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
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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,
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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 ▇▇▇
▇▇▇▇▇"), 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-
▇▇▇▇▇ 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
-12-
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
-13-
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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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.
-15-
(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
-16-
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,
-18-
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.
-19-
(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
-20-
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.
-22-
(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
-23-
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 ▇▇▇▇▇▇▇ & Co.
Inc. ("Bear ▇▇▇▇▇▇▇"), 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 ▇▇▇▇▇▇▇ 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
-34-
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
-37-
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
-38-
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 ▇▇▇▇▇▇▇, ▇▇▇▇▇ &
Co. ("▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ ▇▇▇▇▇, 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
-41-
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;
-42-
(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-
-43-
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 ▇▇▇▇▇'▇ 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 ▇▇▇▇▇'▇ 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-
-49-
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
-51-
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
-52-
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, ▇▇. ▇▇▇▇▇▇ shall
serve as Chairman of the Board of Directors and Chairman of the
Executive Committee of CUC, and from and after January 1, 2000,
▇▇. ▇▇▇▇▇▇ 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, ▇▇. ▇▇▇▇▇▇▇▇▇ shall serve as
President and Chief Executive Officer of CUC, and from and
after January 1, 2000, ▇▇. ▇▇▇▇▇▇▇▇▇ 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
▇▇▇ ▇▇▇▇▇), 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 ▇▇. ▇▇▇▇▇▇▇▇▇ 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 ▇▇. ▇▇▇▇▇▇▇▇▇ 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 ▇▇. ▇▇▇▇▇▇▇▇▇ 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. ▇▇. ▇▇▇▇▇▇▇▇▇
and ▇▇. ▇▇▇▇▇▇, 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, ▇▇▇▇▇ & ▇▇▇▇, 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, ▇▇▇▇▇▇▇ & ▇▇▇▇ 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.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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(b) if to HFS, to
HFS Incorporated
▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇
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. ▇▇▇▇ ▇▇▇▇▇▇▇
E. ▇▇▇▇ ▇▇▇▇▇▇▇
President and Chief Operating
Officer
HFS INCORPORATED
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive
Officer
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