly to
withdraw or modify, its position with respect to this
Agreement, the Merger, the issuance of CUC Common Stock in
connection with the Merger, or approve or recommend, or propose
publicly to approve or recommend, a CUC Takeover Proposal.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the
Joint Proxy Statement; Stockholders Meetings. (a) As soon as
practicable following the date of this Agreement, HFS and CUC
shall prepare and file with the SEC the Joint Proxy Statement
and CUC shall prepare and file with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a
prospectus. Each of HFS and CUC shall use best efforts to have
the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. HFS will use all
best efforts to cause the Joint Proxy Statement to be mailed to
HFS's stockholders, and CUC will use all best efforts to cause
the Joint Proxy Statement to be mailed to CUC's stockholders,
in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. CUC shall also
take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a
general consent to service of process) required to be taken
under any applicable state securities laws in connection with
the issuance of CUC Common Stock in the Merger and the approval
of the Certificate Amendment and HFS shall furnish all informa-
tion concerning HFS and the holders of HFS Common Stock as may
be reasonably requested in connection with any such action. No
filing of, or amendment or supplement to, the Form S-4 or the
Joint Proxy Statement will be made by CUC without providing HFS
the opportunity to review and comment thereon. CUC will advise
HFS, promptly after it receives notice thereof, of the time
when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the CUC Common Stock
issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of
the Joint Proxy Statement or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any
information relating to HFS or CUC, or any of their respective
affiliates, officers or directors, should be discovered by HFS
or CUC which should be set forth in an amendment or supplement
to any of the Form S-4 or the Joint Proxy Statement, so that
any of such documents would not include any misstatement of a
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material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which
discovers such information shall promptly notify the other
parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the
SEC and, to the extent required by law, disseminated to the
stockholders of HFS and CUC.
(b) HFS shall, as promptly as practicable after the
Form S-4 is declared effective under the Securities Act, duly
call, give notice of, convene and hold a meeting of its
stockholders (the "HFS Stockholders Meeting") in accordance
with the DGCL for the purpose of obtaining the HFS Stockholder
Approval and, subject to its rights to terminate this Agreement
pursuant to Section 4.2(b), shall, through its Board of
Directors, recommend to its stockholders the approval and
adoption of this Agreement, the Merger, the New CUC Stock Plan
and the other transactions contemplated hereby. Without
limiting the generality of the foregoing but subject to its
rights to terminate this Agreement pursuant to Section 4.2(b),
HFS agrees that its obligations pursuant to the first sentence
of this Section 5.1(b) shall not be affected by the
commencement, public proposal, public disclosure or
communication to HFS of any HFS Takeover Proposal.
(c) CUC shall, as promptly as practicable after the
Form S-4 is declared effective under the Securities Act, duly
call, give notice of, convene and hold a meeting of its
stockholders (the "CUC Stockholders Meeting") in accordance
with the DGCL for the purpose of obtaining the CUC Stockholder
Approval and, subject to its rights to terminate this Agreement
pursuant to Section 4.3(b), shall, through its Board of
Directors, recommend to its stockholders the approval and
adoption of this Agreement, the Merger, the Certificate
Amendment, the New CUC Stock Plan and the other transactions
contemplated hereby. Without limiting the generality of the
foregoing but subject to its rights to terminate this Agreement
pursuant to Section 4.3(b), CUC agrees that its obligations
pursuant to the first sentence of this Section 5.1(c) shall not
be affected by the commencement, public proposal, public
disclosure or communication to CUC of any CUC Takeover
Proposal.
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(d) CUC and HFS will use best efforts to hold the
HFS Stockholders Meeting and the CUC Stockholders Meeting on
the same date and as soon as reasonably practicable after the
date hereof.
SECTION 5.2. Letters of HFS's Accountants. (a) HFS
shall use best efforts to cause to be delivered to CUC two
letters from HFS's independent accountants, one dated a date
within two business days before the date on which the Form S-4
shall become effective and one dated a date within two business
days before the Closing Date, each addressed to CUC, in form
and substance reasonably satisfactory to CUC and customary in
scope and substance for comfort letters delivered by
independent public accountants in connection with registration
statements similar to the Form S-4.
(b) HFS shall use best efforts to cause to be
delivered to CUC and CUC's accountants a letter from HFS's
independent accountants addressed to CUC and HFS, dated as of
the date the Form S-4 is declared effective and as of the
Closing Date, stating that accounting for the Merger as a
pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated as
contemplated by this Agreement.
SECTION 5.3. Letters of CUC's Accountants. (a) CUC
shall use best efforts to cause to be delivered to HFS two
letters from CUC's independent accountants, one dated a date
within two business days before the date on which the Form S-4
shall become effective and one dated a date within two business
days before the Closing Date, each addressed to HFS, in form
and substance reasonably satisfactory to HFS and customary in
scope and substance for comfort letters delivered by
independent public accountants in connection with registration
statements similar to the Form S-4.
(b) CUC shall use best efforts to cause to be
delivered to HFS and HFS's accountants a letter from CUC's
independent accountants, addressed to HFS and CUC, dated as of
the date the Form S-4 is declared effective and as of the
Closing Date, stating that accounting for the Merger as a
pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules
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and regulations is appropriate if the Merger is closed and
consummated as contemplated by this Agreement.
SECTION 5.4. Access to Information; Confidentiality.
Subject to the Confidentiality Agreement dated May 9, 1997,
between CUC and HFS (the "Confidentiality Agreement"), and
subject to restrictions contained in confidentiality agreements
to which such party is subject (which such party will use its
best efforts to have waived) and applicable law, each of HFS
and CUC shall, and shall cause each of its respective
subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period,
each of HFS and CUC shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party
(a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the
requirements of federal or state securities laws and (b) all
other information concerning its business, properties and
personnel as such other party may reasonably request. No
review pursuant to this Section 5.4 shall affect any
representation or warranty given by the other party hereto.
Each of HFS and CUC will hold, and will cause its respective
officers, employees, accountants, counsel, financial advisors
and other representatives and affiliates to hold, any nonpublic
information in accordance with the terms of the Confidentiality
Agreement.
SECTION 5.5. Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of
the parties agrees to use best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions
or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary
registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an
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action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from
third parties, (iii) the defending of any lawsuits or other
legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking
to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and
to fully carry out the purposes of, this Agreement. Nothing
set forth in this Section 5.5(a) will limit or affect actions
permitted to be taken pursuant to Sections 4.2 and 4.3.
(b) In connection with and without limiting the
foregoing, HFS and CUC shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this
Agreement, or any of the other transactions contemplated by
this Agreement and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Merger,
this Agreement, or any other transaction contemplated by this
Agreement, take all action necessary to ensure that the Merger
and the other transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the
effect of such statute or regulation on the Merger and the
other transactions contemplated by this Agreement.
SECTION 5.6. Stock Options. (a) As soon as
practicable following the date of this Agreement, the Board of
Directors of HFS (or, if appropriate, any committee
administering the HFS Stock Plans) shall adopt such resolutions
or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding HFS Employee
Stock Options granted under HFS Stock Plans, whether vested or
unvested, as necessary to provide that, at the Effective Time,
each HFS Employee Stock Option outstanding immediately prior to
the Effective Time shall be adjusted and thereafter represent
an option to acquire, on the same terms and conditions as were
applicable under such HFS
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Employee Stock Option, including vesting as such may be
accelerated at the Effective Time pursuant to the terms of such
HFS Employee Stock Options in effect as of the date hereof
(which include cashless exercise), the same number of shares of
CUC Common Stock as the holder of such HFS Employee Stock
Option would have been entitled to receive pursuant to the
Merger had such holder exercised such HFS Employee Stock Option
in full immediately prior to the Effective Time, with any
fractional shares of CUC Common Stock resulting from such
calculation being rounded to the nearest whole share, at a
price per share of CUC Common Stock equal to (A) the aggregate
exercise price for the shares of HFS Common Stock otherwise
purchasable pursuant to such HFS Employee Stock Option divided
by (B) the aggregate number of shares of CUC Common Stock
deemed purchasable pursuant to such HFS Employee Stock Option,
rounding the exercise price thus determined down to the nearest
whole cent (each, as so adjusted, an "Adjusted Option"); and
(ii) take such other actions relating to the HFS
Stock Plans as HFS and CUC may agree are appropriate to give
effect to the Merger, including as provided in Section 5.7.
(b) As soon as practicable after the Effective Time,
CUC shall deliver to the holders of HFS Employee Stock Options
appropriate notices setting forth such holders' rights pursuant
to the respective HFS Stock Plans and the agreements evidencing
the grants of such HFS Employee Stock Options and that such HFS
Employee Stock Options and agreements shall be assumed by CUC
and shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.6 after
giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such
Adjusted Option in whole or in part in accordance with its
terms by delivering a properly executed notice of exercise to
CUC, together with the consideration therefor and the federal
withholding tax information, if any, required in accordance
with the related HFS Stock Plan.
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(d) Except as otherwise contemplated by this Section
5.6 and except to the extent required under the respective
terms of the HFS Employee Stock Options in effect as of the
date hereof, all restrictions or limitations on transfer and
vesting with respect to HFS Employee Stock Options awarded
under the HFS Stock Plans or any other plan, program or
arrangement of HFS or any of its subsidiaries, to the extent
that such restrictions or limitations shall not have already
lapsed, shall remain in full force and effect with respect to
such options after giving effect to the Merger and the
assumption by CUC as set forth above.
SECTION 5.7. HFS Stock Plans and Certain Employee
Matters. (a) At the Effective Time, by virtue of the Merger,
the HFS Stock Plans shall be assumed by CUC, with the result
that all obligations of HFS under the HFS Stock Plans,
including with respect to awards outstanding at the Effective
Time under each HFS Stock Plan, shall be obligations of CUC
following the Effective Time. Prior to the Effective Time, CUC
shall take all necessary actions (including, if required to
comply with Section 162(m) or 422 of the Code (and the
regulations thereunder) or applicable law or rule of the NYSE,
obtaining the approval of its stockholders at the CUC
Stockholders Meeting) for the assumption of the HFS Stock
Plans, including the reservation, issuance and listing of CUC
Common Stock in a number at least equal to (x) the number of
shares of CUC Common Stock that will be subject to Adjusted
Options and (y) the product of the Exchange Ratio and the
number of shares of HFS Common Stock available for future
awards under the HFS Stock Plans immediately prior to the
Effective Time. No later than the Effective Time, CUC shall
prepare and file with the SEC a registration statement on Form
S-8 (or another appropriate form) registering a number of
shares of CUC Common Stock determined in accordance with the
preceding sentence and the unrestricted reoffer and resale of
such shares. Such registration statement shall be kept effec-
tive (and the current status of the prospectus or prospectuses
required thereby shall be maintained) at least for so long as
Adjusted Options remain outstanding and until such time as the
shares of CUC Common Stock subject to such Adjusted Options are
no longer subject to resale restrictions under the Securities
Act.
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(b) Following the Effective Time, CUC, as the
Surviving Corporation in the Merger, will honor all obligations
of HFS or its subsidiaries under employment agreements of HFS
or its subsidiaries as amended and/or restated as contemplated
in this Agreement.
SECTION 5.8. Indemnification, Exculpation and
Insurance. (a) CUC agrees to maintain in effect in accordance
with their terms all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or
former directors or officers of HFS and its subsidiaries as
provided in their respective certificates of incorporation or
by-laws (or comparable organizational documents) and any
indemnification agreements of HFS. In addition, from and after
the Effective Time, directors and officers of HFS who become
directors or officers of CUC will be entitled to the same
indemnity rights and protections as are afforded to other
directors and officers of CUC.
(b) In the event that CUC or any of its successors
or assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision
will be made so that the successors and assigns of CUC assume
the obligations set forth in this Section 5.8.
(c) For seven years after the Effective Time, CUC
shall provide to HFS's current directors and officers liability
insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who are currently
covered by HFS's directors' and officers' liability insurance
policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date
hereof, provided that in no event shall CUC be required to
expend more than 200% of the current amount expended by HFS to
maintain such coverage.
(d) The provisions of this Section 5.8 (i) are
intended to be for the benefit of, and will be enforceable by,
each indemnified party, his or her heirs and his or her
representatives and (ii) are in addition to, and
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not in substitution for, any other rights to indemnification or
contribution that any such person may have by contract or
otherwise.
SECTION 5.9. Fees and Expenses. (a) Except as
provided in this Section 5.9, all fees and expenses incurred in
connection with the Merger, this Agreement, and the
transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the
Merger is consummated, except that each of CUC and HFS shall
bear and pay one-half of the costs and expenses incurred in
connection with (1) the filing, printing and mailing of the
Form S-4 and the Joint Proxy Statement (including SEC filing
fees) and (2) the filings of the pre-merger notification and
report forms under the HSR Act (including filing fees).
(b) In the event that (i) an HFS Takeover Proposal
shall have been made known to HFS or any of its subsidiaries or
has been made directly to its stockholders generally or any
person shall have publicly announced an intention (whether or
not conditional) to make an HFS Takeover Proposal and
thereafter this Agreement is terminated by either CUC or HFS
pursuant to Section 7.1(b)(i) or (ii), or (ii) this Agreement
is terminated by HFS pursuant to Section 7.1(f), then HFS shall
promptly, but in no event later than two days after the date of
such termination, pay CUC a fee equal to $300 million (the
"Termination Fee"), payable by wire transfer of same day funds;
provided, however, that no Termination Fee shall be payable to
CUC pursuant to clause (i) of this paragraph (b) unless and
until within 18 months of such termination HFS or any of its
subsidiaries enters into any HFS Acquisition Agreement or any
transaction which would be an HFS Takeover Proposal is
consummated, in which event the Termination Fee shall be
payable upon the first to occur of such events. HFS
acknowledges that the agreements contained in this Section
5.9(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, CUC would
not enter into this Agreement; accordingly, if HFS fails
promptly to pay the amount due pursuant to this Section 5.9(b),
and, in order to obtain such payment, CUC commences a suit
which results in a judgment against HFS for the fee set forth
in this Section 5.9(b), HFS shall pay to CUC its costs and
expenses (including attorneys' fees and expenses) in connection
with such suit, together with
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interest on the amount of the fee at the prime rate of Citibank
N.A. in effect on the date such payment was required to be
made.
(c) In the event that (i) a CUC Takeover Proposal
shall have been made known to CUC or any of its subsidiaries or
has been made directly to its stockholders generally or any
person shall have publicly announced an intention (whether or
not conditional) to make a CUC Takeover Proposal and thereafter
this Agreement is terminated by either CUC or HFS pursuant to
Section 7.1(b)(i) or (iii), or (ii) this Agreement is
terminated by CUC pursuant to Section 7.1(d), then CUC shall
promptly, but in no event later than two days after the date of
such termination, pay HFS the Termination Fee, payable by wire
transfer of same day funds; provided, however, that no
Termination Fee shall be payable to HFS pursuant to clause (i)
of this paragraph (c) unless and until within 18 months of such
termination CUC or any of its subsidiaries enters into any CUC
Acquisition Agreement or any transaction which would be a CUC
Takeover Proposal is consummated, in which event the
Termination Fee shall be payable upon the first to occur of
such events. CUC acknowledges that the agreements contained in
this Section 5.9(c) are an integral part of the transactions
contemplated by this Agreement, and that, without these
agreements, HFS would not enter into this Agreement;
accordingly, if CUC fails promptly to pay the amount due
pursuant to this Section 5.9(c), and, in order to obtain such
payment, HFS commences a suit which results in a judgment
against CUC for the fee set forth in this Section 5.9(c), CUC
shall pay to HFS its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank
N.A. in effect on the date such payment was required to be
made.
SECTION 5.10. Public Announcements. CUC and HFS
will consult with each other before issuing, and provide each
other the opportunity to review, comment upon and concur with
and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public
statement prior to such consultation, except as either party
may determine is required by applicable law, court process or
by obli-
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gations pursuant to any listing agreement with any national
securities exchange. The parties agree that the initial press
release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
SECTION 5.11. Affiliates. (a) As soon as
practicable after the date hereof, HFS shall deliver to CUC a
letter identifying all persons who are, at the time this
Agreement is submitted for adoption by the stockholders of HFS,
"affiliates" of HFS for purposes of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and
regulations, and such list shall be updated as necessary to
reflect changes from the date hereof. HFS shall use best
efforts to cause each person identified on such list to deliver
to CUC not less than 30 days prior to the Effective Time, a
written agreement substantially in the form attached as Exhibit
C hereto. CUC shall use best efforts to cause all persons who
are "affiliates" of CUC for purposes of qualifying the Merger
for pooling of interests accounting treatment under Opinion 16
of the Accounting Principles Board and applicable SEC rules and
regulations to deliver to HFS not less than 30 days prior to
the Effective Time, a written agreement substantially in the
form of the fourth paragraph of Exhibit C hereto.
(b) CUC shall publish no later than 45 days after
the end of the first month after the Effective Time in which
there are at least 30 days of post Merger combined operations
(which month may be the month in which the Effective Time
occurs), combined sales and net income figures as contemplated
by and in accordance with the terms of SEC Accounting Series
Release No. 135.
SECTION 5.12. NYSE Listing. CUC shall use best
efforts to cause the CUC Common Stock issuable under Article
II, upon exercise of Adjusted Options pursuant to Section 5.6
and upon exercise of the options to purchase shares of CA
Common Stock granted pursuant to Section 5.17 and the shares of
restricted CA Common Stock issued pursuant to Section 5.17 to
be approved for listing on the NYSE, subject to official notice
of issuance, as promptly as practicable after the date hereof,
and in any event prior to the Closing Date.
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SECTION 5.13. Stockholder Litigation. Each of HFS
and CUC shall give the other the reasonable opportunity to
participate in the defense of any stockholder litigation
against HFS or CUC, as applicable, and its directors relating
to the transactions contemplated by this Agreement.
SECTION 5.14. Tax Treatment. Each of CUC and HFS
shall use best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368 of the Code
and to obtain the opinions of counsel referred to in Sections
6.2(c) and 6.3(c).
SECTION 5.15 Pooling of Interests. Each of HFS and
CUC shall use best efforts to cause the transactions
contemplated by this Agreement, including the Merger, to be
accounted for as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by
the SEC, and each of HFS and CUC agrees that it shall take no
action that would cause such accounting treatment not to be
obtained.
SECTION 5.16. Standstill Agreements; Confidentiality
Agreements. During the period from the date of this Agreement
through the Effective Time, neither HFS nor CUC shall
terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of
its respective subsidiaries is a party. During such period,
HFS or CUC, as the case may be, shall enforce, to the fullest
extent permitted under applicable law, the provisions of any
such agreement, including by obtaining injunctions to prevent
any breaches of such agreements and to enforce specifically the
terms and provisions thereof in any court of the United States
of America or of any state having jurisdiction.
SECTION 5.17. Company Officers; Employment
Contracts; Equity Awards. (a) Pursuant to and in accordance
with the terms hereof and of the amended and/or restated
employment agreements referred to in Section 5.17(b) (i) at the
Effective Time and until January 1, 2000, Mr. Forbes shall
serve as Chairman of the Board of Directors and Chairman of the
Executive Committee of CUC, and from and after January 1, 2000,
Mr. Forbes shall be President and Chief Executive Officer of
CUC but shall not be Chairman of the Board or Chairman of
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the Executive Committee of CUC, and (ii) at the Effective Time
and until January 1, 2000, Mr. Silverman shall serve as
President and Chief Executive Officer of CUC, and from and
after January 1, 2000, Mr. Silverman shall be Chairman of the
Board of Directors and Chairman of the Executive Committee of
CUC but not President and Chief Executive Officer of CUC. If
either of such persons is unable or unwilling to hold such
offices for the period set forth in his employment agreement,
his successor shall be selected by the Board of Directors of
CUC in the manner set forth in the Restated By-laws.
(b) At or prior to the Effective Time, CUC agrees to
enter into the amended and restated employment agreements
substantially in the forms set forth in Exhibit 5.17 attached
hereto with the CUC officers identified in Exhibit 5.17, and
HFS agrees to enter into amendments to and/or restatements of
the employment agreements substantially in the forms set forth
in Exhibit 5.17 attached hereto with the HFS officers
identified in Exhibit 5.17.
(c) At the Effective Time, the officers and key
employees of the Surviving Corporation, identified in Exhibit
5.17, will be granted (i) shares of restricted CUC Common Stock
with an aggregate value of $30 million (based on the Average
CUC Price), the terms and conditions with respect to which
shall be no less favorable than the terms and conditions
applicable to restricted stock held by executive officers of
CUC as of the date hereof and (ii) options to acquire an
aggregate of 19,800,000 shares of CUC Common Stock at an
exercise price per share equal to the market value of a share
of CUC Common Stock on the date of grant. All terms and
conditions applicable to such options shall be as provided in
the New CUC Stock Plan, except that the terms and conditions
applicable to the options granted to Mr. Silverman pursuant to
his amended employment agreement under Section 5.17(b) shall be
no less favorable to the terms and conditions of outstanding
options held by Mr. Silverman as of the date hereof. Stock
awards granted pursuant to this Section 5.17(c) shall be made
in such amounts as identified in Exhibit 5.17 for each
individual. The aggregate amount of options to be granted
pursuant to this Section 5.17(c) is in addition to the amount
of options to acquire shares of CUC Common Stock granted
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to Mr. Silverman pursuant to his amended employment agreement
under Section 5.17(b).
(d) Prior to the Effective Time, each of CUC and HFS
agree to adopt a stock option and restricted stock plan (the
"New CUC Stock Plan"), the terms of which shall be mutually
agreed upon by CUC and HFS, pursuant to which the option and
restricted share grants described in paragraph (c) of this
Section 5.17 and in the amended and/or restated employment
agreements referred to in this 5.17 will be made.
SECTION 5.18. Post-Merger Operations. Following the
Effective Time, the combined company shall maintain a corporate
office in New York City, CUC shall maintain its principal
corporate offices in Stamford, Connecticut and HFS shall
maintain its principal corporate offices in Parsippany, New
Jersey.
SECTION 5.19 Conveyance Taxes. CUC and HFS shall
cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees or any similar
taxes which become payable in connection with the transactions
contemplated by this Agreement that are required or permitted
to be filed on or before the Effective Time. CUC shall pay,
and HFS shall pay, without deduction or withholding from any
amount payable to the holders of HFS Common Stock, any such
taxes or fees imposed by any Governmental Entity (and any
penalties and interest with respect to such taxes and fees),
which become payable in connection with the transactions
contemplated by this Agreement, on behalf of their respective
stockholders.
SECTION 5.20. HFS Convertible Notes. From and after
the date hereof and prior to the Effective Time, each of CUC or
HFS, as applicable, shall take such actions (including entering
into supplemental indentures) with respect to the notes of HFS
issued under (i) the Indenture between HFS and Bank of America
Illinois, dated October 1, 1994, relating to HFS's 4 1/2%
Convertible Senior Notes due 1999 and (ii) the Indenture
between HFS and First Trust of Illinois, National Association,
dated February 28, 1996, relating to HFS's 4 3/4% Convertible
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Senior Notes due 2003, to implement the provisions of such
Indentures which provide that such notes shall be convertible
into shares of CUC Common Stock and not HFS Common Stock from
and after the Effective Time.
SECTION 5.21. Transition Planning. Mr. Silverman
and Mr. Forbes, as Chairmen of HFS and CUC, respectively,
jointly shall be responsible for coordinating all aspects of
transition planning and implementation relating to the Merger
and the other transactions contemplated hereby. If either such
person ceases to be Chairman of his respective company for any
reason, such person's successor as Chairman shall assume his
predecessor's responsibilities under this Section 5.21.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation
to Effect the Merger. The respective obligation of each party
to effect the Merger is subject to the satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a) Stockholder Approvals. Each of the HFS
Stockholder Approval and the CUC Stockholder Approval shall
have been obtained.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have
been terminated or shall have expired.
(c) Governmental and Regulatory Approvals. Other
than the filing provided for under Section 1.3 and filings
pursuant to the HSR Act (which are addressed in Section
6.1(b)), all consents, approvals and actions of, filings with
and notices to any Governmental Entity required of HFS, CUC or
any of their subsidiaries to consummate the Merger and the
other transactions contemplated hereby, the failure of which to
be obtained or taken (i) is reasonably expected to have a
material adverse effect on the Surviving Corporation and its
prospective subsidiaries, taken as a whole, or (ii) will result
in a violation of any laws, shall have been ob-
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tained, all in form and substance reasonably satisfactory to
HFS and CUC.
(d) No Injunctions or Restraints. No judgment,
order, decree, statute, law, ordinance, rule or regulation,
entered, enacted, promulgated, enforced or issued by any court
or other Governmental Entity of competent jurisdiction or other
legal restraint or prohibition (collectively, "Restraints")
shall be in effect (i) preventing the consummation of the
Merger, or (ii) which otherwise is reasonably likely to have a
material adverse effect on HFS or CUC, as applicable; provided,
however, that each of the parties shall have used its best
efforts to prevent the entry of any such Restraints and to
appeal as promptly as possible any such Restraints that may be
entered.
(e) Form S-4. The Form S-4 shall have become
effective under the Securities Act prior to the mailing of the
Joint Proxy Statement by each of HFS and CUC to their
respective stockholders and no stop order or proceedings
seeking a stop order shall be threatened by the SEC or shall
have been initiated by the SEC.
(f) NYSE Listing. The shares of CUC Common Stock
issuable to HFS's stockholders as contemplated by Article II,
the shares of CUC Common Stock issuable upon exercise of
Adjusted Options pursuant to Section 5.6 and upon exercise of
the options to purchase shares of CUC Common Stock granted
pursuant to Section 5.17 and the shares of restricted CUC
Common Stock issued pursuant to Section 5.17 shall have been
approved for listing on the NYSE, subject to official notice of
issuance.
(g) Pooling Letters. CUC and HFS shall have
received letters from each of HFS's independent accountants and
CUC's independent accountants, dated as of the date the Form S-
4 is declared effective and as of the Closing Date, in each
case addressed to CUC and HFS, stating that accounting for the
Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and
regulations is appropriate if the Merger is consummated and
closed as contemplated by this Agreement.
(h) Corporate Governance. CUC shall have taken all
such actions as shall be necessary so that (i)
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the Certificate Amendment and By-Laws Amendment shall become
effective not later than the Effective Time; (ii) the
resolutions set forth as part of Exhibit B shall have been
adopted, to be effective upon the Effective Time; and (iii) at
the Effective Time, the composition of the CUC Board of
Directors and the committees of such Board shall comply with
the Restated Certificate, the Restated By-laws and Exhibit B
hereof (assuming HFS has designated the HFS Directors and CUC
has designated the CUC Directors, in each case as contemplated
by Exhibit B).
SECTION 6.2. Conditions to Obligations of CUC. The
obligation of CUC to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The
representations and warranties of HFS set forth herein shall be
true and correct both when made and at and as of the Closing
Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to
any limitation as to "materiality" or "material adverse effect"
set forth therein) does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on
HFS; provided, that the representations and warranties of HFS
set forth in Sections 3.1(i), (j)(iii), (j)(iv) and (j)(v) and
(s) shall nonetheless be deemed true and correct at and as of
the Closing Date regardless of changes therein caused by an
acquisition permitted by 4.1(a)(iv) or by the incurrence of
indebtedness permitted by 4.1(a)(vii), except to the extent
that such changes have, or could reasonably be expected to
have, a material adverse effect on HFS.
(b) Performance of Obligations of HFS. HFS shall
have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior
to the Closing Date.
(c) Tax Opinions. CUC shall have received from
Wachtell, Lipton, Rosen & Katz, counsel to CUC, on a date
immediately prior to the mailing of the Joint Proxy Statement
and on the Closing Date, opinions, in each case dated as of
such respective dates, to the effect that:
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(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and CUC and HFS will
each be a party to such reorganization within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be
recognized by CUC or HFS as a result of the Merger; (iii) no
gain or loss will be recognized by the stockholders of HFS upon
the exchange of their shares of HFS Common Stock solely for
shares of CUC Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares
of CUC Common Stock; (iv) the aggregate tax basis of the shares
of CUC Common Stock received solely in exchange for shares of
HFS Common Stock pursuant to the Merger (including fractional
shares of CUC Common Stock for which cash is received) will be
the same as the aggregate tax basis of the shares of HFS Common
Stock exchanged therefor; and (v) the holding period for shares
of CUC Common Stock received in exchange for shares of HFS
Common Stock pursuant to the Merger will include the holding
period of the shares of HFS Common Stock exchanged therefor,
provided such shares of HFS Common Stock were held as capital
assets by the stockholder at the Effective Time. In rendering
such opinions, counsel for CUC shall be entitled to rely upon
representations of officers of CUC, HFS and stockholders of HFS
substantially in the form of Exhibits D and E hereto.
(d) No Material Adverse Change. At any time after
the date of this Agreement there shall not have occurred any
material adverse change relating to HFS.
SECTION 6.3. Conditions to Obligations of HFS. The
obligation of HFS to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The
representations and warranties of CUC set forth herein shall be
true and correct both when made and at and as of the Closing
Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to
any limitation as to "materiality," or "material adverse
effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse
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effect on CUC; provided, that the representations and
warranties of CUC set forth in Sections 3.2(i), (j)(iii),
(j)(iv) and (j)(v) and (s) shall nonetheless be deemed true and
correct at and as of the Closing Date regardless of changes
therein caused by an acquisition permitted by 4.1(b)(iv) or by
the incurrence of indebtedness permitted by 4.1(b)(vii), except
to the extent that such changes have, or could reasonably be
expected to have, a material adverse effect on CUC.
(b) Performance of Obligations of CUC. CUC shall
have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior
to the Closing Date.
(c) Tax Opinions. HFS shall have received from
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to HFS, on a
date immediately prior to the mailing of the Joint Proxy
Statement and on the Closing Date, opinions, in each case dated
as of such respective dates, to the effect that: (i) the Merger
will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and CUC and HFS will each be a
party to such reorganization within the meaning of Section
368(b) of the Code; (ii) no gain or loss will be recognized by
CUC or HFS as a result of the Merger; (iii) no gain or loss
will be recognized by the stockholders of HFS upon the exchange
of their shares of HFS Common Stock solely for shares of CUC
Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of CUC
Common Stock; (iv) the aggregate tax basis of the shares of CUC
Common Stock received solely in exchange for shares of HFS
Common Stock pursuant to the Merger (including fractional
shares or CUC Common Stock for which cash is received) will be
the same as the aggregate tax basis of the shares of HFS Common
Stock exchanged therefor; and (v) the holding period for shares
of CUC Common Stock received in exchange for shares of HFS
Common Stock pursuant to the Merger will include the holding
period of the shares of HFS Common Stock exchanged therefor,
provided such shares of HFS Common Stock were held as capital
assets by the stockholder at the Effective Time. In rendering
such opinions, counsel for HFS shall be entitled to rely upon
representations of officers of CUC, HFS and stockholders of HFS
substantially in the form of Exhibits D and E hereto.
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(d) No Material Adverse Change. At any time after
the date of this Agreement there shall not have occurred any
material adverse change relating to CUC.
SECTION 6.4. Frustration of Closing Conditions.
Neither CUC nor HFS may rely on the failure of any condition
set forth in Section 6.1, 6.2 or 6.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to
use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and
subject to Section 5.5.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be
terminated at any time prior to the Effective Time, and (except
in the case of 7.1(d) or 7.1(f)) whether before or after the
HFS Stockholder Approval or the CUC Stockholder Approval:
(a) by mutual written consent of CUC and HFS;
(b) by either CUC or HFS:
(i) if the Merger shall not have been consummated by
December 31, 1997, provided, however, that the right to
terminate this Agreement pursuant to this Section
7.1(b)(i) shall not be available to any party whose
failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be
consummated by such time; provided, however, that this
Agreement may be extended not more than 30 days by either
party by written notice to the other party if the Merger
shall not have been consummated as a direct result of CUC
or HFS having failed to receive all regulatory approvals
required to be obtained with respect to the Merger.
(ii) if the HFS Stockholder Approval shall not have
been obtained at an HFS Stockholders
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Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the CUC Stockholder Approval shall not have
been obtained at a CUC Stockholders Meeting duly convened
therefor or at any adjournment or postponement thereof; or
(iv) if any Restraint having any of the effects set
forth in Section 6.1(d) shall be in effect and shall have
become final and nonappealable; provided, that the party
seeking to terminate this Agreement pursuant to this
Section 7.1(b)(iv) shall have used best efforts to prevent
the entry of and to remove such Restraint;
(c) by CUC, if HFS shall have breached or failed to
perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.2(a)
or (b), and (B) is incapable of being cured by HFS or is not
cured within 45 days of written notice thereof;
(d) prior to receipt of the CUC Stockholder
Approval, by CUC in accordance with Section 4.3(b); provided
that, in order for the termination of this Agreement pursuant
to this paragraph (d) to be deemed effective, CUC shall have
complied with all provisions contained in Section 4.3,
including the notice provisions therein, and with applicable
requirements, including the payment of the Termination Fee, of
Section 5.9;
(e) by HFS, if CUC shall have breached or failed to
perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.3(a)
or (b), and (B) is incapable of being cured by CUC or is not
cured within 45 days of written notice thereof; or
(f) prior to receipt of the HFS Stockholder
Approval, by HFS in accordance with Section 4.2(b); provided
that, in order for the termination of this Agreement pursuant
to this paragraph (f) to be deemed effec-
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tive, HFS shall have complied with all provisions of Section
4.2, including the notice provisions therein, and with
applicable requirements, including the payment of the
Termination Fee, of Section 5.9.
SECTION 7.2. Effect of Termination. In the event of
termination of this Agreement by either HFS or CUC as provided
in Section 7.1, this Agreement shall forthwith become void and
have no effect, without any liability or obligation on the part
of CUC or HFS, other than the provisions of Section 3.1(o),
Section 3.2(o), the last sentence of Section 5.4, Section 5.9,
this Section 7.2 and Article VIII, which provisions survive
such termination, and except to the extent that such termina-
tion results from the willful and material breach by a party of
any of its representations, warranties, covenants or agreements
set forth in this Agreement.
SECTION 7.3. Amendment. This Agreement may be
amended by the parties at any time before or after the HFS
Stockholder Approval or the CUC Stockholder Approval; provided,
however, that after any such approval, there shall not be made
any amendment that by law requires further approval by the
stockholders of HFS or CUC without the further approval of such
stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior
to the Effective Time, a party may (a) extend the time for the
performance of any of the obligations or other acts of the
other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained
in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 7.3, waive
compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf
of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment,
Extension or Waiver. A termination of this Agreement pursuant
to Section 7.1, an amendment of this Agree-
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ment pursuant to Section 7.3 or an extension or waiver pursuant
to Section 7.4 shall, in order to be effective, require, in the
case of CUC or HFS, action by its Board of Directors or, with
respect to any amendment to this Agreement, the duly authorized
committee of its Board of Directors to the extent permitted by
law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and
Warranties. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time.
SECTION 8.2. Notices. All notices, requests,
claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties
at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to CUC, to
CUC International Inc.
707 Summer Street
P.O. Box 10049
Stamford, Connecticut 06901
Telecopy No: (203) 348-4528
Attention: General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52 Street
New York, New York 10019
Telecopy No.: (212) 403-1000
Attention: Patricia Vlahakis
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(b) if to HFS, to
HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054
Telecopy No. (201) 428-2280
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: David Fox
SECTION 8.3. Definitions. For purposes of this
Agreement:
(a) except for purposes of Section 5.11, an
"affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first
person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or
executor, or otherwise;
(b) "material adverse change" or "material adverse
effect" means, when used in connection with HFS or CUC, any
change, effect, event, occurrence or state of facts that is, or
would reasonably be expected to be, materially adverse to the
business, financial condition or results of operations of such
party and its subsidiaries taken as a whole; and the terms
"material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation,
partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other
entity;
(d) a "subsidiary" of any person means another
person, an amount of the voting securities, other
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voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which)
is owned directly or indirectly by such first person and
includes, in the case of HFS, all corporations conducting the
car rental operation of Avis Inc. (referred to as "ARAC" in
HFS's Annual Report on Form 10-K for the year ended December
31, 1996) which are: Rental Car System Holdings, Inc. and its
subsidiaries (including the corporate operations of Avis, Inc.
and Prime Vehicles Trust, Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries,
Pathfinder Insurance Company and Global Excess & Reinsurance
Ltd.); and
(e) "knowledge" of any person which is not an
individual means the knowledge of such person's executive
officers or senior management of such person's operating
divisions and segments, in each case after reasonable inquiry.
SECTION 8.4. Interpretation. When a reference is
made in this Agreement to an Article, Section or Exhibit, such
reference shall be to an Article or Section of, or an Exhibit
to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the
words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words
"without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement. All terms defined
in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein
or in any agreement or instrument that is referred to herein
means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case
of agreements or instruments) by waiver or
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consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
SECTION 8.5. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.6. Entire Agreement; No Third-Party
Beneficiaries. This Agreement (including the documents and
instruments referred to herein) and the Confidentiality
Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Article II,
Section 5.6 and Section 5.8, are not intended to confer upon
any person other than the parties any rights or remedies.
SECTION 8.7. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
SECTION 8.8. Assignment. Neither this Agreement nor
any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by operation
of law or otherwise by either of the parties hereto without the
prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. Subject to
the preceding two sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
SECTION 8.9. Consent to Jurisdiction. Each of the
parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b)
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agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such
court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or a Delaware
state court.
SECTION 8.10 Headings. The headings contained in
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
SECTION 8.11 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled
to the extent possible.
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IN WITNESS WHEREOF, CUC and HFS have caused this
Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
CUC INTERNATIONAL INC.
By /s/ E. Kirk Shelton
E. Kirk Shelton
President and Chief Operating
Officer
HFS INCORPORATED
By /s/ Henry R. Silverman
Henry R. Silverman
Chairman and Chief Executive
Officer
-81-
Exhibit 99.1
HFS INCORPORATED [LOGO] CUC INTERNATIONAL [LOGO]
FOR IMMEDIATE RELEASE
CUC INTERNATIONAL INC. AND HFS INCORPORATED
TO COMBINE IN MERGER OF EQUALS,
CREATING WORLD'S LEADING CONSUMER SERVICES COMPANY
TAKES ADVANTAGE OF "SEAMLESS FIT" AND EXPERTISE IN
DELIVERING PRODUCTS AND SERVICES
TO CONSUMERS AND BUSINESSES
COMBINED COMPANY TO HAVE MARKET CAPITALIZATION
OF APPROXIMATELY $22 BILLION
CROSS-MARKETING OPPORTUNITIES WILL FUEL GROWTH
Stamford, CT and Parsippany, NJ, May 27, 1997 -- CUC
International Inc. (NYSE:CU) and HFS Incorporated (NYSE:HFS)
announced today a definitive agreement to merge the two
companies in a tax-free exchange of shares. The combined
company, to be named at the closing of the transaction, will be
a leading provider of consumer and business services worldwide.
It would have had combined revenues of approximately $4.3
billion, net income of nearly $600 million and free cash flow
of approximately $700 million, based on pro forma performance
in calendar 1996, and a market capitalization of approximately
$22 billion.
HFS is a leading global services company with a base
of 100 million consumers, operating through well-known brands
such as Avis, Days Inn, Resort Condominiums International,
Ramada, Coldwell Banker and Century 21. CUC, with over 68
million memberships worldwide, is a leading member services and
direct marketing organization offering value and convenience to
consumers in shopping, travel, dining, local merchant
discounts, auto and home buying and many other services.
Cross-marketing opportunities between CUC and HFS are expected
to increase further revenue and profit growth.
Pursuant to the merger agreement, 2.4031 shares of
CUC International common stock will be exchanged for each share
of HFS Incorporated common stock. CUC will issue approximately
434 million common shares, valued at about $11 billion.
Following the transaction, the combined company will have
approximately 870 million shares outstanding. The transaction
will be accounted for as a pooling-of-interests. The current
shareholders of each company will own approximately 50% of the
combined company.
The transaction has been unanimously approved by both
companies' Boards of Directors and requires the approval of the
shareholders of both companies. It is subject to customary
closing conditions, and is expected to be completed in the Fall
of 1997.
SHARED, POWERFUL BUSINESS MODEL OFFERS SUBSTANTIAL
OPPORTUNITY FOR GROWTH
Henry R. Silverman, Chairman and Chief Executive
Officer of HFS Incorporated, said, "This transaction creates a
world-class consumer services company with extraordinary
revenue and
profit growth potential. By combining HFS's brands and our
consumer reach of more than 100 million customers annually with
CUC's direct marketing expertise, powerful club membership
delivery system, and 68 million memberships worldwide, we will
create tremendous new opportunities that are not available to
either company on its own. In so doing, we have the combined
potential for exceptional earnings and shareholder value
creation for two companies that have already established
excellent records in this regard. Walter Forbes and his
management team have created one of the most innovative and
successful companies in the history of the services industry.
We are confident that by combining our operating, financial and
management strengths, we will create one of the foremost
consumer and business services companies in the world."
Walter A. Forbes, Chairman and Chief Executive
Officer of CUC International Inc., said, "Together, we will
benefit from this unique franchise: providing value-added
services to consumers and businesses while substantially
enhancing growth opportunities. With similar business models,
both companies have pursued two sides of the same high-growth
strategy: helping smaller players, both individuals or
businesses, to compete in a global, information-intensive and
increasingly competitive economy. The combined company will
have increased purchasing power and other advantages associated
with greater scale."
SHARED MANAGEMENT; NO EMPLOYEE REDUCTIONS PLANNED
Following the merger, Henry Silverman will serve as
President and Chief Executive Officer of the combined company,
and Walter Forbes will be Chairman of the Board of Directors.
On January 1, 2000, Mr. Forbes will become President and CEO
and Mr. Silverman will become Chairman. The two companies will
have equal representation on the combined company's Board of
Directors with a super-majority voting requirement in effect
for certain governance matters.
E. Kirk Shelton, President and Chief Operating
Officer, Christopher K. McLeod, Executive Vice President,
Kenneth A. Williams, Vice Chairman, and Robert T. Tucker,
Corporate Secretary, all of CUC, will be Vice Chairmen of the
combined company. John D. Snodgrass, Vice Chairman, President
and Chief Operating Officer of HFS, and Stephen P. Holmes,
Robert D. Kunisch and Michael P. Monaco, each Vice Chairmen of
HFS, will also serve as Vice Chairmen of the combined company.
Mr. Monaco will serve as Chief Financial Officer of the
combined company, with Cosmo Corigliano, Chief Financial
Officer of CUC, becoming CFO after a transition period. Mr.
Monaco will then assume certain operating responsibilities.
James E. Buckman, Senior Executive Vice President of HFS, will
be General Counsel of the combined company until 2000, when Amy
N. Lipton, Senior Vice President and General Counsel of CUC,
will assume that role.
Both companies will continue to maintain their
respective operations in Parsippany, NJ, New York City and
Stamford, CT, as well as other major sites nationwide. Small
corporate headquarters staffs will be maintained at each
location.
Since the transaction is anticipated to result in
considerable new growth opportunities, it is not expected that
there will be any reductions in employment at either company as
a result of this transaction.
COMPANIES TO DEVELOP SPECIFIC CROSS-MARKETING,
GROWTH OPPORTUNITIES
The companies have already joined together in the
extremely successful Transfer Plus program, which markets CUC's
travel service to the more than 60 million consumers who stay
at HFS's eight hotel brands an average of three to four times
annually. Expansion of this partnership
-2-
represents only one aspect of the many growth opportunities
that will emerge from the HFS-CUC alliance, which include:
- Direct marketing of CUC services to HFS's 100
million-strong consumer base who use its travel and
real estate services and can be introduced to CUC's
existing core of more than 20 individual and discount
membership programs, such as Travelers Advantage,
Shoppers Advantage, and Entertainment discount coupon
books, and its innovative new NetMarket interactive
product.
- Accelerating growth opportunities by combining HFS's
Preferred Alliance products and services with CUC's
marketing infrastructure and core competencies to
sell to both companies' consumer bases.
- Linking HFS's one million annual home buyers and
sellers, served by Coldwell Banker, Century 21 and
ERA, with CUC's CompleteHome Service, which provides
home improvement, repair and upkeep information, a
referral database of more than 8000 contractors and
tradesmen and other services for homeowners. CUC's
direct marketing capability will dramatically
increase the combined company's ability to assist
these consumers in the numerous purchasing decisions
typically made by new home buyers, such as health
care providers, dry cleaners, house painting,
hardware, repair services and more.
- Building on vehicle leasing opportunities through a
combination of CUC's Wright Express unit, the leading
provider of information and financial management
services to motor vehicle fleets throughout the U.S.,
and HFS's recently acquired PHH fleet management
service, the second largest fleet management company
in the U.S.
- Combining HFS's industry-leading corporate relocation
service, which relocates 100,000 employees and their
families a year, with CUC's "New Mover" services,
such as Welcome Wagon, Getting to Know You and
Entertainment, which provide coupons and offers from
local merchants to new residents.
- Combining CUC's industry-leading capability for
online transactions with HFS's outstanding brands.
For example, CUC's successful electronic real estate
classified service, RentNet, could serve as a model
for application to HFS brand websites, such as
Coldwell Banker and Century 21.
- Accelerating worldwide growth opportunities by
combining HFS's international products and services
with CUC's marketing infrastructure and more than two
million international memberships. The combined
company will have operations in 181 countries.
Using similar business models and philosophies of not
owning fixed assets or significant inventory, CUC's and HFS's
branded membership-based and franchised services are associated
with billions of dollars in consumer transactions each year.
The companies are also highly successful at balancing the
competing needs of thousands of vendors, while concentrating on
providing the best buying opportunities possible to customers.
HFS Incorporated reaches approximately 100 million
consumers annually as a leading franchisor of brand name
hotels, residential real estate, and car rental operations. In
real estate, HFS's Century 21, Coldwell Banker and ERA brands
have about 12,500 franchised offices with more than 180,000
brokers and agents in the United States and internationally.
HFS provides mortgage services to consumers and is the global
leader in corporate employee relocation. In travel, the
company has nearly 5,400 Days Inn, Howard Johnson, Knights Inn,
Ramada, Super 8, Travelodge, Villager Lodge and Wingate Inn
franchised hotels with more than 500,000 rooms in the United
States and internationally. HFS, also the franchisor of Avis,
is the leading provider of
-3-
vacation timeshare exchanges through RCI and is the second
largest vehicle management services provider worldwide.
For 1996, including PHH which was acquired in 1997 as
a pooling of interests, HFS had pro forma revenues of
approximately $2 billion and pro forma net income of $309
million, or $1.75 per share. It has about 30,000 employees.
Currently, HFS has approximately 181 million shares
outstanding.
CUC International Inc. is a leading membership-based,
consumer services company that provides access to travel,
shopping, auto, dining, timeshare exchange, financial, and
other services to 68 million consumers worldwide through its
more than 20 services, including Shoppers Advantage, Travelers
Advantage, Entertainment, AutoVantage and other brands. CUC
works in partnership with leading banks, retailers, oil
companies, credit unions, charities, and other organizations to
offer consumers convenience and significant savings when
purchasing a wide array of high-quality goods and services.
CUC is also the largest educational and entertainment software
publisher, through its Davidson & Associates, Sierra On-Line,
Knowledge Adventure, and Blizzard Entertainment subsidiaries.
In addition, the company is one of the largest interactive
retailers in the world. CUC has approximately 15,000
employees.
For the year ended January 31, 1997, CUC reported
revenues of $2.3 billion. CUC reported net income of $283
million and earnings per share of $0.70, both before one-time
charges related to transaction and restructuring costs and
certain litigation matters related principally to the
completion of the Sierra On-Line, Inc., Davidson & Associates,
Inc. and Ideon Group, Inc. acquisitions. For the year ended
January 31, 1997, the weighted average number of shares
outstanding was 405.1 million.
Bear Stearns & Co. acted as financial advisor to HFS,
and Goldman, Sachs & Co. was financial advisor to CUC.
This release contains certain forward-looking
statements that involve potential risks and uncertainties. The
companies' future results could differ materially from those
discussed herein. Factors that could cause or contribute to
such differences include, but are not limited to, changes in
market conditions, effects of state and federal regulations and
risks inherent in international operations. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of today. The companies
undertake no obligation to revise or update these forward-
looking statements to reflect events or circumstances that
arise after today or to reflect the occurrence of
unanticipated events.
Contacts
CUC INVESTOR/ANALYST HFS INVESTOR/ANALYST
Laura Hamilton Mike Wargotz
Tuesday Only: 212/272-6718 Tuesday Only: 212/272-6362
Ongoing: 201/965-5114 Ongoing: 201/359-5110
CUC MEDIA HFS MEDIA
Don Nathan, Elliot Bloom
Robinson Lerer & Montgomery Ongoing: 201/952-8414
Tuesday Only: 212/272-6718
Ongoing: 212/484-7782
Jim Fingeroth,
Kekst and Company
Tuesday Only: 212/272-7403
Ongoing: 212/521-4819
-4-
Exhibit 99.2
PLAN FOR CORPORATE GOVERNANCE OF CUC INTERNATIONAL INC.
FOLLOWING THE EFFECTIVE TIME
BOARD OF DIRECTORS; COMMITTEES OF THE BOARD
At and from the Effective Time, the total number of
persons serving on the Board of Directors of CUC shall be 30
(unless otherwise agreed in writing between CUC and HFS prior
to the Effective Time), half of whom shall be CUC Directors and
half of whom shall be HFS Directors (as such terms are defined
in the Amended and Restated By-Laws attached as Exhibit A-2 to
the Merger Agreement (the "Restated By-Laws")). The Board of
Directors of CUC will adopt a resolution, effective as of the
Effective Time, fixing the size of the CUC Board at 30.
The persons to serve initially on the Board of Directors
of CUC at the Effective Time who are HFS Directors shall be
selected solely by and at the absolute discretion of the Board
of Directors of HFS prior to the Effective Time; and the
persons to serve on the Board of Directors of CUC at the
Effective Time who are CUC Directors shall be selected solely
by and at the absolute discretion of the Board of Directors of
CUC prior to the Effective Time. Initially, five HFS Directors
and five CUC Directors designated prior to the Effective Time
by the HFS Board of Directors and the CUC Board of Directors,
respectively, shall be assigned to each of the three classes of
the Board of Directors of CUC from and after the Effective
Time. In the event that, prior to the Effective Time, any
person so selected to serve on the Board of Directors of CUC
after the Effective Time is unable or unwilling to serve in
such position, the Board of Directors which is entitled to
select such person shall designate another person to serve in
such person's stead in accordance with the provisions of the
immediately preceding two sentences. Until the third
anniversary of the Effective Time, the Executive Committee of
the Board of CUC shall have the exclusive power and authority
to nominate directors for election to the Board at the next
stockholders' meeting at which Directors are to be elected, to
elect directors to fill vacancies on the Board in between
stockholders' meetings and to fill
vacancies on any committee of the Board to the extent an
alternate member has not been previously designated by the
Board of Directors of CUC and shall promptly nominate Directors
for election to the Board at the next stockholders' meeting at
which Directors are to be elected to the Board, elect Directors
to fill vacancies on the Board in between stockholders'
meetings or elect Directors to fill vacancies on any committee
of the Board (to the extent an alternate member has not
previously been designated by the Board), as the case may be,
by resolution adopted in accordance with the Restated By-Laws
and as provided in the next sentence. Nominations of Directors
for election to the Board at any annual or special meeting of
stockholders, the election of Directors to fill vacancies on
the Board in between stockholders' meetings or the election of
Directors to fill vacancies on any committee of the Board (to
the extent an alternate member has not been previously
designated by the Board) shall be undertaken by the Executive
Committee such that (1) the number of HFS Directors and CUC
Directors on the Board 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.
From and after the Effective Time, as provided in the
Restated By-Laws, the Board of Directors of CUC shall have
three committees:
(i) The Executive Committee (which will also act as the
nominating committee) will consist of four CUC Directors
(including the Chairman of the Board of CUC) and four HFS
Directors (including the Chief Executive Officer of HFS). The
Board of Directors of CUC will adopt a resolution, effective as
of the Effective Time, establishing the Executive Committee in
accordance with the Restated By-Laws, delegating to the
Executive Committee those powers and authorities as provided in
the Restated By-Laws, appointing its members and naming
specific alternate members (who shall be HFS Directors) for
members of the Executive Committee who are HFS Directors and
naming specific alternate members (who shall be CUC Directors)
for the members of the Executive Committee who are CUC
Directors. The Chairman of the Board will also serve as
Chairman of the Executive Committee. The Execu-
-2-
tive Committee will include three CUC Directors and three of
the HFS Directors who, to the extent practicable, are officers
of CUC at and after the Effective Time and the remaining
directors will be independent directors.
(ii) The Compensation Committee will consist of two CUC
Directors and two HFS Directors. The Chairman of the
Compensation Committee will be designated by the HFS Directors.
The Board of Directors of CUC will adopt a resolution,
effective as of the Effective Time, establishing the
Compensation Committee in accordance with the Restated By-Laws,
delegating to the Compensation Committee those powers and
authorities as provided in the Restated By-Laws, appointing its
members and naming specific alternate members (who shall be HFS
Directors) for members of the Compensation Committee who are
HFS Directors and naming specific alternate members (who shall
be CUC Directors) for members of the Compensation Committee who
are CUC Directors.
(iii) The Audit Committee will consist of two CUC
Directors and two HFS Directors. The Chairman of the Audit
Committee will be designated by the CUC Directors. The Board of
Directors of CUC will adopt a resolution, effective as of the
Effective Time, establishing the Audit Committee in accordance
with the Restated By-Laws, delegating to the Audit Committee
those powers and authorities as provided in the Restated By-
Laws, appointing its members and naming specific alternate
members (who shall be HFS Directors) for members of the Audit
Committee who are HFS Directors and naming specific alternate
members (who shall be CUC Directors) for members of the Audit
Committee who are CUC Directors.
At and after the Effective Time and until January 1, 2002,
the removal of Mr. Forbes or Mr. Silverman from their executive
positions or any breach of their respective employment
agreements shall require the approval of at least 80% of the
entire Board of Directors of CUC. Until the third anniversary
of the Effective Time, any change in the size of the Board of
Directors of CUC, any change in the composition or power and
authority of the Committees of the CUC Board or the
chairmanship of such Committees or any change or amendment to
the Restated By-Laws implementing any of the foregoing shall
require the approval by at least 80% of the entire Board of
Directors of CUC.
-3-
Each of the resolutions of the CUC Board adopted in order
to effect the provisions of this Exhibit B shall state that,
until the third anniversary of the Effective Time, such
resolution may be amended or superseded only by a new
resolution of the CUC Board which is adopted by 80% of the
entire Board (as defined in the Restated By-Laws).
OFFICERS
From and after the Effective Time, the Executive Officers
of CUC shall be the following:
NAME TITLE
Walter A. Forbes............... Chairman of the Board
Henry R. Silverman............. President and Chief Exec-
utive Officer
Michael P. Monaco.............. Chief Financial Officer
James E. Buckman .............. General Counsel
From and after January 1, 2000, Mr. Silverman shall be the
Chairman of the Board and Mr. Forbes shall be the President and
Chief Executive Officer. If, for any reason Mr. Silverman
ceases to serve as President and Chief Executive Officer prior
to January 1, 2000 and at such time Mr. Forbes is Chairman of
the Board, Mr. Forbes shall become President and Chief
Executive Officer. If, for any reason Mr. Forbes ceases to
serve as Chairman of the Board prior to January 1, 2000 and at
such time Mr. Silverman is President and Chief Executive
Officer, Mr. Silverman shall become Chairman of the Board.
Reporting responsibilities of CUC officers will be as set
forth on the attachment hereto.
Each of HFS and CUC shall take such action as shall
reasonably be deemed by either thereof to be advisable to give
effect to the provisions set forth in this Exhibit B.
-4-
Exhibit 99.3
RESTATED CERTIFICATE OF INCORPORATION
OF
[NAME TO BE DETERMINED]
The undersigned, _________________ and
_________________, certify that they are the Vice President and
Secretary, respectively, of CUC International Inc., a
corporation organized and existing under the laws of the State
of Delaware (the "Corporation"), and do hereby further certify
as follows:
FIRST: The name of the Corporation is CUC
International Inc.
SECOND: The name under which the Corporation was
originally incorporated was "Comp-U-Card of America, Inc.," and
the original Certificate of Incorporation of Comp-U-Card of
America, Inc. was filed with the Secretary of State of the
State of Delaware on August 1, 1974.
THIRD: This Restated Certificate of Incorporation
was duly adopted in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
FOURTH: The text of the Certificate of Incorporation
of the Corporation as amended hereby is restated to read in its
entirety, as follows:
1. The name of the Corporation is [name to be
determined].
2. The address of its registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
3. The nature of the business or purposes to be
conducted or promoted is:
To engage in any lawful act or activity for which
corporations may be organized under the General
Corporation Law of Delaware.
4. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
2,010,000,000 shares, of which 10,000,000 shall be Preferred
Stock, par value $.01 per share, and 2,000,000,000 shall be
Common Stock, par value $.01 per share. No stockholder shall
have any preemptive right to subscribe to or purchase any
additional shares of stock of the Corporation or any securities
convertible into any such shares or representing a right or
option to purchase any such shares.
The Board of Directors is expressly authorized to
adopt, from time to time, a resolution or resolutions providing
for the issuance of Preferred Stock in one or more series, to
fix the number of shares in each such series (subject to the
aggregate limitations thereon in this Article) and to fix the
designations and the powers, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations and restrictions, of each such
series. The authority of the Board of Directors with respect
to each such series shall include determination of the
following (which may vary as between the different series of
Preferred Stock):
(a) The number of shares constituting the shares and the
distinctive designation of the series;
(b) The dividend rate on the shares of the series and the
extent, if any, to which dividends thereon shall be
cumulative;
(c) Whether shares of the series shall be redeemable and,
if redeemable, the redemption price payable on redemption
thereof, which price may, but need not, vary according to
the time or circumstances of such redemption;
(d) The amount or amounts payable upon the shares of the
series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation
prior to any payment or distribution of the assets of the
Corporation to any class or class-
2
es of stock of the Corporation ranking junior to the
Preferred Stock;
(e) Whether the shares of the series shall be entitled to
the benefit of a sinking or retirement fund to be applied
to the purchase or redemption of shares of the series and,
if so entitled, the amount of such fund and the manner of
its application, including the price or prices at which
the shares may be redeemed or purchased through the
application of such fund;
(f) Whether the shares of the series shall be convertible
into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other
class or classes of stock of the Corporation, and, if so
convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may
be made, and any other terms and conditions of such
conversion or exchange;
(g) The extent, if any, to which the holders of shares of
the series shall be entitled to vote on any question or in
any proceedings or to be represented at or to receive
notice of any meeting of stockholders of the Corporation;
(h) Whether, and the extent to which, any of the voting
powers, designations, preferences, rights and
qualifications, limitations or restrictions of any such
series may be made dependent upon facts ascertainable
outside of the Certificate of Incorporation or of any
amendment thereto, or outside the resolution or
resolutions providing for the issuance of such series
adopted by the Board of Directors, provided that the
manner in which such facts shall operate upon the voting
powers, designations, preferences, rights and
qualifications, limitations or restrictions of such series
is clearly and expressly set forth in the resolution or
resolutions providing for the issuance of such series
adopted by the Board of Directors; and
(i) Any other preferences, privileges and powers and
relative, participating, optional or other
3
special rights, and qualifications, limitations or
restrictions of such series, as the Board of Directors may
deem advisable, which shall not affect adversely any other
class or series of Preferred Stock at the time outstanding
and which shall not be inconsistent with the provisions of
this Certificate of Incorporation.
Shares of Common Stock and of Preferred Stock may be
issued from time to time as the Board of Directors shall
determine and on such terms and for such consideration, not
less than par value, as shall be fixed by the Board of
Directors. No consent by any series of Preferred Stock shall
be required for the issuance of any other series of Preferred
Stock unless the Board of Directors in the resolution providing
for the issuance of any series of Preferred Stock expressly
provides that such consent shall be required.
Subject to the rights, if any, of holders of shares
of Preferred Stock from time to time outstanding, dividends may
be paid upon the Common Stock as and when declared by the Board
of Directors out of any funds legally available therefor.
Except as otherwise provided by law or as otherwise
expressly provided in the resolution or resolutions providing
for the issuance of shares of any series of the Preferred
Stock, the holders of shares of the Common Stock shall have the
exclusive right to vote for the election of directors and for
all other purposes. Each holder of shares of Common Stock of
the Corporation entitled at any time to vote shall have one
vote for each share thereof held. Except as otherwise provided
with respect to shares of Preferred Stock authorized from time
to time by the Board of Directors, the exclusive voting power
for all purposes shall be vested in the holders of shares of
Common Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is
expressly authorized:
4
(a) To make, alter, or repeal the By-Laws of the
Corporation.
(b) To authorize and cause to be executed mortgages
and liens upon the real and personal property of the
Corporation.
(c) To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves
for any proper purpose and to abolish any such reserve in
the manner in which it was created.
(d) Subject to the provisions of the By-Laws, to
designate one or more committees, each committee to
consist of one or more of the directors of the
Corporation. Subject to the provisions of the By-Laws,
the Board of Directors may designate one or more directors
as alternate members of any committee, who shall replace
any absent or disqualified member at any meeting of the
committee in the manner specified in such designation.
Any such committee, to the extent provided in the
resolution of the Board of Directors adopted in accordance
with the By-Laws of the Corporation, shall have and may
exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of
the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require
it; but no such committee shall have the power or
authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders a
dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation;
and, unless the resolution or By-Laws expressly so
provide, no such committee shall have the power or
authority to declare a dividend or to authorize the
issuance of stock.
(e) When and as authorized by the stockholders in
accordance with statute, to sell, lease, or exchange all
or substantially all of the property and assets of the
Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of
money or property, including shares of stock in, and/or
other securi-
5
ties of, any other corporation or corporations, as its
Board of Directors shall deem expedient and for the best
interests of the Corporation.
7. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of
this Corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for
this Corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders
of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stock-
holders of this Corporation, as the case may be, agree to any
compromise or arrangement to any reorganization of this
Corporation as consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also
on this Corporation.
8. Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The
books of the Corporation may be kept (subject to any provision
contained in the statues) outside the State of Delaware at such
place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elec-
tions of directors need not be by written ballot unless the By-
Laws of the Corporation shall so provide.
9. For the management of the business and for the
conduct of the affairs of the Corporation, and in further
creation, definition, limitation and regulation
6
of the power of the Corporation and of its directors and of its
stockholders, it is further provided:
(a) Election of Directors. Elections of Directors
need not be by written ballot unless the By-Laws of the
Corporation shall so provide.
(b) Number, Election and Terms of Directors. The
number of Directors of the Corporation shall be fixed from
time to time by or pursuant to the By-Laws. The Directors
shall be classified, with respect to the time for which
they severally hold office, into three classes, as nearly
equal in number as possible, as shall be provided in the
manner specified in the By-Laws, one class to hold office
initially for a term expiring at the annual meeting of
stockholders to be held in 1986, another class to hold
office initially for a term expiring at the annual meeting
of stockholders to be held in 1987, and another class to
hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1988, with the
members of each class to hold office until their
successors are elected and qualified. At each annual
meeting of the stockholders of the Corporation, the
successors to the class of Directors whose term expires at
that meeting shall be elected to the office for a term
expiring at the annual meeting of stockholders held in the
third year following the year of their election.
(c) Stockholder Nomination of Director Candidates.
Advance notice of nominations for the election of
Directors, other than by the Board of Directors or a
Committee thereof, shall be given in the manner provided
in the By-Laws.
(d) Newly Created Directorships and Vacancies. Newly
created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of
Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the
remaining Directors then in office, even though less than
a quorum of the Board of Directors. Any Director elected
in accordance with the preceding sentence shall hold
office for
7
the remainder of the full term of the class of Directors
for which the new directorship was created or the vacancy
occurred and until such Director's successor shall have
become elected and qualified. No decrease in the number of
Directors constituting the Board of Directors shall
shorten the term of any incumbent Director.
(e) Removal of Directors. Any Director may be
removed from office without cause only by the affirmative
vote of the holders of 80% of the combined voting power of
the then outstanding shares of stock entitled to vote
generally in the election of Directors voting together as
a single class.
(f) Stockholder Action. Any action required or
permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by
any consent in writing by such holders. Except as
otherwise required by law, special meetings of
stockholders of the Corporation may be called only by the
Chairman of the Board, the President or the Board of
Directors pursuant to a resolution approved by a majority
of the entire Board or Directors.
(g) By-Law Amendments. The Board of Directors shall
have power to make, alter, amend and repeal the By-Laws
(except so far as the By-Laws adopted by the stockholders
shall otherwise provide). Any By-Laws made by the
Directors under the powers conferred hereby may be
altered, amended or repealed by the Directors or by the
stockholders. Notwithstanding the foregoing and anything
contained in this Certificate of Incorporation to the
contrary, Sections 1, 2 and 3 of Article II, and Sections
1, 2 and 3 of Article III of the By-Laws shall not be
altered, amended or repealed and no provision inconsistent
therewith shall be adopted without the affirmative vote of
the holders of at least 80% of the voting power of all the
shares of the Corporation entitled to vote generally in
the election of Directors, voting together as a single
class.
(h) Amendment, Repeal. Notwithstanding anything
contained in this Certificate of Incorporation
8
to the contrary, the affirmative vote of the holders of at
least 80% of the voting power of all shares of the
Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be
required to alter, amend, adopt any provision inconsistent
with, or repeal, this Article 9 or any provision hereof.
10. (a) Vote Required for Certain Business
Combinations.
A. Higher Vote for Certain Business Combinations.
In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as otherwise
expressly provided herein:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate
Fair Market Value of $10 million or more; or
(iii) the issuance or transfer by the Cor-
poration or any Subsidiary (in one transaction or
series of transactions) of any securities of the
Corporation or any subsidiary to any Interested
Stockholder or to any Affiliate of any Interested
Stockholder in exchange for cash, securities or other
property (or a combination thereof) having an
aggregate Fair Market Value of $10 million or more;
or
(iv) the adoption of any plan or proposal for
the liquidation or dissolution of the Cor-
9
poration proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities
(including any reverse stock split), or recapi-
talization of the Corporation, or any merger or
consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not
with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of
the outstanding shares of any class of Equity
Security (as hereinafter defined) of the Corporation
or any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any Affiliate
of any Interested Stockholder;
shall require the affirmative vote of the holders of
at least 80% of the voting power of the then
outstanding shares of capital stock of the
Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), voting
together as a single class (it being understood that
for the purposes of Article 10, each share of the
Voting Stock shall have one vote). Such affirmative
vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage
may be specified, by law or in any agreement with any
national securities exchange or otherwise.
B. Definition of "Business Combination". The term
"Business Combination" used in this Article 10 shall mean
any transaction which is referred to in any one or more of
clauses (i) through (v) of Paragraph A hereof.
(b) When Higher Vote is Not Required. The
provisions of Article 10(a) shall not be applicable to any
particular Business Combination, and such Business
Combination shall require only such affirmative vote as is
required by law and any other provision of this
Certificate of Incorporation, if all of the conditions
specified in either of the following Paragraphs A and B
are met:
10
A. Approval by Disinterested Directors. The
Business Combination shall have been approved by majority
of the Disinterested Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the
following conditions shall have been met:
(i) The aggregate amount of the cash and
the Fair Market Value (as hereinafter defined) as of
the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of Common Stock in such
Business Combination shall be at least equal to the
higher of the following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interested
Stockholder for any shares of Common Stock acquired
by it (1) within the two-year period immediately
prior to the first public announcement of the terms
of the proposed Business Combination (the "An-
nouncement Date") or (2) in the transaction in which
it became an Interested Stockholder, whichever is
higher; and
(b) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on
which the Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Paragraph 10 as the "Determination Date"), whichever
is higher.
(ii) The aggregate amount of the cash and
the Fair Market Value as of the date of the
consummation of the Business Combination of
consideration other than cash to be received per
share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to
the higher of the following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees)
11
paid by the Interested Stockholder for any shares of
Common Stock acquired by it (1) within the two-year
period immediately prior to the Announcement Date or
(2) in the transaction in which it became an
Interested Stockholder, whichever is higher; and
(b) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher.
(iii) The consideration to be received by
holders of Voting Stock shall be in cash or in the
same form as the Interested Stockholder has
previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for
any Voting Stock with varying forms of consideration,
the form of consideration for such Voting Stock shall
be either cash or the form used to acquire the
largest number of shares of such Voting Stock
previously acquired by it. The price determined in
accordance with paragraphs B(i) and B(ii) of this
Article 10(b) shall be subject to appropriate
adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
(iv) After such Interested Stockholder has
become an Interested Stockholder and prior to the
consummation of such Business Combinations: (a)
there shall have been (1) no reduction in the annual
rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the
Disinterested Directors, and (2) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of the Common Stock,
unless the failure so to increase such annual rate is
approved by a majority of the Disinterested
Directors; and (b) such Interested Stockholder shall
have not
12
become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction
which results in such Interested Stockholder becoming
an Interested Stockholder.
(c) Certain Definitions. For the purpose of
this Article 10:
A. A "person" shall mean any individual, firm,
corporation or other entity.
B. "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary) who or
which:
(i) is the beneficial owner, directly or
indirectly, of 5% or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation
and at any time within the two-year period
immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or
more of the voting power of the then outstanding
Voting Stock; or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at
any time within the two-year period immediately prior
to the date in question beneficially owned by any
Interested Stockholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a
public offering within the meaning of the Securities
Act of 1933.
C. A person shall be a "beneficial owner" of any
Voting Stock:
(i) which such person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns directly or indirectly; or
(ii) which such person or any of its Affiliates
or Associates has (a) the right to
13
acquire (whether such right is exercisable
immediately or only after the passage of time),
pursuant to any agreement, arrangement or un
derstanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such
person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of Voting Stock.
D. For the purpose of determining whether a person
is an Interested Stockholder pursuant to paragraph B of
this Article 10(c), the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed owned
through application of paragraph C of the Article 10(c)
but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrange-
ment or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on January 1, 1985.
F. "Subsidiary" means any corporation of which a
majority of any class of Equity Security is owned,
directly or indirectly, by the Corporation, provided,
however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph B of this
Article 10(c), the term "Subsidiary" shall mean only a
corporation of which a majority of each class of Equity
Security is owned, directly or indirectly, by the
Corporation.
G. "Disinterested Director" means any member of the
Board of Directors who is unaffiliated with the Interested
Stockholder and was a member of the
14
Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is unaffiliated
with the Interested Stockholder and is recommended to
succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
H. "Fair Market Value" means: (i) in the case of
stock, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the
date in question on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system
then in use, or, if such stock is then listed on an ex-
change, the highest closing sale price during the 30-day
period immediately preceding the date in question of a
share of such stock on the Composition Tape for New York
Stock Exchange -- Listed Stocks, or, if such stock is not
quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of
1934 on which such stock is listed, or, if such stock is
not listed on any such exchange or quoted as aforesaid,
the fair market value on the date in question of a share
of such stock as determined by the Board of Directors in
good faith; and (ii) in the case of property other than
cash or stock, the fair market value of such property on
the date in question as determined by the Board of
Directors, in good faith.
I. In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other
than cash to be received" as used in paragraphs B(i) and
(ii) of Article 10(b) shall include the shares of Common
Stock retained by the holders of such shares.
J. "Equity Security" shall have the meaning ascribed
to such term in Section 3(a)(11) of the Securities
Exchange Act of 1934, as in effect on January 1, 1985.
(d) Powers of the Board of Directors. A
majority of the Directors shall have the power and
15
duty to determine for the purposes of this Article 10 on
the basis of information known to them after reasonable
inquiry, (A) whether a person is an Interested
Stockholder, (B) the number of shares of Common Stock
beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of another (D) whether the
assets which are the subject of any Business Combination
have, or the consideration to be received for an issuance
of transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, or an issuance
or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate
Fair Market Value of $10 million or more. A majority of
the Directors shall have the further power to interpret
all of the terms and provisions of this Article 10.
(e) No Effect on Fiduciary Obligations of
Interested Shareholders. Nothing contained in this
Article 10 shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
(f) Amendment, Repeal, etc. Notwithstanding
any other provisions of this Certificate of Incorporation
or the By-Laws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of
Incorporation or the By-Laws) the affirmative vote of the
holders of 80% or more of the outstanding Voting Stock,
voting together as a single class, shall be required to
amend or repeal, or adopt any provisions inconsistent with
this Article 10.
11. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty by such director
as a director; provided, however, that this Article 11 shall
not eliminate or limit the liability of a director to the
extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which
the
16
director derived an improper personal benefit. No amendment to
or repeal of this Article 11 shall apply to or have any effect
on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
17
Exhibit 99.4
AMENDED AND RESTATED BY-LAWS
OF
[NAME TO BE DETERMINED]
(THE "CORPORATION")
ARTICLE I
Offices
Section 1.
The registered office of the Corporation in the State
of Delaware shall be in the City of Wilmington, County of New
Castle, State of Delaware.
The Corporation shall have offices at such other
places as the Board of Directors may from time to time
determine.
ARTICLE II
Stockholders
Section 1. Annual Meeting.
The annual meeting of the stockholders for the
election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held
at such place, within or without the State of Delaware, and
hour as shall be determined by the Board of Directors. The
day, place and hour of each annual meeting shall be specified
in the notice of annual meeting.
The meeting may be adjourned from time to time and
place to place until its business is completed.
At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the
direction of the Board of
Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the
Corporation, not less than sixty days nor more than ninety days
prior to the meeting; provided, however, that in the event that
less than seventy days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the
date on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (a) a
brief description of the business desired to be brought before
the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1.
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting and in accordance with
the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
Section 2. Special Meeting.
Except as otherwise required by law, special meetings
of the stockholders may be called only by the Chairman of the
Board, the President, or the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of
Directors.
-2-
Section 3. Stockholder Action; How Taken.
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly
called annual or special meeting of such holders and may not be
effected by any consent in writing by such holders.
Section 4. Notice of Meeting.
Notice of every meeting of the stockholders shall be
given in the manner prescribed by law.
Section 5. Quorum.
Except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, the holders of not less than
one-third of the shares entitled to vote at any meeting of the
stockholders, present in person or by proxy, shall constitute a
quorum and the act of the majority of such quorum shall be
deemed the act of the stockholders.
If a quorum shall fail to attend any meeting, the
chairman of the meeting may adjourn the meeting to another
place, date or time.
If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote
thereat, stating that it will be held with those present
constituting a quorum, then, except as otherwise required by
law, those present at such adjourned meeting shall constitute a
quorum and all matters shall be determined by a majority of
votes cast at such meeting.
Section 6. Qualification of Voters.
The Board of Directors (hereinafter sometimes
referred to as the "Board") may fix a day and hour not more
than sixty nor less than ten days prior to the day of holding
any meeting of the stockholders as the time which the
stockholders entitled to notice of and to vote at such meeting
shall be determined. Only those persons who were holders of
record of voting stock at such time shall be entitled to notice
of and to vote at such meeting.
-3-
Section 7. Procedure.
The order of business and all other matters of
procedure at every meeting of the stockholders may be
determined by the presiding officer.
The Board shall appoint two or more Inspectors of
Election to serve at every meeting of the stockholders at which
Directors are to be elected.
ARTICLE III
Directors
Section 1. Number, Election and Terms.
The number of Directors shall be fixed from time to
time by the Board of Directors but shall not be less than
three. The Directors shall be classified, with respect to the
time for which they severally hold office, into three classes,
as nearly equal in number as possible, as determined by the
Board of Directors, one class to hold office initially for a
term expiring at the annual meeting of stockholders to be held
in 1986, another class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in
1987, and another class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in
1988, with the members of each class to hold office until their
successors are elected and qualified. At each annual meeting
of stockholders, the successors of the class of Directors whose
term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election.
The term "entire Board" as used in these By-Laws
means the total number of Directors which the Corporation would
have if there were no vacancies.
Nominations for the election of Directors may be made
by the Board of Directors or a committee appointed by the Board
of Directors or by any stockholder entitled to vote in the
election of Directors generally. However, any stockholder
entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a
meeting only if written
-4-
notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, ninety days prior
to the anniversary date of the immediately preceding annual
meeting, and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of Directors,
the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders.
Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that
the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nomina-
tions are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder
as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission; and (e) the consent of each nominee to serve as a
Director of the Corporation of so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing
procedure.
Section 2. Newly Created Directorships and Vacancies.
Newly created directorships resulting from any
increase in the number of Directors and any vacancies on the
Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely
by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum of the
Board of Directors. Any Directors elected in accordance with
the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified. No
decrease in
-5-
the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
Section 3. Removal.
Any Director may be removed from office, without
cause, only by the affirmative vote of the holders of 80% of
the combined voting power of the then outstanding shares of
stock entitled to vote generally in the election of Directors,
voting together as a single class.
Section 4. Regular Meetings.
Regular meetings of the Board shall be held at such
times and places as the Board may from time to time determine.
Section 5. Special Meetings.
Special meetings of the Board may be called at any
time, at any place and for any purpose by the Chairman of the
Executive Committee, the Chairman of the Board, or the
President, or by any officer of the Corporation upon the
request of a majority of the entire Board.
Section 6. Notice of Meeting.
Notice of regular meetings of the Board need not be
given.
Notice of every special meeting of the Board shall be
given to each Director at his usual place of business, or at
such other address as shall have been furnished by him for the
purpose. Such notice shall be given at least twenty-four hours
before the meeting by telephone or by being personally
delivered, mailed, or telegraphed. Such notice need not
include a statement of the business to be transacted at, or the
purpose of, any such meeting.
Section 7. Quorum.
Except as may be otherwise provided by law or in
these By-Laws, the presence of a majority of the entire Board
shall be necessary and sufficient to constitute a quorum for
the transaction of business at any
-6-
meeting of the Board, and the act of a majority of such quorum
shall be deemed the act of the Board, except as otherwise
provided in the By-Laws and except that, until the third
anniversary of the effective time of the merger (the "Effective
Time") contemplated in the Agreement and Plan of Merger, dated
as of May 27, 1997 (the "Merger Agreement"), between the
Corporation and HFS, a Delaware corporation, the affirmative
vote of 80% of the entire Board shall be required to change the
size of the Board of Directors or for the Board to amend or
modify, or adopt any provision inconsistent with, or repeal
this Section 7.
Less than a quorum may adjourn any meeting of the
Board from time to time without notice.
Section 8. Participation In Meetings By Conference Telephone.
Members of the Board, or of any committee thereof,
may participate in a meeting of such Board or committee by
means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 9. Powers.
The business, property and affairs of the Corporation
shall be managed by or under the direction of its Board of
Directors, which shall have and may exercise all the powers of
the Corporation to do all such lawful acts and things as are
not by law, or by the Certificate of Incorporation, or by these
By-Laws, directed or required to be exercised or done by the
stockholders.
Section 10. Compensation of Directors.
Directors shall receive such compensation for their
services as shall be determined by a majority of the entire
Board provided that Directors who are serving the Corporation
as officers or employees and who receive compensation for their
services as such officers or employers shall not receive any
salary or other compensation for their services as Directors.
-7-
ARTICLE IV
Officers
Section 1. Number.
(a) General. The officers of the Corporation shall
be appointed or elected (i) in the manner set forth in this
Article IV and (ii) to the extent not so set forth, by the
Board of Directors. The officers shall be a Chairman of the
Board, a President and Chief Executive Officer, one or more
Vice Chairmen of the Board, a Chief Financial Officer, a
General Counsel, such number of vice presidents as the Board
may from time to time determine and a Secretary. The Chairman
of the Board or, in his absence or if such office be vacant,
the President, shall preside at all meetings of the
stockholders and of the Board. In the absence of the Chairman
of the Board and the President, a Vice Chairman of the Board
shall preside at all meetings of the stockholders and of the
Board. Any person may hold two or more offices, other than the
offices of Chairman of the Board and Vice Chairman of the
Board, at the same time. Subject to this Section 1, the
Chairman of the Board and the Vice Chairmen of the Board shall
be chosen from among the Board of Directors, but the other
officers need not be members of the Board.
(b) Chairman of the Board. The Chairman of the
Board shall be a member of the Board of Directors and shall be
an officer of the Corporation. Mr. Forbes will be Chairman of
the Board from and after the Effective Time and until January
1, 2000, at which time Mr. Silverman will be Chairman of the
Board. If, for any reason Mr. Forbes ceases to serve as
Chairman of the Board prior to January 1, 2000 and at such time
Mr. Silverman is President and Chief Executive Officer, Mr.
Silverman shall become Chairman of the Board.
(c) President and Chief Executive Officer. The
President and Chief Executive Officer shall be a member of the
Board of Directors and an officer of the Corporation. The
President and Chief Executive Officer shall be the chief
executive officer of the Corporation and shall supervise,
coordinate and manage the Corporation's business and activities
and supervise, coordinate and manage its operating expenses and
capital allocation, shall have general authority to exercise
all the powers necessary for the President and Chief Execu-
-8-
tive Officer of the Corporation and shall perform such other
duties and have such other powers as may be prescribed by the
Board or these By-laws, all in accordance with basic policies
as established by and subject to the oversight of the Board.
In the absence or disability of the Chairman of the Board, the
duties of the Chairman of the Board shall be performed and the
Chairman of the Board's authority may be exercised by the
President and Chief Executive Officer. Mr. Silverman will be
President and Chief Executive Officer from and after the
Effective Time and until January 1, 2000, at which time Mr.
Forbes will be President and Chief Executive Officer. If, for
any reason Mr. Silverman ceases to serve as President and Chief
Executive Officer prior to January 1, 2000 and at such time Mr.
Forbes is Chairman of the Board, Mr. Forbes shall become
President and Chief Executive Officer.
(d) Chief Financial Officer. The Chief Financial
Officer shall have responsibility for the financial affairs of
the Corporation and shall exercise supervisory responsibility
for the performance of the duties of the Treasurer and the
Controller. The Chief Financial Officer shall perform such
other duties and have such other powers as may be prescribed by
the Board or these By-laws, all in accordance with basic
policies as established by and subject to the oversight of the
Board, the Chairman of the Board and the President and Chief
Executive Officer.
(e) General Counsel. The General Counsel shall have
responsibility for the legal affairs of the Corporation and for
the performance of the duties of the Secretary. The General
Counsel shall perform such other duties and have such other
powers as may be prescribed by the Board or these By-laws, all
in accordance with basic policies as established by and subject
to the oversight of the Board, the Chairman of the Board and
the President and Chief Executive Officer.
(f) Until January 1, 2002, any amendment to or
modification or repeal of, or adoption of any provision
inconsistent with, this Section 1, by the Board shall require
the affirmative vote of 80% of the entire Board.
Section 2. Additional Officers.
-9-
The Board may appoint such other officers, agents and
employees as it shall deem appropriate. All references in
these By-laws to a particular officer shall be deemed to refer
to the person holding such office regardless of whether such
person holds additional offices.
Section 3. Terms of Office.
(a) Subject to Section 1 of this Article IV and this
Section 3, all officers, agents and employees of the
Corporation shall hold their respective offices or positions at
the pleasure of the Board of Directors and may be removed at
any time by the Board of Directors with or without cause.
(b) Until January 1, 2002, the removal of Mr. Forbes
or Mr. Silverman from the positions specifically provided for
in the employment agreements between the Corporation and Mr.
Forbes and HFS and Mr. Silverman, which are expressly
contemplated by Section 5.17(b) of the Merger Agreement
(including by means of a breach of such employment agreements)
shall require the affirmative vote of 80% of the entire Board.
(c) Until January 1, 2002, any amendment to or
modification or repeal of, or the adoption of any provision
inconsistent with, this Section 3 of this Article IV by the
Board or any modification to either of the respective roles,
duties or authority of Messrs. Forbes and Silverman shall
require the affirmative vote of 80% of the entire Board.
Section 4. Duties.
Except as provided in Sections 1 or 3 of this Article
IV, the officers, agents and employees shall perform the duties
and exercise the powers usually incident to the offices or
positions held by them respectively, and/or such other duties
and powers as may be assigned to them from time to time by the
Board of Directors or the Chief Executive Officer.
-10-
ARTICLE V
Committees of the Board of Directors
Section 1. Designation.
The Board of Directors of the Corporation shall have
the following committees:
(a) An Executive Committee (which will also act as
the nominating committee) which will consist of eight
Directors. Until the third anniversary of the Effective Time,
the Executive Committee shall have the full and exclusive power
and authority, subject to Section 3(b) of this Article V, to
evaluate director candidates for election to the Board and
committees of the Board, to nominate directors for election to
the Board at any annual or special meeting of stockholders and
to elect directors to fill vacancies (x) on the Board in be-
tween stockholder meetings or (y) on any committee of the Board
(to the extent an alternate member has not been previously
designated by the Board), in each case pursuant to Section 9(d)
of the Certificate of Incorporation. By establishing the
Executive Committee, the Board shall have delegated exclusively
to the Executive Committee its authority with respect to such
matters until the third anniversary of the Effective Time and
the Board shall have no authority to nominate or elect
Directors unless this Section 1 is amended in accordance with
Section 1(d) of this Article V. Subject to the preceding two
sentences, the Executive Committee shall have 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 shall have no
power to (i) alter, amend or repeal these By-Laws or any
resolution or resolutions of the Board of Directors; (ii)
declare any dividend or make any other distribution to the
stockholders of the Corporation; (iii) appoint any member of the
Executive Committee; or (iv) take any other action which legally
may be taken only by the Board. The Chairman of the Board will
also serve as Chairman of the Executive Committee. Six of the
members of the Executive Committee will, to the extent
practicable, be officers of the Corporation and the remaining
members will be independent Directors. Each resolution of the
Executive Committee will require approval by at least five
members of such Committee, provided, that, until the third
anniversary of the Effective
-11-
Time, any resolution regarding the filling of a Board vacancy
in 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 (1) is consistent with Section 3(b) of this Article
V will require 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 (2) is inconsistent
with Section 3(b) of this Article V will require approval by at
least seven members of the Executive Committee.
(b) A Compensation Committee which will consist of
four Directors. The Compensation Committee will have the
following powers and authority: (i) determining and fixing the
compensation for all senior officers of the Corporation and
those of its subsidiaries that the Compensation Committee shall
from time to time consider appropriate, as well as all
employees of the Corporation 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 Corporation or, if the Compensa-
tion 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 Corporation or any
subsidiary that the Compensation Committee shall from time to
time consider appropriate. Each resolution of the Compensation
Committee will require approval by at least three members of
such committee.
(c) An Audit Committee will consist of four
Directors. The Audit Committee will have the following powers
and authority: (i) employing independent public accountants to
audit the books of account, accounting procedures, and
financial statements of the Corporation and to perform such
other duties from time to time as the Audit Committee may
prescribe; (ii) receiving the reports and comments of the
Corporation's internal auditors and of the independent public
accountants employed by the Audit Committee and to take such
action with respect thereto as may seem appropriate; (iii)
requesting the Corporation's consolidated subsidiaries and
affiliated
-12-
companies to employ independent public accountants to audit
their respective books of account, accounting procedures, and
financial statements; (iv) requesting the independent public
accountants to furnish to the Compensation Committee the
certifications required under any present or future stock
option, incentive compensation or employee benefit plan of the
Corporation; (v) reviewing the adequacy of internal financial
controls; (vi) approving the accounting principles employed in
financial reporting; (vii) approving the appointment or removal
of the Corporation's general auditor; and (viii) reviewing the
accounting principles employed in financial reporting. Each
resolution of the Audit Committee will require approval by at
least three members of such committee.
(d) Until the third anniversary of the Effective
Time, any amendment to or modification or repeal of, and the
adoption of any provision inconsistent with, this Section 1 by
the Board or the designation by the Board of any additional
committees, shall require the affirmative vote of 80% of the
entire Board.
Section 2. Meetings; Notice.
Regular meetings of committees shall be held at such
times and places as the Board or the committee in question may
from time to time determine. Special meetings of any committee
may be called at any time, at any place and for any purpose by
the Chairman of such committee, the Chairman of the Board, or
the President, or by any officer of the Corporation upon the
request of a majority of the members of such committee. Notice
of regular meetings of the committees need not be given. Notice
of every special meeting of any committee shall be given to
each member at his usual place of business, or at such other
address as shall have been furnished by him for the purpose.
Such notice shall be given at least twenty-four hours before
the meeting by telephone or by being personally delivered,
mailed, or telegraphed. Such notice need not include a
statement of the business to be transacted at, or the purpose
of, any such meeting.
Section 3. Committee Members; Board of Director Nominations.
(a) Subject to the terms of Section 3(b) of this
Article V:
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(i) Each member of any committee of the Board shall
hold office until such member's successor is elected and has
qualified, unless such member sooner dies, resigns or is
removed.
(ii) Until the third anniversary of the Effective
Time, the Board may remove a director from a committee or
change the chairmanship of a committee only by resolution
adopted by the affirmative vote of 80% of the entire Board.
(iii) The Board may designate one or more Directors
as alternate members of any committee to fill any vacancy on a
committee and to fill a vacant chairmanship of a committee,
occurring as a result of a member or chairman leaving the
committee, whether through death, resignation, removal or
otherwise. Any such designation may only be made or amended by
the affirmative vote of 80% of the entire Board.
(b) Until the third anniversary of the Effective
Time:
(i) The members of the Executive Committee will
consist of four CUC Directors (as defined below) and four HFS
Directors (as defined below); the members of the Compensation
Committee will consist of two CUC Directors and two HFS
Directors; and the members of the Audit Committee will consist
of two CUC Directors and two HFS Directors.
(ii) If the number of CUC Directors and HFS
Directors serving, or that would be serving following the next
stockholders' meeting at which Directors are to be elected, as
Directors of the Corporation or as members of any committee of
the Board would not be equal, then, the Executive Committee
shall promptly nominate Directors for election to the Board at
the next stockholders' meeting at which Directors are to be
elected to the Board, elect Directors to fill vacancies on the
Board in between stockholders' meetings or elect Directors to
fill vacancies on any committee of the Board (to the extent an
alternate member has not previously been designated by the
Board), as the case may be, by resolution adopted in accordance
with Section 1(a)
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of Article V and as provided in clause (iv) of this Section
3(b).
(iii) The CUC Directors shall designate the Chairman
of the Audit Committee and the HFS Directors shall designate
the Chairman of the Compensation Committee.
(iv) Nominations of Directors for election to the
Board at any annual or special meeting of stockholders, the
election of Directors to fill vacancies on the Board in between
stockholders' meetings or the election of Directors to fill
vacancies on any committee of the Board (to the extent an
alternate member has not been previously designated by the
Board) shall be undertaken by the Executive Committee such that
the number of HFS Directors and CUC Directors on the Board or
any committee of the Board shall be equal. The term "HFS
Director" means (A) any person serving as a Director of HFS on
May 27, 1997 (or any person appointed by the Board of Directors
of HFS after May 27, 1997 to fill a vacancy on the HFS Board
created other than due to an increase in the size of the Board
of Directors of HFS) who continues as a Director of CUC at the
Effective Time and (B) any person who becomes a Director of CUC
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 CUC on May 27, 1997 (or
any person appointed by the Board of Directors of CUC after May
27, 1997 to fill a vacancy on the CUC Board created other than
due to an increase in the size of the Board of Directors of
CUC) who continues as a Director of CUC at the Effective Time,
(B) any of the four persons designated by the CUC Directors to
become a Director of CUC at the Effective Time and (C) any
person who becomes Director of CUC and who was designated as
such by the remaining CUC Directors prior to his or her
election.
Section 4. Amendments.
Notwithstanding anything contained in these By-Laws
or the Certificate of Incorporation to the contrary and in
addition to any other requirement set forth herein and therein,
until the third anniversary of the Effective
-15-
Time, the affirmative vote of at least 80% of the entire Board
shall be required for the Board to amend, modify or repeal, or
adopt any provision inconsistent with, the provisions of this
Article V.
ARTICLE VI
Indemnification of Directors, Officers and Employees
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation.
Subject to Section 3 of this Article VI, the
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such
person is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation.
-16-
Subject to Section 3 of this Article VI, the
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation
to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving
at the request of the Corporation as a director, officer, em-
ployee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless
and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem
proper.
Section 3. Authorization of Indemnification.
Any indemnification under this Article VI (unless
ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the
circumstances because such person has met the applicable
standard of conduct set forth in Section 1 or Section 2 of this
Article VI, as the case may be. Such determination shall be
made (i) by a majority vote of the Directors who are not
parties to such action, suit or proceeding, even though less
than a quorum, or (ii) if there are no such Directors, or if
such Directors so direct, by independent legal counsel in a
written opinion or (iii) by the stockholders. To the extent,
however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in defense of any claim,
issue or matter there-
-17-
in, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined.
For purposes of any determination under Section 3 of
this Article VI, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had
no reasonable cause to believe such person's conduct was
unlawful, if such person's action is based on the records or
books of account of the Corporation or another enterprise, or
on information supplied to such person by the officers of the
Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation
or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation
or another enterprise. The term "another enterprise" as used
in this Section 4 shall mean any other corporation or any part-
nership, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to
be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of
conduct set forth in Section 1 or 2 of this Article VI, as the
case may be.
Section 5. Indemnification by a Court.
Notwithstanding any contrary determination in the
specific case under Section 3 of this Article VI, and
notwithstanding the absence of any determination thereunder,
any director or officer may apply to the Court of Chancery in
the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article
VI. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the
director or officer is proper in the circumstances because such
person has met the appli-
-18-
cable standards of conduct set forth in Section 1 or 2 of this
Article VI, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this
Article VI nor the absence of any determination thereunder
shall be a defense to such application or create a presumption
that the director or officer seeking indemnification has not
met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5
shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the
director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such
application.
Section 6. Expenses Payable in Advance.
Expenses incurred by a director or officer in
defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article
VI.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses.
The indemnification and advancement of expenses
provided by or granted pursuant to this Article VI shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled
under the Certificate of Incorporation, any By-Law, agreement,
vote of stockholders or disinterested Directors or otherwise,
both as to action in such person's official capacity and as to
action in another capacity while holding such office, it being
the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VI shall
be made to the fullest extent permitted by law. The provisions
of this Article VI shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1
or 2 of this Article VI but whom the Corporation has the power
or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
-19-
Section 8. Insurance.
The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of
the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the
Corporation would have the power or the obligation to indemnify
such person against such liability under the provisions of this
Article VI.
Section 9. Certain Definitions.
For purposes of this Article VI, references to "the
Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its Directors or
officers, so that any person who is or was a director or
officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at
the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enter-
prise, shall stand in the same position under the provisions of
this Article VI with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had
continued. For purposes of this Article VI, references to
"fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed
-20-
to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article VI.
Section 10. Survival of Indemnification and Advancement of
Expenses.
The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VI shall,
unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification.
Notwithstanding anything contained in this Article VI
to the contrary, except for proceedings to enforce rights to
indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any
director or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents.
The Corporation may, to the extent authorized from
time to time by the Board of Directors, provide rights to
indemnification and to the advancement of expenses to employees
and agents of the Corporation similar to those conferred in
this Article VI to Directors and officers of the Corporation.
ARTICLE VII
Seal
Section 1.
The Corporate seal shall bear the name of the
Corporation and the words "Corporate Seal, Delaware."
-21-
ARTICLE VIII
Amendments
Section 1. Amendments of By-Laws.
Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be altered, amended or
repealed at any regular meeting of the stockholders (or at any
special meeting thereof duly called for that purpose) by the
vote of a majority of the shares outstanding and entitled to
vote at such meeting; provided that in the notice of such
special meeting notice of such purpose shall be given. Subject
to the laws of the State of Delaware, the provisions of
Certificate of Incorporation and the provisions of these By-
Laws (including, without limitation, the greater vote
requirement set forth in Section 7 of Article III, Sections 1
and 3 of Article IV and Sections 1 and 4 of Article V hereof),
the Board of Directors may by majority vote of those present at
any meeting at which a quorum is present amend these By-Laws,
or enact such other bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of
the Corporation.
-22-