<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HFS INCORPORATED
- -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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As filed with the Commission on August 28, 1997
<PAGE>
[CUC LOGO] [HFS LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of CUC International Inc. and HFS Incorporated
have agreed on a "merger of equals" designed to create one of the world's
premier consumer services companies. The combined company will be named
Cendant Corporation.
If the merger is completed, HFS stockholders will receive 2.4031 shares of
CUC common stock for each share of HFS common stock that they own. CUC
stockholders will continue to own their existing shares after the merger. We
estimate that the shares of CUC common stock to be issued to HFS stockholders
will represent approximately 50% of the outstanding stock of CUC after the
merger. The shares of CUC common stock held by CUC stockholders prior to the
merger will represent approximately 50% of the outstanding stock of CUC after
the merger.
The merger cannot be completed unless the stockholders of both companies
approve it. We have each scheduled special meetings for our stockholders to
vote on the merger. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the merger. If you fail to
return your card, the effect in most cases will be a vote against the merger.
The dates, times and places of the meetings are as follows:
FOR CUC STOCKHOLDERS:
Wednesday, October 1, 1997, 10:00 a.m.
Hyatt Regency Greenwich
1800 East Putnam Avenue
Old Greenwich, Connecticut
FOR HFS STOCKHOLDERS:
Wednesday, October 1, 1997, 10:00 a.m.
HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain
information about our companies from documents that we have filed with the
Securities and Exchange Commission. We encourage you to read this document
carefully.
/s/ Walter A. Forbes /s/ Henry R. Silverman
Walter A. Forbes Henry R. Silverman
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
CUC International Inc. HFS Incorporated
- -------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE CUC COMMON STOCK TO BE ISSUED UNDER THIS JOINT
PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
This Joint Proxy Statement/Prospectus dated August 28, 1997, was first
mailed to stockholders on or about August 29, 1997.
<PAGE>
[CUC LOGO]
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF CUC INTERNATIONAL INC.:
A Special Meeting of Stockholders (the "CUC Special Meeting") of CUC
International Inc. ("CUC") will be held at 10:00 a.m., local time, on
Wednesday, October 1, 1997, at the Hyatt Regency Greenwich, 1800 East Putnam
Avenue, Old Greenwich, Connecticut for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of
May 27, 1997, between CUC and HFS Incorporated ("HFS"), pursuant
to which HFS will be merged with and into CUC, with CUC continuing
as the surviving corporation in the merger (the "Merger") and
changing its name to Cendant Corporation. Approval of the Merger
Agreement by CUC stockholders will also constitute approval of the
transactions contemplated thereby, including, among others, the
Merger, the issuance of shares of CUC common stock to HFS
stockholders pursuant to the Merger Agreement (the "Share
Issuance") and the amendment and restatement of CUC's Amended and
Restated Certificate of Incorporation at the time of the Merger,
including the change of CUC's name to Cendant Corporation (the
"Certificate Amendment"). The Merger, the Share Issuance, the
Certificate Amendment and the Merger Agreement are more fully
described in the accompanying Joint Proxy Statement/Prospectus.
Copies of the Merger Agreement and the CUC Amended and Restated
Certificate of Incorporation (as proposed to be amended by the
Certificate Amendment) are attached as Appendices A and B,
respectively, to the accompanying Joint Proxy
Statement/Prospectus.
(2) To consider and vote upon a proposal to approve a new stock option
and restricted stock plan (the "New Stock Plan") for the
directors, officers and key employees of CUC, which plan will
become effective only upon consummation of the Merger. The terms
of the New Stock Plan are set forth in Appendix E to the
accompanying Joint Proxy Statement/Prospectus. Adoption of the New
Stock Plan is conditioned upon its approval by each of the CUC
stockholders and the HFS stockholders.
(3) To transact such other business as may properly come before the
CUC Special Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on August 18, 1997,
the record date set for the CUC Special Meeting, are entitled to notice of,
and to vote at, the CUC Special Meeting or any adjournment or postponement
thereof. CUC stockholders will not be entitled to dissenters' appraisal
rights in connection with the Merger or the other matters to be considered at
the CUC Special Meeting.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE NEW
STOCK PLAN, HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS
OF CUC AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE NEW STOCK PLAN AT THE
CUC SPECIAL MEETING.
By Order of the Board of Directors,
/s/ Robert T. Tucker
Robert T. Tucker
Secretary
Stamford, Connecticut
August 28, 1997
YOU ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. YOU MAY REVOKE YOUR PROXY IN
THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS
AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE CUC SPECIAL MEETING.
<PAGE>
[HFS LOGO]
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF HFS INCORPORATED:
A Special Meeting of Stockholders (the "HFS Special Meeting") of HFS
Incorporated ("HFS") will be held at 10:00 a.m., local time, on Wednesday,
October 1, 1997, at the offices of HFS, 6 Sylvan Way, Parsippany, New Jersey
07054, for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of
May 27, 1997, between HFS and CUC International Inc. ("CUC"),
pursuant to which HFS will be merged with and into CUC, with CUC
continuing as the surviving corporation in the merger (the
"Merger") and changing its name to Cendant Corporation. Approval
of the Merger Agreement by HFS stockholders will also constitute
approval of the transactions contemplated thereby, including the
Merger. The Merger and the Merger Agreement are more fully
described in the accompanying Joint Proxy Statement/ Prospectus,
and a copy of the Merger Agreement is attached as Appendix A to
the accompanying Joint Proxy Statement/Prospectus.
(2) To consider and vote upon a proposal to approve a new stock option
and restricted stock plan (the "New Stock Plan") for the
directors, officers and key employees of CUC, which plan will
become effective only upon consummation of the Merger. The terms
of the New Stock Plan are set forth in Appendix E to the
accompanying Joint Proxy Statement/Prospectus. Adoption of the New
Stock Plan is conditioned upon its approval by each of the CUC
stockholders and the HFS stockholders.
(3) To transact such other business as may properly come before the
HFS Special Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on August 18, 1997,
the record date set for the HFS Special Meeting, are entitled to notice of,
and to vote at, the HFS Special Meeting or any adjournment or postponement
thereof. HFS stockholders will not be entitled to dissenters' appraisal
rights in connection with the Merger or the other matters to be considered at
the HFS Special Meeting.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE NEW
STOCK PLAN, HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS
OF HFS AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE NEW STOCK PLAN AT THE
HFS SPECIAL MEETING.
By Order of the Board of Directors,
/s/ Jeanne M. Murphy
Jeanne M. Murphy
Secretary
Parsippany, New Jersey
August 28, 1997
YOU ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE. YOU MAY REVOKE YOUR PROXY IN
THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS
AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE HFS SPECIAL MEETING.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER .......................................... 1
SUMMARY ......................................................................... 2
THE PROPOSED MERGER ............................................................. 16
Background of the Merger ....................................................... 16
CUC's Rationale for the Merger; Recommendation of the CUC Board of Directors ... 18
Opinion of CUC's Financial Advisor ............................................. 20
HFS's Rationale for the Merger; Recommendation of the HFS Board of Directors ... 23
Opinion of HFS's Financial Advisor ............................................. 26
Federal Income Tax Consequences of the Merger .................................. 31
Fiscal Year .................................................................... 33
Accounting Treatment ........................................................... 33
HSR Act and Other Regulatory Approvals ......................................... 33
No Appraisal Rights ............................................................ 34
Cautionary Statement Concerning Forward-Looking Statements ..................... 34
Restrictions on Resales by Affiliates .......................................... 35
Management's Discussion and Analysis of Unaudited Historical Combining Financial
Condition and Results of Operations ........................................... 35
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTERESTS .............. 37
Employment Agreement of CUC Chairman and Chief Executive Officer ............... 37
Employment Agreement of HFS Chairman and Chief Executive Officer ............... 38
Agreements with Other Executive Officers ....................................... 39
Certain Other Benefits ......................................................... 42
Indemnification and Insurance .................................................. 43
DIRECTORS AND MANAGEMENT OF CUC FOLLOWING THE MERGER ............................ 43
General ........................................................................ 43
Directors ...................................................................... 43
Board Composition and Committees ............................................... 46
Senior Executives of CUC Following the Merger .................................. 47
DIRECTORS AND EXECUTIVE OFFICERS; EXECUTIVE COMPENSATION; STOCK OWNERSHIP OF
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS ....................... 48
THE NEW STOCK PLAN .............................................................. 48
Description of the New Stock Plan .............................................. 48
Federal Income Tax Considerations .............................................. 50
INFORMATION CONCERNING THE HFS SPECIAL MEETING .................................. 52
Purpose, Time and Place ........................................................ 52
Record Date; Quorum; Vote Required ............................................. 53
Proxies ........................................................................ 53
Appraisal Rights ............................................................... 54
INFORMATION CONCERNING THE CUC SPECIAL MEETING .................................. 55
Purpose, Time and Place ........................................................ 55
Record Date; Quorum; Vote Required ............................................. 55
Proxies ........................................................................ 56
Appraisal Rights ............................................................... 56
THE MERGER AGREEMENT ............................................................ 57
General ........................................................................ 57
i
<PAGE>
Closing; Effective Time ........................................................ 57
Amendments to CUC Certificate .................................................. 57
Amendments to CUC By-Laws ...................................................... 57
Consideration to be Received in the Merger ..................................... 57
Exchange of Shares ............................................................. 58
Representations and Warranties ................................................. 58
Conduct of Business ............................................................ 59
No Solicitation ................................................................ 60
HFS Stock Options and HFS Stock Plans .......................................... 61
Company Officers; Employment Contracts; New Stock Plan ......................... 62
HFS Convertible Notes .......................................................... 63
Transition Planning ............................................................ 63
Conditions to the Consummation of the Merger ................................... 63
Termination .................................................................... 65
Termination Fees ............................................................... 66
Expenses ....................................................................... 66
Amendment and Waiver ........................................................... 66
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CUC AND HFS ............................. 67
Authorized Capital ............................................................. 67
Board of Directors ............................................................. 67
Committees of the Board of Directors ........................................... 68
Newly Created Directorships and Vacancies ...................................... 68
Removal of Directors ........................................................... 69
Officers ....................................................................... 69
Special Meetings of Stockholders ............................................... 69
Quorum at Stockholder Meetings ................................................. 69
Stockholder Action by Written Consent .......................................... 70
Advance Notice of Stockholder-Proposed Business at Annual Meetings ............. 70
Amendment of Governing Documents ............................................... 71
Fair Price Provisions .......................................................... 71
Disqualified Stockholders ...................................................... 72
DESCRIPTION OF CAPITAL STOCK OF CUC FOLLOWING THE MERGER ........................ 72
Authorized Capital Stock ....................................................... 72
CUC Common Stock ............................................................... 72
CUC Preferred Stock ............................................................ 73
Stock Exchange Listing; Delisting and Deregistration of HFS Common Stock ....... 73
EXPERTS ......................................................................... 73
LEGAL MATTERS ................................................................... 74
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS ...................................... 75
WHERE YOU CAN FIND MORE INFORMATION ............................................. 75
INDEX TO PRO FORMA FINANCIAL STATEMENTS ......................................... F-1
Appendix A: Agreement and Plan of Merger, dated as of May 27, 1997, between CUC
International Inc. and HFS Incorporated ............................. A-i
Appendix B: Form of Amended and Restated Certificate of Incorporation ........... B-1
Appendix C: Form of Amended and Restated By-Laws ................................ C-1
Appendix D: Plan for Corporate Governance Following the Effective Time .......... D-1
Appendix E: Form of New Stock Plan .............................................. E-1
Appendix F: Opinion of Goldman, Sachs & Co. .....................................F-F-1
Appendix G: Opinion of Bear, Stearns & Co. Inc. ................................. G-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS HFS MERGING WITH CUC?
A: The Boards of CUC and HFS believe that the merger will create a
preeminent worldwide consumer and business services company that will
result in significant benefits to the two companies' stockholders,
customers and employees. By combining HFS's brands and consumer reach
of more than 100 million customers annually who use its travel and real
estate services with CUC's direct marketing expertise, club membership
system and approximately 69 million members worldwide, the combined
company will be one of the foremost consumer and business services
companies in the world with new growth opportunities not available to
either company on its own.
Q: WHAT WILL HFS STOCKHOLDERS RECEIVE FOR THEIR HFS SHARES?
A: HFS stockholders will receive 2.4031 shares of CUC common stock in
exchange for each of their shares of HFS common stock. This exchange
ratio will not change, even if the market price of the CUC common stock
or the HFS common stock increases or decreases between now and the date
that the merger is completed.
CUC will not issue fractional shares in the merger. As a result, the
total number of CUC common shares that you will receive in the merger
will be rounded down to the nearest whole number, and you will receive
a cash payment for the value of the remaining fraction of a CUC common
share that you would otherwise receive.
Q: WILL CUC STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A: No. CUC stockholders will continue to hold the CUC shares they
currently own. After the merger, these shares will represent an
ownership interest in the combined businesses of CUC and HFS.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as
soon as possible, so that your shares can be voted at the October 1,
1997 CUC stockholder meeting (if you are a CUC stockholder) or at the
October 1, 1997 HFS stockholder meeting (if you are an HFS
stockholder).
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger in the Fall of 1997. However, it
is possible that delays in obtaining regulatory approvals could require
us to complete the merger at a later time.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares,
following the directions provided by your broker. Your broker will not
be able to vote your shares without instructions from you.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at
the applicable stockholder meeting. You can do this in one of three
ways. First, you can send a written notice stating that you would like
to revoke your proxy. Second, you can complete and submit a new proxy
card. If you choose either of these two methods, you must submit your
notice of revocation or your new proxy card to the appropriate
Corporate Secretary (to CUC at the address on page 2, if you are a CUC
stockholder, or to HFS at the address on page 2, if you are an HFS
stockholder). Third, you can attend your stockholder meeting and vote
in person. However, your attendance alone will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: SHOULD HFS OR CUC STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. If you are an HFS stockholder, after the merger is completed you
will receive written instructions for exchanging your HFS common shares
for CUC common shares (and your cash payment in lieu of any fractional
CUC common share). If you are a CUC stockholder, you should retain your
certificates as the company's name change will not require surrender of
CUC stock certificates at any time.
1
<PAGE>
SUMMARY
This summary highlights selected information from this document, and may
not contain all of the information that is important to you. To better
understand the merger, and for a more complete understanding of the legal
terms of the merger, you should read this entire document carefully, as well
as those additional documents to which we refer you. See "WHERE YOU CAN FIND
MORE INFORMATION" (Page 75).
THE COMPANIES
CUC INTERNATIONAL INC.
707 Summer Street
Stamford, Connecticut 06901
Tel.: (203) 324-9261
CUC is a leading technology-driven, membership-based consumer services
company, providing approximately 69 million members with access to a variety
of goods and services worldwide. These memberships include such components as
shopping, travel, auto, dining, home improvement, lifestyle, vacation
exchange, credit card and checking account enhancement packages, financial
products and discount programs. CUC also administers insurance package
programs which are generally combined with discount shopping and travel for
credit union members, distributes welcoming packages which provide new
homeowners with discounts for local merchants, and provides travelers with
value-added tax refunds. CUC's membership activities are conducted
principally through its Comp-U-Card division and CUC's wholly-owned
subsidiaries, FISI*Madison Financial Corporation, Benefit Consultants, Inc.,
Interval International Inc., Entertainment Publications, Inc. and SafeCard
Services, Inc. CUC also offers consumer software in various multimedia forms
through its CUC Software division. During fiscal 1997, CUC acquired Davidson
& Associates, Inc., Sierra On-Line, Inc. and Knowledge Adventure, Inc. These
companies develop, publish, manufacture and distribute educational,
entertainment and personal productivity interactive multimedia products for
home and school use.
HFS INCORPORATED
6 Sylvan Way
Parsippany, New Jersey 07054
Tel.: (201) 428-9700
HFS is one of the foremost global services providers. HFS provides
services to consumers through intermediaries in the travel and real estate
industries. In the travel industry, HFS, through its subsidiaries, franchises
hotels primarily in the mid-priced and economy markets. It is the world's
largest hotel franchisor, operating the Days Inn(Registered Trademark),
Ramada(Registered Trademark) (in the United States), Howard
Johnson(Registered Trademark), Super 8(Registered Trademark),
Travelodge(Registered Trademark) (in North America), Villager
Lodge(Registered Trademark), Knights Inn(Registered Trademark) and Wingate
Inn(Registered Trademark) franchise systems. Additionally, HFS owns the Avis
worldwide vehicle rental system, which is operated through its franchisees
and is the second-largest car rental system in the world (based on total
revenues and volume of rental transactions). HFS currently owns 100% of the
capital stock of, and operates a subsidiary which is, the world's largest
Avis franchisee, but HFS intends to dilute its interest in this subsidiary to
approximately 25% as a result of an initial public offering of this
subsidiary's capital stock in the Fall of 1997. HFS also owns Resort
Condominiums International, Inc., a leading timeshare exchange organization.
As a result of its April 1997 merger with PHH Corporation, HFS now operates
the second largest provider in North America of comprehensive vehicle
management services and the market leader in the United Kingdom among the
four nationwide providers of fuel card services and the six nationwide
providers of vehicle management services.
In the residential real estate industry, HFS, through its subsidiaries,
franchises real estate brokerage offices and is the world's largest real
estate brokerage franchisor. Additionally, HFS is the largest provider of
corporate relocation services in the United States, offering relocation
clients a variety of services in
2
<PAGE>
connection with the transfer of a client's employees. Through PHH Mortgage
Services Corporation, HFS originates, sells and services residential mortgage
loans in the United States, marketing such services to consumers through
relationships with corporations, affinity groups, financial institutions,
real estate brokerage firms and other mortgage banks.
As a franchisor of hotels, residential real estate brokerage offices and
car rental operations, HFS licenses the owners and operators of independent
businesses to use HFS's brand names. HFS does not own or operate hotels or
real estate brokerage offices. Instead, HFS provides its franchisee customers
with services designed to increase their revenue and profitability.
RATIONALE FOR THE MERGER (SEE PAGES 18 AND 23)
The Boards of Directors of CUC and HFS considered a number of factors in
their respective deliberations concerning the Merger.
The CUC and HFS Boards of Directors believe that the merger offers
significant benefits not available to either company on its own. By combining
HFS's brands and consumer reach of more than 100 million customers with CUC's
direct marketing expertise, club membership system and approximately 69
million members worldwide, the combined company will be one of the foremost
consumer and business services companies in the world with new growth
opportunities.
While each company has an inherently strong growth base, we expect the
combination to provide enhanced growth opportunities. Examples of potential
growth opportunities include: direct marketing of CUC's membership programs,
such as Travelers Advantage(Registered Trademark), Shoppers
Advantage(Registered Trademark), Entertainment(Registered Trademark) discount
books and new NetMarket(Registered Trademark) interactive products, to HFS
customers; linking HFS's relocation services with CUC's "New Mover" services,
such as Welcome Wagon(Registered Trademark) and Getting to Know
You(Registered Trademark), which provide coupons and other benefits from
local merchants to new residents; combining HFS's one million annual home
buyers and sellers with CUC's CompleteHome(Registered Trademark) Service,
which provides home improvement, repair and upkeep information, a referral
data base of contractors and other services for home owners; building on
vehicle leasing opportunities through a combination of CUC's Wright Express
unit, a provider of information and financial management services to motor
vehicle fleets, and HFS's PHH fleet management service; and combining HFS
brand names with CUC's on-line transactions capability.
The CUC and HFS Boards of Directors also believe that the merger may
result in certain beneficial synergies between HFS's Preferred Alliance
products and services and CUC's marketing infrastructure and between CUC's
capability for on-line transactions and HFS's brand names.
Among the potentially negative factors relating to the merger which were
considered by the CUC and HFS Boards of Directors are the possibility that
the operations of CUC and HFS will not be integrated successfully or in a
timely manner, the possibility that certain anticipated cross-marketing
benefits and technological efficiencies between the two companies will not be
fully recognized and the possibility that the market's perception of the
combined company may not be as favorable as currently anticipated. Our Boards
believe that the benefits of the merger significantly outweigh any potential
negative considerations and that the strong management team drawn from both
companies will work quickly to realize the potential growth opportunities
offered by the merger.
RECOMMENDATIONS TO STOCKHOLDERS (SEE PAGES 18 AND 23)
CUC. CUC's Board of Directors has unanimously approved the merger and the
merger agreement. The CUC Board recommends that CUC stockholders vote FOR the
proposal to approve the merger agreement, pursuant to which HFS will merge
with and into CUC and CUC will issue shares of its common stock to HFS
stockholders, and FOR the proposal to approve the new stock option and
restricted stock plan for the directors, officers and key employees of the
combined company following consummation of the merger.
HFS. HFS's Board of Directors has unanimously approved the merger (with
one director abstaining because of his affiliation with Bear Stearns, HFS's
financial advisor). The HFS Board recommends that
3
<PAGE>
HFS stockholders vote FOR the proposal to approve the merger agreement,
pursuant to which HFS will merge with and into CUC, and FOR the proposal to
approve the new stock option and restricted stock plan for the directors,
officers and key employees of the combined company following consummation of
the merger.
FINANCIAL HIGHLIGHTS OF CUC INTERNATIONAL INC.
The following table presents financial highlights after giving effect to
the merger of CUC with HFS (accounted for as a pooling of interests). The
income statement highlights for the years ended December 31, 1995 and 1996
combine the historical operating results of CUC for the years ended January
31, 1996 and 1997 with the historical and pro forma operating results of HFS
for the years ended December 31, 1995 and 1996. The balance sheet highlights
at March 31, 1997 combine the historical balance sheet items of CUC at April
30, 1997 with the pro forma balance sheet items of HFS at March 31, 1997.The
following financial highlights should be read in conjunction with the Pro
Forma financial statements and the historical financial statements of CUC and
HFS included in and incorporated by reference into this Joint Proxy
Statement/Prospectus (see "--Unaudited Pro Forma Combined and Historical
Combined Financial Data" on page 11 of this Joint Proxy
Statement/Prospectus).
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1996
------------ ------------ -----------------
HISTORICAL PRO FORMA
COMBINED COMBINED
------------------------- -----------------
<S> <C> <C> <C>
INCOME STATEMENTS HIGHLIGHTS
Net revenues......................... $2,992,122 $3,787,827 $ 4,350,593
Net income........................... 302,825(1) 421,340(2) 471,158(2)
Net income per share (fully
diluted)............................ 0.41(1) 0.53(2) 0.57(2)
AT MARCH 31, 1997
-----------------
PRO FORMA
COMBINED
-----------------
BALANCE SHEET HIGHLIGHTS
Cash and marketable securities(3) ... $ 1,260,805
Working capital...................... 1,376,607
Total assets......................... 13,859,823
Long-term debt....................... 1,544,728
Shareholders' equity................. 4,213,557
Assets under management and mortgage
programs ........................... 5,628,978
Debt under management and mortgage
programs............................ 4,952,815
</TABLE>
- ------------
(1) Includes after-tax costs related to the abandonment of certain Ideon
Group, Inc. (Ideon) development efforts and the restructuring of CUC's
SafeCard division and CUC's corporate infrastructure of $62.1 million,
or $.09 per share.
(2) Includes after-tax costs incurred primarily in conjunction with CUC's
acquisitions of Davidson & Associates, Inc. (Davidson), Sierra On-Line,
Inc. (Sierra) and Ideon of $118.7 million or $.15 and $.14 per share
for the Historical Combined companies and Pro Forma Combined companies,
respectively.
(3) Excludes $89.8 million of cash restricted for employee benefit related
liabilities which were required to be funded prior to the HFS merger
with PHH Corporation (PHH).
THE MERGER (SEE PAGE 16)
The merger agreement, which is a legal document that governs the merger,
is attached as Appendix A to this Joint Proxy Statement/Prospectus. We
encourage you to read the merger agreement in its entirety and to consider it
carefully.
CONDITIONS TO THE MERGER (SEE PAGE 63)
The completion of the merger depends upon the satisfaction of a number of
conditions, including:
o HFS stockholders' approval of the merger agreement and the new stock
plan;
o CUC stockholders' approval of the merger agreement and the new stock
plan;
o the continued accuracy of each party's representations and warranties;
o the performance by each party of its obligations under the merger
agreement;
o clearance under domestic and foreign antitrust laws;
4
<PAGE>
o receipt of other required regulatory approvals;
o receipt of letters from HFS's and CUC's accountants as to the
appropriateness of accounting for the merger as a pooling of interests;
and
o receipt of legal opinions as to the tax-free nature of the merger.
Some of the conditions to the merger may be waived by the appropriate
party. Conditions that cannot be waived include the required approvals of the
merger agreement by the CUC and HFS stockholders and clearance under certain
antitrust laws.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 65)
CUC and HFS can agree to terminate the merger agreement without completing
the merger, and either of CUC or HFS can terminate the merger agreement under
various circumstances, including if (i) the merger is not completed by
December 31, 1997 (which date may be extended under specified circumstances
for 30 days); for instance, because the conditions summarized above have not
been met by such date, (ii) the required approvals of the CUC and HFS
stockholders have not been received or (iii) a court or other governmental
authority prohibits the merger.
TERMINATION FEES (SEE PAGE 66)
Each company has agreed to pay the other party a $300 million termination
fee if such company terminates the merger agreement (i) because, prior to the
receipt of such company's stockholders' approval, such company determines
that it is necessary to terminate the merger agreement in order to act in a
manner consistent with its fiduciary duties solely in order to concurrently
enter into an acquisition agreement with respect to an alternative proposal
deemed to be superior to the merger or (ii) because a qualifying takeover
proposal is made and the merger is not consummated by December 31, 1997 or
such company's stockholders failed to approve the merger and within 18 months
of such termination such company enters into any agreement relating to, or
any transaction is consummated which results in, the acquisition of a
business which constitutes 50% or more of the net revenues, net income or
assets of such company and its subsidiaries, taken as a whole, or 25% or more
of its equity securities.
INTERESTS OF CERTAIN PERSONS; CONFLICTS OF INTEREST (SEE PAGE 37)
The officers and directors of CUC and HFS may have interests in the merger
that are different from, or in addition to, the interests of stockholders
generally. For example, the combined company intends to amend and restate
employment agreements with certain senior executives of CUC and HFS,
including Henry R. Silverman, Chairman and Chief Executive Officer of HFS,
and Walter A. Forbes, Chairman and Chief Executive Officer of CUC, effective
as of the date that the merger is consummated.
Under his amended employment agreement, for a minimum of five years
following the effective time of the merger, Mr. Silverman will continue to
earn an annual base salary of not less than $1,500,000 and an annual bonus
not to exceed 150% of his annual base salary. Under his employment agreement
(prior to its amendment), Mr. Silverman was entitled to receive (over the
three-year period ending July 1, 2000) a total of 6 million options to
purchase HFS's common stock; in the event of a change in control, Mr.
Silverman would have been entitled to receive a lump sum payment (in cash or
stock) equal to the value of any of these options which would not yet have
been granted. However, in consideration for Mr. Silverman's waiving his
rights to this lump payment in connection with the merger, upon consummation
of the merger he will receive exercisable options to purchase approximately
14,418,600 shares of CUC's common stock (representing the equitably adjusted
number of HFS options to which he would have been entitled under his
employment agreement, prior to its amendment) at an exercise price equal to
the fair market value of CUC's common stock on the date of grant. In the
event CUC breaches Mr. Silverman's amended employment agreement or if his
employment is terminated by CUC other than for death, disability or "cause,"
Mr. Silverman will be entitled, among other things, to a lump sum cash
payment equal to (i) the lesser of (a) 150% of his annual base salary or (b)
the sum of his annual base salary plus 0.75% of "EBITDA" (as such term is
defined in Mr. Silverman's amended employment agreement) for the
5
<PAGE>
12 months preceding the date of termination, times (ii) the number of years
and partial years remaining in Mr. Silverman's period of employment under the
agreement. However, if (i) Mr. Silverman does not serve as Chairman of the
Board and the Executive Committee from and after January 1, 2000 through
December 31, 2001 for any reason other than death, disability or resignation,
(ii) prior to January 1, 2002, Mr. Silverman's employment is terminated by
CUC other than for "cause" or (iii) prior to January 1, 2002, CUC breaches
Mr. Silverman's amended employment agreement, then, in each case, in lieu of
the cash payment described in the preceding sentence, Mr. Silverman will be
entitled to receive $25,000,000 in cash and options to acquire CUC's common
stock with a Black-Scholes value of $12,500,000.
Under his amended and restated employment agreement, for a minimum of five
years following the effective time of the merger, Mr. Forbes will be paid an
annual base salary of not less than $1,250,000 and an annual bonus not to
exceed 100% of his annual base salary. Under his new agreement, upon
consummation of the merger, Mr. Forbes will also receive a grant of stock
options with respect to 4 million shares of CUC's common stock, which shares
will vest in equal installments on each of the first three anniversaries of
the merger, at an exercise price equal to the fair market value of CUC's
common stock on the date of grant. In the event (i) Mr. Forbes does not serve
as Chief Executive Officer of CUC from and after January 1, 2000 through
December 31, 2001 for any reason other than death, disability, retirement or
resignation, (ii) prior to January 1, 2002 Mr. Forbes' employment is
terminated (other than for death, disability or "cause") or (iii) prior to
January 1, 2002, CUC breaches Mr. Forbes agreement, Mr. Forbes will be
entitled to receive, among other things, $25,000,000 in cash and options to
acquire CUC's common stock with a Black-Scholes value of $12,500,000. Upon
any termination of Mr. Forbes' employment other than for "cause", he will be
entitled to receive a cash retirement benefit of $10,000,000 and all unpaid
base salary and incentive compensation awards on a pro rata basis for the
year of termination.
MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER (SEE PAGE 43)
Upon completion of the merger, the Board of Directors of the combined
company will consist of 30 members, half selected by CUC and half selected by
HFS.
Mr. Silverman will serve as President and Chief Executive Officer of the
combined company, and Mr. Forbes will serve as Chairman of the Board of
Directors of the combined company. On January 1, 2000, Mr. Forbes will become
President and Chief Executive Officer of the combined company and Mr.
Silverman will become Chairman of the Board of Directors of the combined
company. The remainder of the senior management team of the combined company
will be made up of individuals who currently hold senior executive positions
at CUC or HFS.
REGULATORY APPROVALS (SEE PAGE 33)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
prohibits CUC and HFS from completing the merger until we furnish certain
information to the Antitrust Division of the U.S. Department of Justice and
the U.S. Federal Trade Commission (FTC), and a required waiting period has
expired or been terminated. On June 12, 1997, CUC and HFS submitted the
required filings to the Antitrust Division and the FTC. On July 11, 1997, the
FTC issued a Request for Additional Documents and Other Additional
Information (second request) with respect to the merger, relating primarily
to the companies' timeshare exchange businesses. The second request extends
the time period for the FTC to review the merger for 20 days following
substantial compliance by both HFS and CUC with the second request.
HFS and CUC are engaged in discussions with the FTC concerning the
potential divestiture of Interval International Inc., CUC's timeshare
exchange business. It is expected that any such required divestiture would
not have a material financial impact on the combined company.
In addition, CUC or HFS may be required to either notify or obtain the
consent of (i) certain state regulatory authorities and federal secondary
market agencies in connection with various licenses and authorizations to act
as a mortgage lender and servicer; (ii) certain insurance regulatory
authorities,
6
<PAGE>
including the New York State Department of Insurance and the Colorado
Division of Insurance, for the acquisition of control of certain insurance
company subsidiaries of HFS; (iii) certain regulatory authorities in other
countries where HFS and/or CUC conduct business pursuant to certain foreign
antitrust and investment laws and regulations governing the conduct of
business in such countries; and (iv) the New Jersey Casino Control Commission
and the Mississippi Gaming Commission in connection with the activities of
certain HFS subsidiaries providing credit verification and marketing services
to casinos in those two states.
STOCKHOLDER MEETINGS AND APPROVALS (SEE PAGES 52 AND 55)
CUC. The special meeting of CUC stockholders called in connection with the
merger will be held at 10:00 a.m. on Wednesday, October 1, 1997, at the Hyatt
Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut. The
record date for determining the holders of CUC common stock that are entitled
to vote at CUC's special meeting is the close of business on Monday, August
18, 1997. At CUC's special meeting, stockholders will be asked to consider
and vote upon proposals to approve the merger agreement and the new stock
option and restricted stock plan for the directors, officers and key
employees of the combined company following consummation of the merger.
HFS. The special meeting of HFS stockholders called in connection with the
merger will be held at 10:00 a.m. on Wednesday, October 1, 1997, at the
offices of HFS, 6 Sylvan Way, Parsippany, New Jersey 07054. The record date
for determining the holders of HFS common stock that are entitled to vote at
HFS's special meeting is the close of business on Monday, August 18, 1997. At
HFS's special meeting, stockholders will be asked to consider and vote upon a
proposal to approve the merger agreement and the new stock option and
restricted stock plan for the directors, officers and key employees of the
combined company following consummation of the merger.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 20 AND 26)
In deciding to approve the merger, among the factors that CUC's Board of
Directors considered was the opinion of its financial advisor, Goldman, Sachs
& Co., that the exchange ratio of 2.4031 CUC common shares for each HFS
common share was fair to CUC. The full text of Goldman Sachs' written
opinion, dated May 27, 1997, describes the basis and assumptions on which it
rendered its opinion and is attached as Appendix F to this Joint Proxy
Statement/Prospectus. We encourage you to read this opinion in its entirety
and to consider it carefully.
Similarly, in deciding to approve the merger, one of the factors that
HFS's Board of Directors considered was the written opinion, dated May 27,
1997, of its financial advisor, Bear, Stearns & Co. Inc., that as of such
date the exchange ratio was fair, from a financial point of view, to the
holders of HFS common stock. The full text of Bear Stearns' opinion describes
the basis on which it rendered its opinion and is attached as Appendix G to
this Joint Proxy Statement/Prospectus. We encourage you to read Bear Stearns'
opinion in its entirety and to consider it carefully.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 31)
We have structured the merger so that none of CUC, HFS, CUC stockholders
or HFS stockholders will recognize any gain or loss for federal income tax
purposes in the merger (except for taxes payable because of cash received
instead of fractional shares of CUC common stock by HFS stockholders). We
have conditioned the merger on our receipt of legal opinions that this is the
case.
NO APPRAISAL RIGHTS (SEE PAGE 34)
Neither HFS stockholders nor CUC stockholders are entitled to dissenters'
appraisal rights in connection with the merger.
FISCAL YEAR (SEE PAGE 33)
CUC's fiscal year currently ends on January 31. Upon consummation of the
merger, CUC intends to change its fiscal year to that ending on December 31.
Accordingly, pro forma information includes CUC's
7
<PAGE>
fiscal years ended January 31, 1997, 1996 and 1995 and HFS's fiscal years
ended December 31, 1996, 1995 and 1994, which years are referred to as the
fiscal years ended December 31, 1996, 1995 and 1994 in this Joint Proxy
Statement/Prospectus.
ACCOUNTING TREATMENT (SEE PAGE 33)
We expect the merger to qualify as a pooling of interests, which means
that for accounting and financial reporting purposes, we will treat CUC and
HFS as if they had always been combined.
MARKETS AND MARKET PRICES (SEE PAGE 14)
The common stock of both CUC and HFS is currently listed on the New York
Stock Exchange (NYSE). The CUC common stock that will be issued in the merger
will be listed on the NYSE.
On May 27, 1997, the last trading date prior to the public announcement of
the proposed merger, the CUC common stock closed at $25.00 on the NYSE, and
the HFS common stock closed at $59.00 on the NYSE. On August 26, 1997, the
CUC common stock closed at $24.75 on the NYSE and the HFS common stock closed
at $58.94 on the NYSE.
AMENDMENTS TO CUC'S RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS (SEE
PAGE 57)
The merger agreement provides that, as part of the merger, CUC will amend
and restate its certificate of incorporation and by-laws to, among other
things:
o change its name to Cendant Corporation.
o increase its authorized capital stock from 601,000,000 shares to
2,010,000,000 shares, of which 10,000,000 are shares of preferred stock;
o increase its number of directors from 15 to 30;
o implement certain governance arrangements consistent with a "merger of
equals," such as provisions for the composition of the combined
company's board of directors and management succession; and
o require a supermajority vote of the directors to adopt certain
amendments to the by-laws.
CUC's proposed form of Amended and Restated Certificate of Incorporation
is attached as Appendix B and its proposed form of Amended and Restated
By-Laws is attached as Appendix C to this Joint Proxy Statement/Prospectus.
A vote by CUC's stockholders to approve and adopt the merger agreement is
a vote to approve the proposed Amended and Restated Certificate of
Incorporation. CUC's Board of Directors has the power to adopt the proposed
Amended and Restated By-Laws.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS (SEE PAGE 34)
CUC and HFS have each made forward-looking statements in this document
(and in documents that are incorporated by reference in this Joint Proxy
Statement/Prospectus) that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of CUC and HFS. Also, when we use words
such as "believes," "expects," "anticipates" or similar expressions, we are
making forward-looking statements. Stockholders should note that many
factors, some of which are discussed elsewhere in this document and in the
documents which we incorporate herein by reference, could affect the future
financial results of CUC and HFS and could cause those results to differ
materially from those expressed in this document. Among others, these factors
include operating, legal and regulatory risks, as well as economic, consumer
and competitive forces affecting our businesses.
8
<PAGE>
SELECTED FINANCIAL DATA
The information below sets forth selected historical, pro forma combined
and historical combined financial data. The results of operations for interim
periods are not necessarily indicative of the results for a full year. The
financial data should be read in conjunction with the (i) pro forma financial
statements; (ii) historical consolidated financial statements and related
notes thereto of CUC; and (iii) historical consolidated financial statements
and related notes thereto of HFS included elsewhere in or incorporated by
reference into this Joint Proxy Statement/Prospectus (see "INDEX TO PRO FORMA
FINANCIAL STATEMENTS").
HISTORICAL FINANCIAL DATA
The historical selected financial data of CUC and HFS as of and for each
of the years in the five year periods ended January 31, 1997 and December 31,
1996, respectively, set forth below, have been derived from audited financial
statements. The historical selected financial data of CUC and HFS as of and
for the three-month periods ended April 30, 1996 and 1997 and March 31, 1996
and 1997, respectively, set forth below, have been derived from unaudited
financial statements. The historical financial results of HFS have been
presented to include the results of PHH for all periods presented as a result
of the merger with PHH on April 30, 1997.
CUC INTERNATIONAL INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1)
Total revenues.................... $1,043,311 $1,278,664 $1,554,611 $1,935,232 $2,347,655 $515,479 $624,671
Income from continuing operations
before income taxes.............. 117,434 198,319 256,931(5) 235,312(3) 276,241(2) 84,124 114,034
Income from continuing
operations....................... 80,239 124,705 162,057(5) 144,975(3) 164,099(2) 52,121 70,473
Income per share from continuing
operations (4)................... $ .24 $ .34 $ .43(5) $ .37(3)$ .41(2) $ .13 $ .17
Cash dividends per share (4,8) ... $ .01 $ .01 $ .01 $ .01 $ .01 -- --
Weighted average number of common
and dilutive common equivalent
shares outstanding (4)........... 340,712 365,915 379,261 392,208 405,073 396,665 434,006
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31,
------------------------------------------------------------------
AT APRIL 30,
1993 1994 1995 1996 1997 1997
------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1)
Total assets (6)....... $1,032,269 $1,199,805 $1,772,122 $2,068,196 $2,473,372 $3,100,686
Long-term debt (7) .... 67,386 46,411 72,552 44,280 30,505 573,675
Shareholders' equity .. 389,461 558,181 826,083 1,002,523(9) 1,255,090 1,382,325
Working capital (6) ... 147,475 298,230 523,996 759,271 948,699 1,557,156
</TABLE>
- ------------
(1) Includes acquisitions accounted for in accordance with the
pooling-of-interests method of accounting and the purchase method of
accounting.
(2) Includes provisions for costs incurred principally in connection with
the acquisitions of Davidson, Sierra and Ideon. The charges aggregated
$179.9 million ($118.7 million or $.29 per share after-tax effect).
Such costs in connection with CUC's acquisitions of Davidson and Sierra
are non-recurring and are comprised primarily of transaction costs,
other professional fees and integration costs. Such costs associated
with CUC's acquisition of Ideon are non-recurring and include
integration and transaction costs as well as a provision relating to
certain litigation matters. On June 13, 1997, CUC entered into an
agreement which provides for the settlement of certain Ideon litigation
matters. Such agreement calls for the payment of $70.5 million over a
six-year period which was provided for during the year ended January
31, 1997.
(3) Includes provision for costs related to the abandonment of certain
Ideon development efforts and the restructuring of CUC's SafeCard
division and CUC's corporate infrastructure. The charges aggregated
$97.0 million ($62.1 million or $.16 per share after-tax effect).
(4) Adjusted to give retroactive effect to the three-for-two stock split
effective October 21, 1996 for shareholders of record on October 7,
1996.
(5) Includes net gain of $9.8 million ($6.2 million or $.02 per share
after-tax effect) related to the sale of The ImagiNation Network, Inc.
offset by costs related to Ideon's products abandoned and
restructuring.
(6) All periods presented reflect CUC's reclassifications of deferred
membership acquisition costs (previously classified as an offset to
deferred membership income) and membership solicitations in process
(previously classified as a current assets) to non-current assets.
(7) Includes current portion of long-term debt of $3.4 million, $6.3
million, $9.0 million, $1.4 million, $2.0 million and $2.3 million at
January 31, 1993, 1994, 1995, 1996 and 1997, and April 30, 1997,
respectively. Excludes $23.2 million, $5.5 million, $11.8 million,
$15.4 million and $31.4 million of amounts due under revolving credit
facilities at January 31, 1993, 1994, 1995, 1996, and 1997,
respectively, and $6.0 million due at January 31, 1993 under a note
payable issued in connection with the acquisition of Sally Foster Gift
Wrap, L.P.
(8) Represents cash dividends paid to Ideon common shareholders. No cash
dividends have been paid or declared with respect to CUC's common stock
during the five years ended January 31, 1997. However, an insignificant
amount of cash dividends were paid in respect of North American Outdoor
Group, Inc. common stock for the fiscal years ended January 31, 1994
and 1993.
(9) Effective January 1, 1995, Ideon changed its fiscal year end from
October 31 to December 31. Such Ideon transition period has been
excluded from the accompanying consolidated statements of income.
Ideon's revenues and net loss for the Ideon transition period were
$34.7 million and $(49.9) million, respectively. The net loss for the
Ideon transition period was principally the result of a $65.5 million
one-time, non-cash, pre-tax charge recorded in connection with a change
in amortization periods for deferred membership acquisition costs.
9
<PAGE>
HFS INCORPORATED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED JUNE 30,
------------------------------------------------------- ------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997 1996 1997
---------- -------- --------- ----------- ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(1)(2)
Net revenues ............... $792,160 $857,762 $892,120 $1,056,890 $1,440,172 $278,956 $525,885 $623,044 $1,099,597
Income (loss) before
extraordinary loss(3) .... 74,541 97,349 122,533 157,850 257,241(4) 43,678 91,104 103,617 (15,344)(5)
Income (loss) before
extraordinary loss per
share (fully
diluted)(3)(5)............. 0.64 0.75 0.95 1.12 1.58(4) 0.30 0.52 0.68 (0.10)(5)
Cash dividends declared per
share(6)................... 0.18 0.18 0.18 0.17 0.16 0.04 0.04 -- --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------- AT MARCH 31, AT JUNE 30,
1992 1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1)(2)
Total assets ...................... $4,994,954 $5,499,027 $5,664,920 $6,928,813 $10,866,000 $10,738,237 $10,745,616
Long-term debt .................... 236,088 347,712 347,416 300,778 748,421 978,749 1,173,967
Assets under management and
mortgage programs................. 3,805,748 4,058,764 4,115,360 4,955,609 5,729,234 5,628,978 5,315,833
Debt under management and mortgage
programs.......................... 3,273,080 3,629,701 3,791,562 4,427,872 5,089,943 4,952,815 4,776,153
</TABLE>
- ------------
(1) The merger of HFS with PHH has been accounted for as a pooling of
interests and, accordingly, the historical financial statements of HFS
have been restated to include the results of PHH for all periods
presented.
(2) On January 31, 1992, HFS purchased substantially all of the assets
comprising the franchise system of Days Inns of America, Inc. and
certain of its subsidiaries (Days Inn). On April 29, 1993, HFS
purchased the outstanding stock of the company which owns the Super 8
Motel franchise system (Super 8). On May 11, 1995, HFS acquired by
merger Central Credit Inc. (CCI), a gambling patron credit information
business. On August 1, 1995, a majority owned subsidiary of HFS
acquired the CENTURY 21 real estate brokerage franchise system (Century
21). On January 23, 1996, HFS purchased the assets comprising the
Travelodge hotel franchise system in North America (Travelodge). On
February 12, 1996, HFS purchased substantially all the assets
comprising the Electronic Realty Associates real estate brokerage
franchise system (ERA). During the second quarter of 1996, HFS
purchased the six previously non-owned CENTURY 21 U.S. regions (the
Century 21 NORS). On May 31, 1996, HFS acquired by merger Coldwell
Banker Corporation (Coldwell Banker). Consolidated results of HFS
include the operating results of the aforementioned acquisitions since
the respective dates of acquisition.
(3) Excludes extraordinary losses, net of tax of $1.6 million or $.01 per
share and $12.8 million or $.10 per share for the years ended December
31, 1992 and 1993, respectively, related to the early extinguishment of
debt.
(4) Includes a pre-tax restructuring charge of $7.0 million (approximately
$4.3 million, net of tax or $0.03 per share) related primarily to the
contribution of owned Coldwell Banker brokerage offices to an
independent trust.
(5) Includes a one-time pre-tax merger and restructuring charge of $303
million ($227 million, after tax) during the second quarter of 1997 in
connection with the merger of HFS with PHH for merger-related costs,
including severance, facility and system consolidations and
terminations, costs associated with exiting certain activities and
merger-related professional fees. Excluding such charge, net income was
$211.7 million or $1.21 per share for the six months ended June 30,
1997.
(6) Reflects two-for-one stock splits declared February 1994 and November
1995, respectively.
(7) Represents cash dividends paid to PHH common stockholders prior to its
merger with HFS. HFS has not declared or paid any cash dividends on its
common stock since its inception.
10
<PAGE>
RECENT EVENTS
HFS. On August 12, 1997, HFS agreed to make an investment in NRT
Incorporated (NRT), a newly formed corporation created to acquire residential
real estate brokerage firms. HFS has agreed to invest $157 million and, under
certain conditions, to invest up to approximately an additional $100 million,
in senior and convertible preferred stock of NRT and may also purchase
approximately $400 million of certain assets of real estate brokerage firms
acquired by NRT. NRT has agreed to acquire the assets of National Realty
Trust (Trust), an independent trust to which HFS contributed the owned
brokerage business of Coldwell Banker in connection with the Company's
acquisition of Coldwell Banker on May 31, 1996. HFS's investment in NRT is
subject to the Trust acquisition. The acquisition of the Trust is subject to
customary closing conditions (including antitrust clearances) and is expected
to close by the end of August 1997. There can be no assurances that any such
transaction will be consummated.
CUC. On August 14, 1997 CUC announced that it had entered into an
agreement to acquire Hebdo Mag International Inc. (Hebdo), a leading
international publisher and distributor of classified advertising
information. Privately-held Hebdo will be acquired in exchange for
approximately 17 million shares of CUC Common Stock valued at approximately
$440 million. The transaction is subject to customary closing conditions and
is expected to close in the fall of 1997 and is expected to be accounted for
as a pooling of interests.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED AND HISTORICAL COMBINED FINANCIAL DATA (SEE
"INDEX TO PRO FORMA FINANCIAL STATEMENTS")
The following table presents: (i) pro forma combined financial data for
the year ended December 31, 1996 and; (ii) historical combined financial data
as of March 31, 1997, and for the years ended December 31, 1994, 1995 and
1996, and the three-month periods ended March 31, 1996 and 1997. The pro
forma combined financial data reflects the combining of the historical
results of CUC and HFS, giving effect to acquisitions by HFS, which were
accounted for under the purchase method, made prior to the merger. The
historical combined financial data reflects the combining of the historical
results of CUC and HFS. The historical financial results of HFS have been
presented to include the results of PHH for all periods presented as a result
of the merger of HFS with PHH on April 30, 1997, which was accounted for as a
pooling of interests. The combination of CUC and HFS will be accounted for as
a pooling of interests. The statements of income data for the years ended
December 31, 1994, 1995 and 1996 and three months ended March 31, 1996 and
1997 include the historical operating results of CUC for the twelve months
ended January 31, 1995, 1996 and 1997 and three months ended April 30, 1996
and 1997, respectively. The balance sheet data at March 31, 1997 reflect the
historical financial position of CUC as of April 30, 1997.
CUC INTERNATIONAL INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C>
PRO FORMA COMBINED
STATEMENTS OF INCOME DATA
Net revenues............................ $4,350,593
Net income ............................. 471,158
Net income per share (fully
diluted)(2)............................ 0.57
Cash dividends declared per share(3) .. 0.04
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
HISTORICAL COMBINED
STATEMENTS OF INCOME DATA
Net revenues ......................... $2,446,731 $2,992,122 $3,787,827 $794,435 $ 1,150,556
Net income ........................... 286,590 302,825(1) 421,340(2) 95,799 161,577
Net income per share
(fully diluted) ..................... 0.41 0.41(1) 0.53(2) 0.13 0.19
Cash dividends declared per share(3) 0.04 0.04 0.04 0.01 0.01
PRO FORMA COMBINED AT MARCH 31,
BALANCE SHEET DATA 1997
--------------
Total assets ........................................................................... $13,859,823
Long-term debt ......................................................................... 1,544,728
Assets under management and
mortgage programs...................................................................... 5,628,978
Debt under management and
mortgage programs...................................................................... 4,952,815
Book value per share ................................................................... 5.28
</TABLE>
- ------------
(1) Includes after-tax costs related to the abandonment of certain Ideon
development efforts and the restructuring of CUC's SafeCard division
and CUC's corporate infrastructure of $62.1 million, or $.09 per share
of CUC's common stock.
(2) Includes after-tax costs incurred primarily in conjunction with the
acquisition of Davidson, Sierra and Ideon of $118.7 million or $.14 and
$.15 per share for the Pro Forma Combined companies and Historical
Combined companies, respectively.
(3) Represents cash dividends paid to Ideon and PHH common shareholders
prior to the Ideon acquisition and the merger with PHH by CUC and HFS,
respectively, which were accounted for as poolings of interests.
Neither CUC nor HFS has declared or paid any cash dividends on its
common stock other than a special dividend paid by CUC in connection
with a recapitalization of CUC effected in fiscal 1990.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth book value, net income and cash dividends
declared, per fully diluted common share of CUC and HFS on a historical, pro
forma combined, historical combined and HFS equivalent basis. Upon
consummation of the merger, each share of HFS common stock, shall be
converted into the right to receive 2.4031 shares of CUC's common stock. The
HFS Per Share Equivalent Data represents the corresponding pro forma combined
and historical combined per share data multiplied by the exchange ratio of
2.4031.
The pro forma combined per share data is derived from the "Unaudited Pro
Forma Combining Financial Statements" included elsewhere in this Joint Proxy
Statement/Prospectus and gives effect to the business combinations and pro
forma transactions of HFS prior to the merger as if they occurred on January
1, 1996 with CUC, accounted for as a pooling of interests (see "UNAUDITED PRO
FORMA COMBINING FINANCIAL STATEMENTS--Section A" and "UNAUDITED PRO FORMA
FINANCIAL STATEMENTS--Section B").
The historical combined data is derived from the "Unaudited Historical
Combining Financial Statements" included elsewhere in this Joint Proxy
Statement/Prospectus and gives effect to the business combination of
historical HFS (excluding any pro forma effects of transactions of HFS prior
to the Merger) with historical CUC, accounted for as a pooling of interests
(see "UNAUDITED HISTORICAL COMBINING FINANCIAL STATEMENTS--Section C").
The pro forma comparative per share data does not purport to represent
what the financial position or results of operations of CUC would actually
have been had the transactions identified above occurred at the beginning of
the relevant periods or to project CUC's financial position or results of
operations for any future date or period. This data should be read in
conjunction with the pro forma financial statements and the separate
financial statements and notes thereto of CUC and HFS, included elsewhere in,
or incorporated by reference into, this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT
--------------------------
DECEMBER 31, MARCH 31,
1996 1997
-------------- -----------
<S> <C> <C>
BOOK VALUE PER SHARE
Pro Forma Combined ............... $ 5.28 $ 5.28
Pro Forma Combined--HFS
Equivalent ...................... 12.69 12.68
Historical Combined............... 5.57 5.56
Historical Combined--HFS
Equivalent....................... 13.38 13.36
Historical:
CUC.............................. 3.12 3.38
HFS.............................. 19.87 19.52
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------- ---------------
1994 1995 1996 1996 1997
------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE
Pro Forma Combined................. $0.57(2)
Pro Forma Combined--HFS
Equivalent........................ 1.37
Historical Combined ............... $0.41 $0.41(1) 0.53(2) $0.13 $0.19
Historical Combined--HFS
Equivalent........................ 0.99 0.99 1.27 0.31 0.46
Historical:
CUC............................... 0.43 0.37(1) 0.40(2) 0.13 0.17
HFS............................... 0.95 1.12 1.58 0.30 0.52
CASH DIVIDENDS DECLARED PER
SHARE(3)
Pro Forma Combined................. $0.04
Pro Forma Combined--HFS
Equivalent........................ 0.04
Historical Combined................ $0.04 $0.04 0.04 $0.01
Historical Combined--HFS
Equivalent........................ 0.10 0.10 0.10 0.02
Historical:
CUC............................... 0.01 0.01 0.01
HFS............................... 0.18 0.17 0.16 0.04
</TABLE>
- ------------
(1) Includes provisions for costs related to the abandonment of certain
Ideon development efforts and the restructuring of CUC's SafeCard
division and CUC's corporate infrastructure of $97.0 million ($62.1
million after-tax). The after-tax impact on Historical Combined and
Historical CUC was to reduce net income per share is $.09 and $.16,
respectively.
(2) Includes provisions for costs incurred principally in connection with
the acquisitions of Davidson, Sierra and Ideon of $179.9 million
($118.7 million after-tax). The after-tax impact on Pro Forma Combined,
Historical Combined and Historical CUC was to reduce net income per
share by $.14, $.15 and $.29, respectively.
(3) Represents cash dividends paid to Ideon and PHH common shareholders
prior to the Ideon acquisition and the merger with PHH by CUC and HFS,
respectively, which were accounted for as pooling of interests. Neither
CUC nor HFS has declared or paid any cash dividends on its common stock
other than a special dividend paid by CUC in connection with a
recapitalization of CUC effected in fiscal 1990.
13
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
CUC. Shares of CUC's common stock are listed for trading on the NYSE under
the symbol "CU." The following table sets forth, for CUC's fiscal quarters
commencing in fiscal 1996 through July 30, 1997, the last reported high and
low closing prices of CUC's common stock as reported on the NYSE Composite
Transactions for all periods presented, based on published financial sources.
CUC has paid no cash dividends in respect of CUC's common stock during the
periods presented. The market price for CUC's common stock on May 27, 1997,
the last trading day preceding the public announcement of the proposed
merger, and as of the most recent practicable date, is set forth below in
"--Equivalent Per Share Data."
<TABLE>
<CAPTION>
PRICE PER
SHARE
OF CUC
COMMON STOCK
---------------
HIGH LOW
------ -----
<S> <C> <C>
Fiscal 1996 (ended January 31, 1996)
First Quarter........................... $18-1/8 $15-3/8
Second Quarter.......................... 20-3/4 16-3/8
Third Quarter........................... 24-1/4 19-7/8
Fourth Quarter.......................... 25-3/8 20
Fiscal 1997 (ended January 31, 1997)
First Quarter........................... 26-1/8 18-5/8
Second Quarter.......................... 26-1/4 21-1/4
Third Quarter........................... 27-3/8 21-7/8
Fourth Quarter.......................... 26-7/8 22-1/2
Fiscal 1998 (ending January 31, 1998)
First Quarter........................... 26-1/8 20
Second Quarter.......................... 26-3/4 22
Third Quarter (through August 26, 1997). 26-3/4 24-3/16
</TABLE>
The share prices set forth above have been adjusted to give retroactive
effect to the three-for-two stock split effected on October 21, 1996 for
holders of record of CUC's common stock on October 7, 1996. CUC has not paid
any dividends in respect of CUC's common stock since its inception, other
than the payment of a special dividend per share of CUC's common stock
comprised of (i) $.66 in cash and (ii) $.92 face amount ($.41 original issue
discount amount) of CUC's Zero Coupon Convertible Notes, which were due in
1996, in connection with a recapitalization of CUC effected in fiscal 1990.
HFS. Shares of HFS's common stock are listed for trading on the NYSE under
the symbol "HFS." The following table sets forth, for HFS's fiscal quarters
commencing in fiscal 1995 through July 30, 1997, the last reported high and
low closing prices of HFS's common stock as reported on the NYSE Composite
Transactions for all periods presented, based on published financial sources.
HFS has neither declared nor paid cash dividends in respect of HFS's common
stock since its inception. The market price information for HFS's common
stock on May 27, 1997, the last trading day preceding the public announcement
of the proposed merger, and as of the most recent practicable date, is set
forth below in "--Equivalent Per Share Data."
14
<PAGE>
<TABLE>
<CAPTION>
PRICE PER
SHARE
OF HFS
COMMON STOCK
---------------
HIGH LOW
------ -----
<S> <C> <C>
Fiscal 1995 (ended December 31, 1995)
First Quarter........................... $16-11/16 $12-1/2
Second Quarter.......................... 17-9/16 13-13/16
Third Quarter........................... 27 17
Fourth Quarter.......................... 41-1/8 25-5/16
Fiscal 1996 (ended December 31, 1996)
First Quarter........................... 51-1/2 36-1/2
Second Quarter.......................... 72-1/2 45-1/2
Third Quarter........................... 72 49-1/8
Fourth Quarter.......................... 79-7/8 55-3/4
Fiscal 1997 (ending December 31, 1997)
First Quarter........................... 73-3/8 57-3/4
Second Quarter ......................... 62-3/8 51-5/8
Third Quarter (through August 26, 1997) 64 56-3/16
</TABLE>
The share prices set forth have been adjusted to give retroactive effect
to the two-for-one stock split effected on February 14, 1996 for shareholders
of record of HFS on January 30, 1996. HFS has not paid any dividends with
respect to HFS's common stock and expects to retain its earnings for the
development and expansion of its business and the repayment of indebtedness.
HFS does not anticipate paying dividends on HFS's common stock in the
foreseeable future.
Equivalent Per Share Data. The information presented in the table below
represents closing sale prices reported on the NYSE Composite Transactions
for shares of both CUC's common stock and HFS's common stock, on May 27,
1997, the last trading day immediately preceding the public announcement of
the proposed merger, and on August 26, 1997, the last practicable day for
which closing sale prices were available at the time of the mailing of this
Joint Proxy Statement/Prospectus, as well as the "equivalent per share price"
of shares of HFS's common stock on such dates. The "equivalent per share
price" of shares of HFS's common stock represents the closing sale price per
share reported on the NYSE Composite Transactions for shares of CUC's common
stock at such specified date, multiplied by the exchange ratio of 2.4031.
<TABLE>
<CAPTION>
CUC HFS HFS
COMMON STOCK COMMON STOCK EQUIVALENT
PRICE PRICE PER SHARE PRICE
-------------- -------------- ---------------
<S> <C> <C> <C>
May 27, 1997 .... $25 $59 $60-1/16
August 26, 1997.. $24-3/4 $58-15/16 $59-1/2
</TABLE>
Following the consummation of the Merger, shares of HFS's common stock
will cease to be traded on the NYSE. At that time, shares of CUC's common
stock will be traded on the NYSE under the name "Cendant Corporation" (with a
symbol to be determined by HFS and CUC).
15
<PAGE>
THE PROPOSED MERGER
We are furnishing this Joint Proxy Statement/Prospectus to holders of
shares of common stock, par value $.01 per share, of CUC ("CUC Common Stock")
and holders of shares of common stock, par value $.01 per share, of HFS ("HFS
Common Stock") in connection with the solicitation of proxies by the
respective Boards of Directors of CUC and HFS for use at their respective
special meetings of stockholders, and at any adjournments or postponements
thereof. At separate special meetings, the stockholders of CUC and HFS will
be asked to vote upon a proposal to approve and adopt an Agreement and Plan
of Merger, dated as of May 27, 1997, between CUC and HFS (the "Merger
Agreement") and the transactions contemplated thereby and a new stock option
and restricted stock plan (the "New Stock Plan") which, if approved, will
only become effective at the effective time (the "Effective Time") of the
Merger (as defined below).
The Merger Agreement provides, among other things, for a "merger of
equals" transaction involving the merger of HFS with and into CUC (the
"Merger"), with CUC surviving the Merger and changing its name to Cendant
Corporation. In the Merger, each share of HFS Common Stock issued and
outstanding immediately before the Effective Time (excluding those held in
the treasury of HFS and those owned by CUC), without any action on the part
of the holder thereof, will be converted into the right to receive 2.4031
shares of CUC Common Stock (the "Exchange Ratio").
References in this Joint Proxy Statement/Prospectus to "CUC" (including
references to "CUC Common Stock" and the "CUC Board") for the period
following the Effective Time shall refer to Cendant Corporation, the combined
company following consummation of the Merger.
BACKGROUND OF THE MERGER
In January 1997, Henry R. Silverman, Chairman and Chief Executive Officer
of HFS, and Walter A. Forbes, Chairman and Chief Executive Officer of CUC,
held brief preliminary discussions regarding strategic opportunities to
leverage each company's strengths. The two companies had already entered into
one strategic arrangement (which still exists today) in March 1995 whereby
the telephone reservations centers operated by HFS's hotel division would
refer callers who expressed interest in CUC's membership programs to CUC. In
the preliminary discussions in 1997, a combination of the two companies was
mentioned as one possible strategic alternative. By early February 1997,
Messrs. Silverman and Forbes had terminated these discussions believing that
the time and circumstances were not appropriate to effectuate such a
strategic transaction.
In April 1997, Mr. Forbes contacted Mr. Silverman and suggested they meet
to review their earlier discussions concerning strategic opportunities,
including a possible combination of HFS and CUC. Accordingly, in mid-April
Mr. Silverman and Michael P. Monaco, Vice Chairman and Chief Financial
Officer of HFS, met with Mr. Forbes and E. Kirk Shelton, President and Chief
Operating Officer of CUC, to discuss a possible combination of the companies.
Messrs Silverman and Forbes shared similar views regarding the potential
benefits of such a business combination which would combine the consumer
product and service content and direct marketing expertise of CUC with the
consumer access of HFS. Each agreed that the "merger of equals" structure
might represent a desirable approach to achieve the strategic business
combination. Messrs Silverman and Forbes agreed to consider the potential
benefits and risks associated with a business combination and to consult with
certain key executives and advisors of their respective companies in order to
evaluate the potential and desirability of a business combination.
In early May 1997, Messrs Silverman and Forbes met again to discuss
preliminarily the potential "merger of equals" between HFS and CUC. In
subsequent discussions, they discussed certain key structural terms of the
business combination, including, among others, the structure of the combined
company's board of directors and certain senior management roles. They also
agreed to present preliminarily the proposed business combination to their
respective boards of directors, instruct their senior management teams and
their advisors to continue their work analyzing the proposed combination and
exchange drafts of a merger agreement and related documents.
On May 2, 1997, HFS engaged Bear, Stearns & Co. Inc. ("Bear Stearns") as
its financial advisor to advise HFS with respect to a potential transaction
involving HFS and CUC.
16
<PAGE>
On May 9, 1997, CUC and HFS entered into a confidentiality agreement (the
"Confidentiality Agreement"), pursuant to which they agreed to exchange
non-public information, subject to certain customary terms and conditions.
On May 12, 1997, HFS's senior management and representatives of Bear
Stearns discussed with the HFS Board of Directors (the "HFS Board") an
overview of the business of CUC, the terms and conditions of the proposed
merger with CUC, the strategic rationale for the business combination, other
strategic alternatives and a summary of precedent "merger of equals"
transactions. HFS's legal counsel also reviewed certain legal matters with
the HFS Board. During the meeting, the HFS Board considered in detail the
benefits and risks of the proposed transaction for HFS and its stockholders.
Following such discussions, the HFS Board authorized senior management to
continue to pursue the proposed merger.
On May 12, 1997, HFS engaged Merrill Lynch & Co. ("Merrill Lynch") to
provide HFS with financial advisory services in presenting the Merger to the
HFS stockholders and in discussing the Merger with various credit rating
agencies. HFS agreed to pay Merrill Lynch a cash fee of $500,000 for its
services, which fee was paid upon execution of the Merger Agreement. HFS also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses
incurred pursuant to its engagement.
On May 13, 1997, CUC engaged Goldman, Sachs & Co. ("Goldman Sachs") as its
financial advisor to advise CUC with respect to a potential transaction
involving HFS and CUC.
At a meeting of the CUC Board of Directors (the "CUC Board") on May 15,
1997, CUC's senior management and representatives of Goldman Sachs discussed
with the directors the business of HFS, the strategic rationale for the
proposed merger and the proposed principal terms and conditions of the
transaction. CUC's legal counsel also reviewed certain legal matters with the
CUC Board, including a further review of the principal terms of the proposed
transaction, and discussed the fiduciary duties of the CUC directors and
other relevant aspects of applicable law. The CUC Board directed CUC's
management, legal counsel and financial advisors to pursue further a "merger
of equals."
On May 15, 1997, HFS provided CUC with a draft merger agreement.
On May 16, 1997, members of the senior management of both companies,
together with their respective advisors, held a meeting to discuss the CUC
and HFS businesses and to afford each company an opportunity for due
diligence with respect to the other company. Following this meeting and
continuing through May 27, 1997, the senior management, legal counsel and
financial advisors of each of CUC and HFS continued their discussions and due
diligence with respect to the other company.
On May 18, 1997, representatives of HFS and CUC began negotiating the
terms of a merger agreement and discussed the tax and accounting treatment of
the proposed merger, certain regulatory matters and the treatment of employee
benefit plans and employment agreements with certain key employees.
On May 20, 1997, the CUC Board held a meeting to review further the terms
of, and documents relating to, the proposed merger. Mr. Silverman addressed
the CUC Board concerning HFS and his view of the transaction. After
discussions with CUC's management, legal counsel and financial advisors
concerning the terms of the proposed merger agreement (including the
structure of the transaction as a "merger of equals" and related governance
matters), the business and prospects of HFS and the potential combination of
HFS and CUC, and the CUC Board's fiduciary duties, the CUC Board directed
CUC's management, legal counsel and financial advisors to continue to pursue
the proposed transaction.
On May 22, 1997, at a meeting held telephonically, HFS's senior management
and advisors updated the HFS Board on the status of the due diligence review
of, and the negotiations with, CUC and discussed the terms of the proposed
merger.
On May 26, 1997, the HFS and CUC management teams and their respective
legal counsel and financial advisors continued to discuss various issues
relating to the proposed merger.
On May 27, 1997, the HFS Board met to review the proposed merger and the
terms of the proposed merger agreement. At the meeting, Bear Stearns reviewed
the financial terms of the proposed merger
17
<PAGE>
agreement with CUC, including the Exchange Ratio, and discussed the results
of its review of CUC's business. HFS's legal advisors reviewed the terms and
conditions of the proposed merger agreement (including the plan for corporate
governance following consummation of the transaction) and relevant aspects of
applicable law. Mr. Forbes addressed the HFS Board at the meeting concerning
CUC and his view of the transaction. The HFS Board also received the written
opinion of Bear Stearns that, as of that date, the Exchange Ratio was fair,
from a financial point of view, to the holders of HFS Common Stock. After
considering the presentations at the meeting and Bear Stearns' written
opinion, the HFS Board determined that the Merger, upon the terms and
conditions set forth in the Merger Agreement, is fair to and in the best
interests of HFS and its stockholders and unanimously approved (with one
director abstaining because of his affiliation with Bear Stearns, HFS's
financial advisor) the Merger and the Merger Agreement. The HFS Board further
resolved to recommend that HFS stockholders vote in favor of approving and
adopting the Merger Agreement.
On May 27, 1997, the CUC Board met to review the proposed transaction in
detail. At the meeting, Goldman Sachs reviewed the financial terms of the
proposed merger agreement with HFS, including the Exchange Ratio, and updated
the CUC directors on recent results of HFS. CUC's legal advisors further
reviewed certain legal matters, including a detailed review of the terms and
conditions of the proposed merger agreement (including the plan for corporate
governance following consummation of the transaction) and discussed the
fiduciary duties of the CUC directors and other relevant aspects of
applicable law. Following the presentations, the CUC Board received the
opinion of Goldman Sachs that, as of that date, the Exchange Ratio was fair
to CUC. After considering the reports of CUC's senior management, legal
counsel and financial advisors, and after receiving and considering the
opinion of Goldman Sachs, the CUC Board unanimously determined that the
Merger, upon the terms and conditions set forth in the Merger Agreement, is
fair to and in the best interests of CUC and its stockholders and unanimously
adopted the Merger Agreement. The CUC Board also resolved unanimously to
recommend that the CUC stockholders vote in favor of approving and adopting
the Merger Agreement.
During the afternoon of May 27, 1997, following the approval of the Merger
Agreement by their respective Boards of Directors and completion of final
negotiations, HFS and CUC executed the Merger Agreement, and then they
announced publicly the transaction.
CUC'S RATIONALE FOR THE MERGER; RECOMMENDATION OF THE CUC BOARD OF DIRECTORS
The CUC Board believes that the Merger will create a preeminent worldwide
consumer and business services company that will result in significant
benefits to its stockholders, customers and employees that might not
otherwise be available. The combined company, with the complementary
strengths of each of CUC and HFS, will be better positioned, in the view of
the CUC Board, to capitalize on growth opportunities both domestically and
internationally.
In approving the Merger, the CUC Board took into account a number of
factors, including the following potential benefits:
(i) The Merger will combine two innovative and financially strong
companies which have complementary strengths. HFS is a leading global
services company with a base of approximately 100 million consumers,
operating through well-known brands such as Avis, Days Inn, Resort
Condominiums International, Ramada, Coldwell Banker and CENTURY 21. CUC,
with approximately 69 million members worldwide, is a leading member
services and direct marketing organization offering value and convenience
to consumers in shopping, travel, dining, local merchant discounts, auto
and home buying and other services.
(ii) The CUC Board believes that cross-marketing opportunities between
CUC and HFS will further revenue and profit growth. Cross-marketing
opportunities include:
o direct marketing of CUC's core of more than 20 individual and discount
membership programs, such as Travelers Advantage, Shoppers Advantage,
and Entertainment discount coupon books, and its innovative new
NetMarket interactive product, to the 100 million-strong consumer base
of HFS's travel and real estate services;
18
<PAGE>
o combining HFS's Preferred Alliance products and services with CUC's
marketing infrastructure;
o linking HFS's one million annual home buyers and sellers, served by
the Coldwell Banker, CENTURY 21 and ERA franchise systems, with CUC's
CompleteHome Service, which provides home improvement, repair and
upkeep information, a referral database of more than 8,000 contractors
and tradesmen and other services for homeowners;
o building on vehicle leasing opportunities through a combination of
CUC's Wright Express unit, a provider of information and financial
management services to motor vehicle fleets throughout the United
States, and HFS's PHH fleet management service;
o combining HFS's industry-leading corporate relocation service, which
relocates 100,000 employees and their families a year, with CUC's "New
Mover" services, such as Welcome Wagon, Getting to Know You and
Entertainment, which provide coupons and offers from local merchants
to new residents;
o combining CUC's capability for on-line transactions with HFS's name
brands; and
o accelerating worldwide growth opportunities by combining HFS's
international products and services with CUC's marketing
infrastructure and more than two million international members.
(iii) The combined company would have had combined revenues in excess of
$4.3 billion and net income of nearly $600 million (before one-time
charges related to transaction and restructuring costs and certain
litigation matters related principally to the completion of the Sierra,
Davidson and Ideon acquisitions) based on pro forma performance in
calendar 1996 and a market capitalization of approximately $22 billion,
based on the closing prices of CUC Common Stock and HFS Common Stock on
May 26, 1997. CUC believes that the financial strength of the combined
entity will permit continued expansion.
(iv) A strong management team drawn from both companies will work quickly
to integrate the two companies and to realize growth opportunities.
Following the Merger, Mr. Silverman, currently Chairman and Chief
Executive Officer of HFS, will serve as President and Chief Executive
Officer of the combined company, and Mr. Forbes, currently Chairman and
Chief Executive Officer of CUC, will be Chairman of the Board of Directors
of the combined company. On January 1, 2000, Mr. Forbes will become
President and Chief Executive Officer of the combined company and Mr.
Silverman will become Chairman of the Board of Directors of the combined
company. The remaining senior management of the combined company upon
consummation of the Merger will include key CUC and HFS executives.
The CUC Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including:
(i) the inherent challenges to combining the businesses of two major
corporations of this size and the attendant risk that management resources
may be diverted from other strategic opportunities and from operational
matters for an extended period of time;
(ii) the development and implementation of state-of-the art technological
applications to more effectively manage customer data and exploit
potential cross-marketing opportunities between CUC and HFS may be more
expensive or require more time than currently anticipated;
(iii) CUC's membership delivery system may not provide to the extent
anticipated the cross-marketing opportunities with HFS's brands and
existing consumer base;
(iv) the market's perception of the combined company may not be as
favorable as currently anticipated; and
(v) in the event of certain terminations of the Merger Agreement, CUC
must pay to HFS a fee of $300 million (the "Termination Fee") (See "THE
MERGER AGREEMENT--Termination"; -- "Termination Fees").
19
<PAGE>
In the CUC Board's view, these considerations were not sufficient, either
individually or collectively, to outweigh the benefits of the proposed
combination of the businesses of CUC and HFS.
At special meetings of the CUC Board held on May 15, 20 and 27, 1997, the
CUC Board discussed and reviewed the terms of the Merger Agreement with
members of CUC's management and its legal counsel and financial advisors. The
CUC Board discussed with CUC's management and representatives of Goldman
Sachs the business and prospects of CUC and the potential combination of CUC
and HFS. At the meeting on May 27, 1997, the CUC Board unanimously determined
that the Merger, upon the terms and conditions set forth in the Merger
Agreement, is fair to, and in the best interests of, CUC and its
stockholders. ACCORDINGLY, THE CUC BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE HOLDERS OF CUC
COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
In reaching its conclusions, the CUC Board also considered, among other
things, (i) information concerning the financial performance and condition,
business operations, earnings and prospects of each company, and CUC's
projected future financial performance as a separate entity and on a combined
basis; (ii) current industry, economic and market conditions and trends;
(iii) the importance of significant scale and scope and financial resources
to a company's ability to compete effectively as a global consumer and
business services company; (iv) the Merger's structure as a "merger of
equals"; (v) the possibility that achieving growth synergies as a result of
consummating the Merger at this time might not be available to the same
degree to either company on its own; (vi) the terms of the Merger Agreement,
including the corporate governance plan (set forth in Appendix D to this
Joint Proxy Statement/Prospectus) and employment agreements which are
provided for in the Merger Agreement in order to make appropriate provisions
for the ongoing management of the combined company; (vii) the current and
historical market prices of the common stock of each company; (viii) the
opinion of its financial advisor described below as to the fairness of the
Exchange Ratio (which was determined through arm's-length negotiations
between the companies); (ix) the challenges of combining the businesses of
two major corporations of this size and the attendant risk of diverting
management resources from other strategic opportunities and from operational
matters for an extended period of time; (x) the impact of the Merger on the
customers and employees of each company; and (xi) the expected tax and
accounting treatment of the Merger. In reaching its decision to approve the
Merger and to recommend the matters submitted for approval in connection with
the Merger to the stockholders, the CUC Board did not assign any relative or
specific weights to the various factors considered and individual directors
may have given differing weights to different factors. For a discussion of
the interests of the executive officers and directors of CUC in the Merger,
see "INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST."
OPINION OF CUC'S FINANCIAL ADVISOR
On May 27, 1997, Goldman Sachs delivered its written opinion to the CUC
Board that as of the date of such opinion, the Exchange Ratio pursuant to the
Merger Agreement was fair to CUC. The Merger Agreement does not require, and
the CUC Board does not currently expect to request, an update by Goldman
Sachs of its opinion. CUC is not aware of any material adverse changes in the
business, operations or financial condition of either it or HFS which would
in its judgment cause Goldman Sachs to alter its fairness determination.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 27, 1997,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX F
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS OF CUC ARE URGED TO, AND SHOULD, READ SUCH OPINION IN
ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement; (ii) the Joint Proxy Statement/Prospectus
of HFS dated March 27, 1997 with respect to the acquisition of PHH; (iii)
Annual Reports to Stockholders and Annual Reports on Form 10-K of CUC and HFS
for the five years ended January 31, 1997 and December 31, 1996,
respectively; (iv) certain interim reports of CUC and HFS to their respective
stockholders and Quarterly Reports on Form 10-Q of CUC and HFS; (v) certain
other communications from CUC and HFS to their respective stockholders; and
(vi)
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certain internal financial analyses and forecasts for CUC and HFS prepared by
their respective managements. Goldman Sachs also held discussions with
members of the senior management of CUC and HFS regarding the strategic
rationale for, and potential benefits of, the transaction contemplated by the
Merger Agreement and the past and current business operations, financial
condition and future prospects of their respective companies and of the
combined operations of CUC and HFS. In addition, Goldman Sachs reviewed the
reported price and trading activity for the CUC Common Stock and the HFS
Common Stock, compared certain financial and stock market information for CUC
and HFS with similar information for certain other companies the securities
of which are publicly traded and performed such other studies and analyses as
it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed with CUC's consent that the financial forecasts provided by the
respective managements of CUC and HFS, including the synergies expected to be
derived from the business combination, have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
managements of CUC and HFS. In addition, Goldman Sachs has not made an
independent evaluation or appraisal of the assets and liabilities of CUC or
HFS or any of their subsidiaries, and Goldman Sachs has not been furnished
with any such evaluation or appraisal. Goldman Sachs also has assumed that
the transaction contemplated by the Merger Agreement will be accounted for as
a pooling of interests under generally accepted accounting principles.
Goldman Sachs' advisory services and its opinion have been provided for the
information and assistance of the CUC Board in connection with its
consideration of the transaction contemplated by the Merger Agreement and
such opinion does not constitute a recommendation as to how any holder of CUC
Common Stock should vote on the proposed transaction. Although Goldman Sachs
evaluated the fairness of the Exchange Ratio to CUC, the Exchange Ratio
itself was determined by CUC and HFS through arm's-length negotiations. In
addition, CUC did not provide specific instructions to, or place any
limitations upon, Goldman Sachs with respect to the procedures to be followed
or factors to be considered by Goldman Sachs in performing its analyses or
rendering its fairness opinion.
The Goldman Sachs opinion is necessarily based on economic, market and
other conditions, and the information made available to Goldman Sachs, as of
May 27, 1997, the date of such opinion. Goldman Sachs has not been requested
by CUC to update such opinion based on information since such date.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the CUC
Board on May 27, 1997.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to CUC and HFS to corresponding
financial information, ratios and public market multiples for three
publicly traded corporations: Service Corporation International, Republic
Industries Inc. and First Data Corporation (the "Selected Companies").
Goldman Sachs calculated and compared various financial multiples and
ratios. The multiples for CUC and HFS were calculated using a price of
$25.13 per share of CUC Common Stock and $57.00 per share of HFS Common
Stock, the closing prices of such shares on May 23, 1997, and the
multiples of the Selected Companies were calculated using closing market
prices for such companies on May 23, 1997. Except as set forth below, the
multiples and ratios for CUC and HFS were based on their respective
managements' estimates and the multiples and ratios for each of the
Selected Companies were based on the most recent publicly available
information. With respect to the Selected Companies, Goldman Sachs
considered the ratios of market price to estimated calendar year 1997 and
1998 earnings (based on Institutional Broker Estimate System ("IBES")
earnings estimates as of May 23, 1997), which ratios for the Selected
Companies ranged from a low of 25.1x to a high of 35.2x for 1997 and from
a low of 21.1x to a high of 22.6x for 1998, compared to 28.3x and 22.9x,
respectively, for CUC, and 21.4x and 16.5x, respectively, for HFS. The
estimated five-year earnings per share ("EPS") compounded annual growth
rate (based on IBES estimates as of May 23, 1997) for the Selected
Companies ranged from a low of 20.0% to a high of 40.0%, compared to 25.0%
for CUC and 30.0% for HFS; the estimated calendar year 1997 and 1998
price/earnings ratio to five-year EPS compounded annual growth rate for
the Selected Companies ranged from a low of 0.9x to a high of 1.3x for
estimated
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calendar year 1997, and from a low of 0.6x to a high of 1.1x for estimated
calendar year 1998, compared to 1.1x and 0.9x, respectively, for CUC and
0.7x and 0.6x, respectively, for HFS. IBES is a data service which
monitors and publishes a compilation of earnings estimates produced by
selected research analysts on companies of interest to investors.
(ii) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among
other things, sales, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings before interest and taxes ("EBIT") and
net income) for CUC and HFS (based on their respective managements'
estimates) and the pro forma combined entity resulting from the Merger
(such historical and estimated information compares CUC's fiscal year
ending in January with HFS's fiscal year ending the previous December and
such historical information for HFS has been adjusted to reflect
acquisitions). The analysis indicated that (a) the CUC stockholders would
own 49.9% of the outstanding common equity of the combined entity assuming
the Exchange Ratio, which is 2.4031, and that there are 433.5 million
shares of CUC Common Stock outstanding and 180.9 million shares of HFS
Common Stock outstanding; (b) in 1995, CUC would have contributed 51.7% to
sales, 37.5% to EBITDA, 41.3% to EBIT and 46.8% to net income of the
combined entity; (c) in 1996, CUC would have contributed 53.9% to sales,
40.8% to EBITDA, 44.0% to EBIT and 47.8% to net income of the combined
entity; (d) in estimated year 1997, CUC would contribute 54.9% to sales,
39.3% to EBITDA, 40.8% to EBIT and 44.9% to net income of the combined
entity; and (e) in estimated year 1998, CUC would contribute 56.5% to
sales, 39.4% to EBITDA, 40.6% to EBIT and 43.4% to net income.
(iii) Exchange Ratio Analysis. Goldman Sachs calculated the average of
the quotients of the closing prices per share of HFS Common Stock and the
closing prices per share of CUC Common Stock for the one year, six months,
two months, 20 days, 10 days, five days and one day ended May 23, 1997
(the "Average Exchange Ratios"). Such analyses indicated that for such
periods the Average Exchange Ratios were 2.63, 2.58, 2.53, 2.49, 2.40,
2.37 and 2.27, respectively, compared to the proposed Exchange Ratio of
2.4031.
(iv) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger (such analyses compared CUC's fiscal
year ending on January 31 with HFS's fiscal year ending on the previous
December 31, and such historical information for HFS had been adjusted to
reflect acquisitions). Using the actual earnings for CUC for the fiscal
year ended January 31, 1997 and the 1996 earnings of HFS adjusted to
reflect recent acquisitions, and earnings estimates for CUC and HFS
prepared by their respective managements for CUC's fiscal years ending in
January of 1998 and 1999 and HFS's fiscal years ending in December 1997
and 1998, Goldman Sachs compared the EPS of CUC Common Stock on a
stand-alone basis, to the EPS of the common stock of the combined
companies on a pro forma basis. These comparisons were based on the
following assumptions: (a) an exchange ratio of 2.4031, (b) no synergies
and (c) the Merger being accounted for as a pooling of interests under
generally accepted accounting principles. The analyses indicated that the
proposed transaction would have been and would be accretive to CUC's
stockholders on an EPS basis for the 1997, 1998 and 1999 fiscal years.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs did not attribute any particular weight to any
analysis or factor considered by it; rather, Goldman Sachs made its
determination as to fairness on the basis of its experience and professional
judgment, after considering the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable
to CUC or HFS or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs providing its opinion to the CUC Board
as to the fairness of the Exchange Ratio pursuant to the Merger Agreement to
CUC and do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
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being based upon numerous factors or events beyond the control of the parties
or their respective advisors, future results may be materially different from
those forecast. As described above, Goldman Sachs' opinion to the CUC Board
was one of many factors taken into consideration by the CUC Board in making
its determination to approve the Merger Agreement. The foregoing summary does
not purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified in its entirety by reference to the written opinion of
Goldman Sachs set forth in Appendix F to this Joint Proxy
Statement/Prospectus.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. CUC
selected Goldman Sachs as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger. Goldman Sachs is familiar
with CUC, having provided certain investment banking services to it from time
to time, including having acted as its financial advisor in connection with
various acquisitions in 1996 for which it received aggregate fees of $2.75
million, having acted as lead managing underwriter in the public offerings of
CUC Common Stock in 1996 for which it received aggregate fees of $5.0 million
and as private placement agent in the private placement of convertible
subordinated notes in 1997, for which it received $6.1 million. Goldman Sachs
has also provided certain investment banking services to HFS from time to
time, including having acted as co-managing underwriter in the public
offerings of HFS Common Stock in 1995 and 1996 and of convertible senior
notes in 1996, for which it received aggregate fees of $3.6 million. In
addition, Goldman Sachs acted as the financial advisor to PHH in connection
with the acquisition of PHH by HFS in 1997, for which it received $5.4
million. Goldman Sachs provides a full range of financial, advisory and
securities services and, in the course of its normal trading activities,
Goldman Sachs has accumulated a short position of 242,211 shares of CUC
Common Stock, a long position of $911,000 of CUC's 3% Convertible
Subordinated Notes due 2002, a long position of 24,821 shares of HFS Common
Stock and a short position of $120,000 of HFS's 4-3/4% Convertible Senior
Notes due 2003.
Pursuant to a letter agreement dated May 13, 1997 (the "Goldman Sachs
Engagement Letter"), CUC engaged Goldman Sachs to act as its financial
advisor in connection with the possible merger or other combination of CUC
with HFS (the "Combination"). Pursuant to the terms of the Goldman Sachs
Engagement Letter, CUC has agreed to pay Goldman Sachs an advisory fee
whereby (a) $250,000 was payable on May 22, 1997 so long as CUC was actively
continuing to consider the Combination at such time and (b) an additional
$250,000 was payable on June 7, 1997 so long as CUC was actively continuing
to consider the Combination at such time. Pursuant to the terms of the
Goldman Sachs Engagement Letter, CUC has also agreed to pay Goldman Sachs a
fee of $15 million (minus the amount of any previously paid advisory fees)
upon the consummation of the Merger. In the event the Merger is not
consummated and HFS pays to CUC the Termination Fee, CUC has agreed, in turn,
to pay Goldman Sachs a fee of $10 million, but if the Merger is not
consummated and CUC does not receive the Termination Fee, then Goldman Sachs
will not be entitled to any additional compensation. CUC has also agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, plus any sales, use or similar taxes arising in connection
with the Merger, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
HFS'S RATIONALE FOR THE MERGER; RECOMMENDATION OF THE HFS BOARD OF DIRECTORS
In reaching its decision to approve the Merger Agreement and to recommend
that HFS's stockholders vote to approve and adopt the Merger Agreement and
the transactions contemplated thereby, including the Merger, the HFS Board
considered various factors, including the following potential benefits:
(i) the combination of the businesses, operations, financial strengths,
earnings and prospects of each of HFS and CUC will likely create a
combined company with greater financial stability, purchasing power,
marketing infrastructure and other advantages associated with greater
scale;
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(ii) the extraordinary potential for revenue and profit growth through
cross-market opportunities resulting from the combination of HFS's brands
and consumer base of more than 100 million customers annually with CUC's
direct marketing expertise, club membership delivery system, and
approximately 69 million members worldwide, such as:
o linking HFS's one million annual home buyers and sellers, served by
the Coldwell Banker, CENTURY 21 and ERA franchise systems, with CUC's
CompleteHome Service, which provides home improvement, repair and
upkeep information, a referral database of more than 8,000 contractors
and tradesmen and other services for homeowners. CUC's direct
marketing capability can dramatically increase the combined company's
ability to assist these consumers in the numerous purchasing decisions
typically made by new home buyers, such as health care providers, dry
cleaners, house painting, hardware, repair services, and others;
o combining HFS's industry-leading corporate relocation service, which
relocates approximately 100,000 employees and their families a year,
with CUC's "New Mover" services, such as Welcome Wagon, Getting to
Know You and Entertainment, which provide coupons and offers from
local merchants to new residents;
o accelerating worldwide growth opportunities by combining HFS's
international products and services with CUC's marketing
infrastructure and more than two million international members;
o increasing the participation of franchisees in HFS's established
preferred alliance programs with CUC's product offerings and direct
marketing expertise;
o combining HFS's Preferred Alliance products and services with CUC's
marketing infrastructure and core competencies to sell to both
companies' consumer bases at a lower cost (through higher discounts or
greater vendor rebates);
o combining information obtained from customers through different
transactions (i.e., hotel reservations, mortgage applications and
membership applications) and managing data through scoring and sorting
methods in order to better target consumers;
o combining CUC's capability for on-line transactions with HFS's brands;
and
o creating increased vehicle leasing opportunities by combining CUC's
Wright Express unit with HFS's PHH fleet management service;
(iii) the breadth of the merged company's operations, strong balance
sheet, liquidity and significant ongoing cash flow should allow for
continued growth through strategic acquisitions, and the proven track
record of the combined company's management in successfully acquiring and
integrating companies of all sizes in various industries will enable
successful integration of the operations of both companies;
(iv) the similarities in HFS's and CUC's business models and philosophies
of creating a premier consumer and business services company, not owning
substantial amounts of fixed assets or significant inventory and deriving
revenues primarily from "annuity-like" sources including royalty fees and
membership fees, and growing strategically through acquisitions;
(v) the detailed financial analyses and presentation of Bear Stearns to
the HFS Board in connection with the HFS Board's consideration of the
Merger Agreement, and the opinion, dated May 27, 1997, of Bear Stearns
(the "Bear Stearns Opinion") that, as of such date, the Exchange Ratio was
fair, from a financial point of view, to the holders of HFS Common Stock;
(vi) the terms and conditions of the Merger Agreement, including the fact
that the fixed Exchange Ratio provides certainty about the number of
shares of CUC Common Stock that will be issued in the Merger and that the
transaction was structured as a stock-for-stock "merger of equals"
providing for a balanced treatment of HFS and CUC and their stockholders,
reciprocal representations and warranties, conditions to closing and
termination rights;
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(vii) the corporate governance plan for the combined company specified as
an Exhibit to the Merger Agreement (and set forth in Appendix D to this
Joint Proxy Statement/Prospectus) and the employment agreements of Messrs.
Silverman and Forbes and certain other executive officers of CUC and HFS
(as described under "INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS
OF INTERESTS") which provide a prudent plan for managing the integration
of HFS and CUC;
(viii) the expected treatment of the Merger as a tax-free
"reorganization" under the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ix) the expected treatment of the Merger as a pooling of interests for
financial reporting and accounting purposes, thereby not recording
goodwill and the related amortization under the purchase method of
accounting.
The HFS Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including:
(i) the inherent challenges to combining the businesses of two major
corporations of this size and the attendant risk that management resources
may be diverted from other strategic opportunities and from operational
matters for an extended period of time;
(ii) the development and implementation of state-of-the-art technological
applications to more effectively manage customer data and exploit
potential cross-marketing opportunities between HFS and CUC may be more
expensive or require more time than currently anticipated;
(iii) CUC's membership delivery system may not provide to the extent
anticipated the cross-marketing opportunities with HFS's brands and
existing consumer base;
(iv) CUC's software business differs in nature from HFS's core businesses
and is potentially susceptible to different business risks;
(v) compilation of a comprehensive HFS customer database for
cross-marketing use by CUC may take longer than expected or result in
additional, unanticipated expenses;
(vi) the market's perception of the combined company may not be as
favorable as currently anticipated; and
(vii) in the event of certain terminations of the Merger Agreement, HFS
must pay to CUC the Termination Fee ($300 million) (See "THE MERGER
AGREEMENT--Termination"; -- "Termination Fees").
In the HFS Board's view, these considerations were not sufficient, either
individually or collectively, to outweigh the benefits of the proposed
combination of the businesses of HFS and CUC.
At special meetings of the HFS Board on May 12 and 27, 1997, as well as in
a telephonic conference on May 22, 1997, the HFS Board received presentations
concerning and reviewed the terms of the Merger Agreement and the Merger with
members of HFS's management and its legal counsel and financial advisors. The
HFS Board also received presentations from HFS's management and
representatives of Bear Stearns concerning the business and prospects of HFS
and the potential combination of HFS and CUC. At the meeting on May 27, 1997,
the HFS Board unanimously determined (with one director abstaining because of
his affiliation with Bear Stearns, HFS's financial advisor) that the Merger,
upon the terms and conditions set forth in the Merger Agreement, is fair to
and in the best interests of HFS and its stockholders. ACCORDINGLY, THE HFS
BOARD HAS UNANIMOUSLY (WITH ONE DIRECTOR ABSTAINING) APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE HOLDERS OF HFS COMMON
STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
In addition, in reaching its conclusions, the HFS Board considered, among
other things, (i) information concerning the financial performance and
condition, business operations, earnings and prospects of each company, and
HFS's projected future financial performance as a separate entity and on a
combined basis; (ii) current industry, economic and market conditions and
trends; (iii) the importance
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of significant scale and scope and financial resources to a company's ability
to compete effectively as a global consumer and business services company;
(iv) the current and historical market prices of the common stock of each
company; (v) the challenges of combining the businesses of two major
corporations of this size and the attendant risk of diverting management
resources from other strategic opportunities and from operational matters for
an extended period of time; and (vi) the impact of the Merger on the
customers and employees of each company.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the HFS Board did not quantify or assign any
relative weights to the factors considered in reaching its determination,
although its individual members may have given different weights to different
factors. For a discussion of the interests of the executive officers and
directors of HFS in the Merger, see "INTERESTS OF CERTAIN PERSONS IN THE
MERGER; CONFLICTS OF INTERESTS."
OPINION OF HFS'S FINANCIAL ADVISOR
At the May 27, 1997 meeting of the HFS Board, Bear Stearns delivered the
Bear Stearns Opinion to the effect that, as of the date thereof, and subject
to the assumptions and qualifications set forth therein, the Exchange Ratio
was fair, from a financial point of view, to the holders of HFS Common Stock.
The Merger Agreement does not require, and the HFS Board does not currently
expect to request, an update by Bear Stearns of its opinion. HFS is not aware
of any material adverse changes in the business, operations or financial
condition of either it or CUC which would in its judgment cause Bear Stearns
to alter its fairness determination.
A COPY OF THE BEAR STEARNS OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX G TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE BEAR STEARNS OPINION SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. HFS STOCKHOLDERS ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY.
The Bear Stearns Opinion is intended for the benefit and use of the HFS
Board, and does not address the merits of the underlying decision by HFS to
engage in the Merger and does not constitute a recommendation to any holder
of HFS Common Stock as to how such holder should vote on the proposed Merger.
In arriving at its opinion, Bear Stearns did not perform any independent
evaluations or appraisals of the assets or liabilities of HFS or CUC or their
respective subsidiaries, nor was Bear Stearns furnished with any such
evaluations or appraisals. In rendering its opinion, Bear Stearns analyzed
the Merger as a strategic business combination not involving a sale of
control of HFS, and Bear Stearns did not solicit, and was not requested to
solicit by HFS or the HFS Board, any third-party acquisition interests in
HFS. In addition, Bear Stearns did not express any opinion as to the price or
range of prices at which CUC Common Stock may trade subsequent to the
consummation of the Merger. The Bear Stearns Opinion is necessarily based on
economic, market and other conditions, and the information made available to
Bear Stearns, as of the date of the Bear Stearns Opinion. Bear Stearns has
not been requested by HFS to update such opinion based on information since
such date. Although Bear Stearns evaluated the fairness of the Exchange Ratio
to holders of HFS Common Stock, the Exchange Ratio itself was determined by
HFS and CUC through arm's-length negotiations. In addition, HFS did not
provide specific instructions to, or place any limitations upon, Bear Stearns
with respect to the procedures to be followed or factors to be considered by
Bear Stearns in performing its analyses or rendering the Bear Stearns
Opinion.
In the course of performing its review and analyses for rendering its
opinion, Bear Stearns: (i) reviewed the Merger Agreement; (ii) reviewed each
of HFS's and CUC's Annual Reports to Shareholders and Annual Reports on Form
10-K for the years ended December 31, 1996 and January 31, 1997,
respectively, and HFS's Quarterly Report on Form 10-Q for the period ended
March 31, 1997; (iii) reviewed certain operating and financial information
provided to it by the senior managements of HFS and CUC relating to HFS's and
CUC's respective businesses and prospects, including income statement
projections of each company for the fiscal years ending December 31, 1997 and
1998 for HFS and for the fiscal years ending January 31, 1998 and 1999 for
CUC (collectively, the "Two-Year Projections") and certain other
forward-looking information; (iv) reviewed certain estimates of cost savings,
revenue synergies and other combination benefits (collectively, the
"Projected Benefits") expected to result from
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the Merger, jointly prepared and provided to Bear Stearns by the senior
managements of HFS and CUC; (v) met separately and/or jointly with certain
members of the senior managements of HFS and CUC to discuss: (a) each
company's operations, historical financial statements, future prospects and
financial condition, (b) their views of the strategic, business, operational
and financial rationale for, and expected strategic benefits and other
implications of, the Merger, and (c) the Two-Year Projections and the
Projected Benefits; (vi) reviewed the historical stock prices, trading
activity and valuation parameters of HFS Common Stock and CUC Common Stock;
(vii) reviewed and analyzed the pro forma financial impact of the Merger on
HFS and CUC; (viii) reviewed the terms, to the extent publicly available, of
recent "mergers of equals" transactions which Bear Stearns deemed generally
comparable to the Merger or otherwise relevant to its inquiry; and (ix)
conducted such other studies, analyses, inquiries and investigations as Bear
Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it or discussed with it by HFS and CUC. In that
regard and with respect to financial and operating forecasts, including
without limitation, the Two-Year Projections and Projected Benefits, Bear
Stearns assumed with the consent of the HFS Board that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective senior managements of HFS and CUC as to the
anticipated future performance of their respective companies and as to the
anticipated savings achievable within the time frames forecast therein and
that such financial and operating forecasts, including without limitation the
Two-Year Projections and the Projected Benefits, would be realized in the
amounts and at the time periods contemplated thereby. Bear Stearns expressed
no view as to such financial information and forecasts, the Two-Year
Projections or the Projected Benefits or the assumptions on which they were
based. Bear Stearns also assumed, with the consent of the HFS Board, that the
Merger would (i) qualify as a tax-free "reorganization" under the provisions
of Section 368(a) of the Code and (ii) be accounted for as a pooling of
interests under generally accepted accounting principles.
For purposes of rendering its opinion, Bear Stearns assumed, in all
respects material to its analysis, that the representations and warranties of
each party in the Merger Agreement and all related documents and instruments
(collectively, the "Documents") contained therein were true and correct, that
each party to the Documents would perform all of the covenants and agreements
required to be performed by such party under such Documents, and that all
conditions to the consummation of the Merger would be satisfied without
waiver thereof. Bear Stearns assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or
otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendments or modifications, would be imposed that would have
a material adverse effect on the contemplated benefits of the Merger.
Material Valuation Summary
The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at the Bear
Stearns Opinion. In all of the analyses described below, references to pro
forma 1997 and 1998 financial information for CUC refers to the combination
of financial information for HFS for the fiscal years ending December 31,
1997 and 1998 with the financial information for CUC for the fiscal years
ending January 31, 1998 and 1999, respectively.
(i) Relative Contribution Analysis. Bear Stearns calculated the relative
contribution by each of HFS and CUC to CUC following the Merger on a pro
forma combined basis with respect to, among other things, equity market
capitalization, enterprise value (i.e. equity market capitalization plus
net debt), revenues, EBITDA, EBIT and net income. In this relative
contribution analysis, Bear Stearns did not take into account any
Projected Benefits of the Merger. The results of this analysis indicated
that HFS would contribute 48.2% of CUCs fully diluted equity market
capitalization (assuming conversion of each of HFS and CUC's in-the-money
convertible securities) based on closing prices for HFS Common Stock and
CUC Common Stock as of May 23, 1997.
In addition, this analysis indicated that HFS would contribute 46.1% in
1996 to CUC's revenues and a projected 44.9% and 43.8% in 1997 and 1998,
respectively, to CUC's revenues, based on the Two-Year Projections. In
addition, the Bear Stearns analysis indicated that HFS would contribute
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52.2% of CUC's net income in 1996 (excluding unusual and non-recurring
items) and a projected 55.3% and 56.9% in 1997 and 1998, respectively,
based on the Two-Year Projections. Bear Stearns noted, however, that the
aforementioned relative net income contribution analysis did not reflect
the different price/earnings ("P/E") ratios that the stock market
historically had ascribed to HFS and CUC. By way of comparison, Bear
Stearns observed that the Exchange Ratio would result in the shareholders
of HFS receiving a 49.7% collective fully diluted ownership position in
CUC (assuming the conversion of all "in-the-money" convertible securities
for both HFS and CUC and assuming for analytical purposes that the
proceeds from the hypothetical exercise of stock options are used to
repurchase shares). Bear Stearns also noted that the Exchange Ratio would
result in the shareholders of HFS receiving a 50.6% collective fully
diluted ownership position in CUC based on the conversion of all
"in-the-money" convertible securities for both companies and assuming for
analytical purposes that the proceeds from the hypothetical exercise of
stock options are retained by CUC (i.e., if such hypothetical proceeds
were not used to repurchase shares).
(ii) Pro Forma Merger Analysis. Bear Stearns reviewed and analyzed
certain pro forma financial impacts of the Merger on the holders of HFS
Common Stock and CUC Common Stock based on (a) the Exchange Ratio; (b) the
Two-Year Projections; and (c) an assumption for analytical purposes that
the Merger had been consummated on January 1, 1997. Bear Stearns performed
analyses that (x) assumed $0 million, $50 million, $100 million and $200
million of pre-tax synergies (the "Synergies") in 1997, 1998, 1999 and
2000, respectively, would be realizable by CUC as a result of the Merger,
and (y) did not assume the Synergies would be realizable by CUC as a
result of the Merger. In neither analysis did Bear Stearns take into
account the income statement impact of potential restructuring charges or
other one-time items associated with the Merger. With respect to the
Projected Benefits, Bear Stearns assumed with the consent of the HFS Board
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective senior managements of
HFS and CUC as to the anticipated future performance of their respective
companies and as to the anticipated benefits achievable within the time
frames indicated above.
The results of the analysis that assumed the Synergies indicated that,
after factoring in the Synergies, the Merger would result in the dilution
of the equivalent projected EPS of HFS Common Stock of (10.0%) and (9.5%)
in 1997 and 1998, respectively, as compared to the projected EPS of HFS
Common Stock on a stand-alone basis. Without assuming the Synergies, the
Merger would result in the dilution of the equivalent projected EPS of HFS
Common Stock of (10.0%) and (11.8%) in 1997 and 1998, respectively, as
compared to the projected EPS of HFS Common Stock on a stand-alone basis.
Bear Stearns noted that, after factoring in the full run rate of $200
million expected Synergies in 2000, the Merger would result in the
accretion of the equivalent projected EPS of HFS Common Stock of 2.1% in
1997 and the dilution of the equivalent projected EPS of HFS Common Stock
of (2.3%) in 1998. In rendering its opinion, Bear Stearns also considered
the benefit the Projected Benefits would provide the combined company's
long-term earnings growth rate versus the long-term earnings growth rate
of HFS on a stand-alone basis.
By way of comparison, the results of the analysis that assumed the
Synergies indicated that, after factoring in the Synergies, the Merger
would result in accretion of the equivalent projected EPS of CUC Common
Stock of 12.3% and 18.5% in 1997 and 1998, respectively, as compared to
the projected EPS of CUC Common Stock on a stand-alone basis. Without the
inclusion of the Synergies, the Merger would result in the accretion of
the equivalent projected EPS of 12.3% and 15.1% in 1997 and 1998,
respectively, as compared to the projected EPS of CUC Common Stock on a
stand-alone basis.
Illustrative HFS Shareholder Value Analysis. Bear Stearns prepared
illustrative shareholder value matrices in order to demonstrate the
hypothetical pro forma impact of the Merger on the value of an equivalent
share of HFS Common Stock, using a range of potential P/E multiples for CUC
of 21.0x to 30.0x 1997 pro forma EPS, and alternative potential annual
pre-tax synergies of $0 million, $50 million, $100 million and $200 million.
Based on the Two-Year Projections, Bear Stearns calculated that the
hypothetical pro forma value of an equivalent share of HFS Common Stock in
1997 ranged from a low of $50.46 (assuming a P/E multiple for CUC of 21.0x
and no synergies), to midpoints of $61.04 (assuming
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a P/E multiple for CUC of 24.6x, the blended P/E multiple of HFS and CUC, and
annual pre-tax synergies of $50 million) and $63.06 (assuming a P/E multiple
for CUC of 24.6x and annual pre-tax synergies of $100 million), to a high of
$81.97 (assuming a P/E multiple for CUC of 30.0x and annual pre-tax synergies
of $200 million). Bear Stearns noted that these imputed prices would
respectively represent changes of (11.5%), 7.1%, 10.6% and 43.8% from the May
23, 1997 closing price of $57.00 for HFS Common Stock.
In performing its analyses, Bear Stearns was not expressing any opinion as
to the price or range of prices at which CUC Common Stock may trade
subsequent to the consummation of the Merger. The prices at which CUC Common
Stock ultimately trades in the stock market will be driven by a variety of
quantitative and qualitative factors (for example, the P/E multiple at which
CUC Common Stock is valued by potential investors, which may be significantly
more or less favorable than the illustrative range of P/E multiples used by
Bear Stearns for its analytical purposes and the level of Projected Benefits
ultimately accepted by the stock market).
Precedent "Merger of Equals" Transactions. Bear Stearns analyzed the
Merger as a strategic business combination not involving a sale of control of
HFS and, accordingly, reviewed and analyzed the terms, to the extent publicly
available, of 14 major completed "mergers of equals" transactions (the
"Precedent MOE Transactions") in various industry sectors such as aerospace
and defense, telecommunications, utilities, commercial banking, investment
banking and pharmaceuticals. For each of the Precedent MOE Transactions, Bear
Stearns reviewed and analyzed the stock price premium/(discount) from each
combining company's perspective based on the Exchange Ratio versus both (i)
the market exchange ratio one day prior to the announcement of the
transaction and (ii) the market exchange ratio based on the average stock
prices for the 20 trading days prior to the announcement of the transaction.
Bear Stearns also reviewed and/or analyzed the pro forma ownership of the
combined company by each combining company's stockholder base, each combining
company's representation on the board of directors of the combined company
and each combining company's share of senior management positions. Bear
Stearns grouped the Precedent MOE Transactions based on whether each
combining company had even or uneven representation on the board of directors
of the combined company. Bear Stearns noted that nine of the Precedent MOE
Transactions had even splits of the board of directors of the combined
company: (i) Dean Witter Discover & Co. and Morgan Stanley Group Inc.; (ii)
Bell Atlantic Corporation and NYNEX Corporation; (iii) Pharmacia AB and
Upjohn Company; (iv) NBD Bancorp, Inc. and First Chicago Corporation; (v)
Wisconsin Energy Corporation and Northern States Power Company; (vi) Martin
Marietta Corporation and Lockheed Corporation; (vii) Southern National
Corporation and BB&T Financial Corporation; (viii) Wellfleet Communications,
Inc. and SynOptics Communications, Inc.; and (ix) Society Corporation and
KeyCorp., and that the remaining five of the Precedent MOE Transactions had
uneven splits of the board of directors of the combined company: (i)
Baltimore Gas and Electric Company and Potomac Electric Power Company; (ii)
Chemical Banking Corporation and Chase Manhattan Corporation; (iii) Public
Service Company of Colorado and Southwestern Public Service Company; (iv)
Cincinnati Gas & Electric Company and PSI Resources, Inc.; and (v) Chemical
Banking Corporation and Manufacturers Hanover Corporation.
Bear Stearns' analysis indicated that the exchange ratios for the
Precedent MOE Transactions were generally negotiated within a reasonably
narrow band around the market exchange ratio implied by recent
pre-announcement stock market prices (both using stock prices one day prior
to announcement and over the 20 trading days prior to announcement), and that
one party to a given transaction typically received a modest premium to such
pre-announcement stock market prices whereas the other party to the
transaction received a modest discount to such recent pre-announcement stock
market prices. For the nine Precedent MOE Transactions where each of the
combining companies had even representation on the combined company's board
of directors, the premiums ranged from 0.4% to 19.8% and the discounts ranged
from (0.4%) to (16.5%), with the premiums and discounts each being less than
9% in six of the nine transactions. For the five Precedent MOE Transactions
where each of the combining companies had uneven representation on the
combined company's board of directors, the premiums ranged from 1.5% to 34.2%
and the discounts ranged from (1.5%) to (25.5%), with the premiums and
discounts each being less than 9% in only two of the five transactions. Bear
Stearns noted that the Exchange Ratio in the Merger resulted in the following
one-day and average 20-day premiums/(discounts) compared to the Market
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Exchange Ratio (as defined below) as of May 23, 1997: premium of 5.9% and
discount of (3.4%), respectively, from HFS's perspective and discount of
(5.6%) and premium of 3.5% from CUC's perspective. Bear Stearns also noted
that as a result of the Merger, each of HFS and CUC would have even
representation on the CUC Board and would share key senior management
positions. Bear Stearns viewed these premiums/(discounts) as generally being
consistent with the range of premiums (discounts) presented by the Precedent
MOE Transactions.
Bear Stearns noted that none of the Precedent MOE Transactions was
identical to the Merger and that, accordingly, any analysis of the Precedent
MOE Transactions necessarily involved complex considerations and judgments
concerning differences in industry dynamics, stock market valuation
parameters, financial and operating characteristics and various other factors
that would necessarily affect the Exchange Ratio in the Merger as compared to
the exchange ratios for the Precedent MOE Transactions.
Historical Stock Price Performance and Implied Market Exchange
Ratios. Bear Stearns reviewed the historical stock prices of HFS Common Stock
and CUC Common Stock and the implied market exchange ratios determined by
dividing the price per share of HFS Common Stock by the price per share of
CUC Common Stock (the "Market Exchange Ratio") over various periods of time
including, among others, the two years ended May 23, 1997, the year prior to
May 23, 1997, the 20 trading days ended May 23, 1997, and the 10 trading days
ended May 23, 1997. The results of this review indicated that the price per
share of HFS Common Stock had moved up significantly since May 1995 and had
risen more on a relative basis than CUC Common Stock during this period. Bear
Stearns calculated that the Market Exchange Ratio ranged (i) from a low of
0.8091 to a high of 3.0737, with an average of 2.1013, during the two years
ended May 23, 1997; (ii) from a low of 2.1952 to a high of 3.0737, with an
average of 2.6312, for the year prior to May 23, 1997; (iii) from a low of
2.2687 to a high of 2.8048, with an average of 2.5055, for the 20 trading
days ended May 23, 1997; and (iv) from a low of 2.2687 to a high of 2.4603,
with an average of 2.3995, for the 10 trading days ended May 23, 1997. As of
May 23, 1997 (the last trading day before execution of the Merger Agreement),
Bear Stearns noted that the prices of HFS Common Stock and CUC Common Stock
closed at $57.00 and $25.13, respectively, and that such closing stock prices
resulted in a Market Exchange Ratio of 2.2687.
Bear Stearns also reviewed the relative performance of HFS Common Stock
and CUC Common Stock from May 23, 1996, to May 23, 1997, and compared these
numbers to the Standard & Poor's 400 index for the same period, and reviewed
the relative stock performance of HFS and CUC for the three years ended on
May 23, 1997, and compared these numbers to the Standard & Poor's 400 index
for the same period.
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and
operating data for both HFS and CUC and pro forma combined balance sheet data
for CUC, analyzing selected investment research reports on, and earnings and
other estimates for, each of HFS and CUC and various of their business
segments, reviewing and comparing certain financial data and valuation
parameters for each of HFS and CUC and reviewing available information
regarding the institutional holdings of HFS Common Stock and CUC Common Stock
(and the pro forma institutional holdings for the common stock of the
combined company).
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to
the particular circumstances involved. Such an opinion is therefore not
readily susceptible to partial analysis or summary description, and taking
portions of the analyses set out above, without considering the analysis as a
whole, would, in the view of Bear Stearns, create an incomplete and
misleading picture of the processes underlying the analyses considered in
rendering the Bear Stearns Opinion. Bear Stearns did not form an opinion as
to whether any individual analysis or factor (positive or negative),
considered in isolation, supported or failed to support the Bear Stearns
Opinion. The Bear Stearns Opinion necessarily involved making complex
considerations and judgments concerning differences in the potential
financial and operating characteristics of the precedent "merger of equals"
transactions. In arriving at its opinion, Bear Stearns considered the results
of its analyses and did
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not attribute particular weight to any one analysis or factor considered by
it. No transaction in the precedent "merger of equals" transaction analysis
summarized above is identical to the Merger. The analyses performed by Bear
Stearns, particularly those based on forecasts, are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Bear Stearns' analyses of the
fairness of the Exchange Ratio, from a financial point of view, to the
holders of HFS Common Stock. The foregoing summary does not purport to be a
complete description of the analyses prepared by Bear Stearns and is
qualified in its entirety by reference to the Bear Stearns Opinion, which is
set forth in Appendix G to this Joint Proxy Statement/Prospectus.
HFS engaged Bear Stearns as its financial advisor because Bear Stearns is
an internationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger. Pursuant to the terms of
its engagement letter HFS has paid to Bear Stearns a fee of $4 million in
connection with the Bear Stearns Opinion (the "Opinion Fee"). HFS has further
agreed to pay Bear Stearns a fee of $26 million upon consummation of the
Merger or similar business combination involving HFS and CUC. Accordingly, if
the Merger is consummated, Bear Stearns will receive total financial advisory
fees of $30 million. If the Merger or a similar business combination is not
consummated, but HFS receives a "break-up" fee or any other payment as a
result of the termination or cancellation of HFS's efforts to effect the
Merger or similar business combination or any other payment from CUC not
otherwise detailed in the engagement letter (the "Break-up Fee"), then HFS
has agreed to pay Bear Stearns a cash fee equal to 10% of any such payment.
Therefore, if the Merger is not consummated and CUC pays HFS the Termination
Fee ($300 million), HFS will in turn pay Bear Stearns a cash fee equal to $30
million. The Opinion Fee is to be credited against any Break-up Fee payable
to Bear Stearns. In addition, HFS agreed to reimburse Bear Stearns for all
reasonable out-of-pocket expenses incurred by Bear Stearns in connection with
the Merger. HFS also has agreed to indemnify Bear Stearns against certain
liabilities in connection with its engagement, including certain liabilities
under the federal securities laws.
Bear Stearns has previously rendered and in the future may continue to
render certain investment banking and financial advisory services to both HFS
and CUC. From August 1, 1995 to the date of this Joint Proxy
Statement/Prospectus, in addition to the fees paid or payable to Bear Stearns
as described in the foregoing paragraph, Bear Stearns received (i) an
underwriting fee of $1.4 million from CUC in connection with a secondary
stock offering for affiliates of CUC and (ii) an aggregate of $8.6 million
from HFS in connection with serving as financial advisor for the acquisition
of Avis, Inc. ($3.8 million), co-manager for an offering of HFS Common Stock
($4.4 million) and co-manager for an offering of HFS's convertible debt ($0.4
million). In addition, a Vice Chairman of The Bear Stearns Company, Inc.,
which is the parent company of Bear Stearns, is a member of the HFS Board and
a Vice Chairman of Bear Stearns Investment Banking and a Senior Managing
Director of Bear Stearns Investment Banking served as trustees for National
Realty Trust, a trust that was created by HFS and is a significant real
estate brokerage franchisee of HFS. In the ordinary course of its business,
Bear Stearns may actively trade the securities of HFS and/or CUC for its own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of material U.S. federal income tax
consequences of the Merger to a stockholder of HFS (a "Holder") that holds
its shares of HFS Common Stock as a capital asset at the Effective Time. The
discussion is based on laws, regulations, rulings and decisions in effect on
the date hereof, all of which are subject to change (possibly with
retroactive effect) and differing interpretations. This discussion does not
address all aspects of federal taxation that may be relevant to particular
Holders in light of their personal investment circumstances or to Holders
subject to special treatment under the Code (including banks, tax-exempt
organizations, insurance companies, dealers in securities or foreign
currency, and holders who are not U.S. persons (as defined in section
7701(a)(30) of the Code)). In addition, the discussion does not address the
state, local or foreign tax consequences of the Merger.
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EACH HOLDER OF HFS COMMON STOCK IS URGED TO CONSULT ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
Tax Opinions. Consummation of the Merger is conditioned upon the receipt
by CUC of the opinion of Wachtell, Lipton, Rosen & Katz, counsel to CUC, and
the receipt by HFS of the opinion of Skadden, Arps, Slate, Meagher & Flom
LLP, counsel to HFS, each dated as of the Effective Time, in each case, on
the basis of facts, representations and assumptions set forth or referred to
in such opinions, substantially to the effect that (i) the Merger will
constitute a "reorganization" for U.S. federal income tax purposes 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 that such shares of HFS Common Stock were held as capital assets by
the stockholder at the Effective Time (collectively, clauses (i) through (v)
referred to herein as the "Tax Opinions"). The Tax Opinions will be subject
to certain limitations and qualifications and will be based on, among other
things, certain representations of HFS and CUC, including representations
made by the respective managements of HFS and CUC and certain principal
stockholders of HFS and CUC. The Tax Opinions are not binding on the Internal
Revenue Service ("IRS") and do not preclude the IRS from adopting a contrary
position.
In the event that CUC or HFS is unable to obtain its respective Tax
Opinion, as set forth above, each of CUC and HFS is permitted under the
Merger Agreement to waive the receipt of the Tax Opinions as a condition to
such party's obligation to consummate the Merger. As of the date of this
Joint Proxy Statement/Prospectus, neither CUC nor HFS intends to waive the
condition as to the receipt of the Tax Opinions, and neither CUC nor HFS
anticipates that the material income tax consequences of the Merger will be
materially different from those described above. In the event of such a
failure to obtain the Tax Opinions, and either CUC's or HFS's determination
to waive such condition to the consummation of the Merger, each of CUC and
HFS will resolicit the votes of its respective stockholders to approve
consummation of the Merger.
Exchange of HFS Common Stock for CUC Common Stock. A Holder that exchanges
shares of HFS Common Stock for shares of CUC Common Stock pursuant to the
Merger will not recognize gain or loss except in respect of cash received in
lieu of a fractional share of CUC Common Stock (as discussed below). The
aggregate adjusted tax basis of the shares of CUC Common Stock received
(including fractional shares) in that exchange will be equal to the aggregate
adjusted tax basis of the shares of HFS Common Stock surrendered therefor,
and the holding period of such CUC Common Stock will include the period
during which such shares of HFS Common Stock were held. If the Holder has
differing bases or holding periods in respect of its shares of HFS Common
Stock, it should consult its tax advisor prior to the exchange with regard to
identifying the bases or holding periods of the particular shares of CUC
Common Stock received in the exchange.
Cash Received in Lieu of a Fractional Share. Cash received in lieu of a
fractional share of CUC Common Stock will be treated as received in
redemption of such fractional share and gain or loss will be recognized,
equal to the difference between the amount of cash received and the portion
of the basis of the share of HFS Common Stock allocable to such fractional
interest. Such gain or loss will be capital gain or loss. Holders of HFS
Common Stock are urged to consult with their own tax advisors concerning
changes to the taxation of capital gains contained in the Taxpayer Relief Act
of 1997 enacted on August 5, 1997.
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FISCAL YEAR
CUC's fiscal year currently is the year ended January 31. Upon
consummation of the Merger, CUC intends to change its fiscal year to the year
ending December 31. Accordingly, pro forma information includes CUC's fiscal
years ended January 31, 1997, 1996 and 1995 and HFS's fiscal years ended
December 31, 1996, 1995 and 1994, which years are referred to as the fiscal
years ended December 31, 1996, 1995 and 1994 in this Joint Proxy
Statement/Prospectus.
ACCOUNTING TREATMENT
CUC and HFS anticipate that the Merger will be accounted for using the
pooling of interests method of accounting. Under this method of accounting,
holders of HFS Common Stock will be deemed to have combined their existing
voting common stock interest with that of holders of CUC Common Stock by
exchanging their shares for CUC Common Stock. Accordingly, the book value of
the assets, liabilities and stockholders' equity of HFS, as reported on its
consolidated balance sheet, will be combined with the corresponding balance
sheet categories on the consolidated balance sheet of CUC. In future
financial statements, the results of operations of CUC will include the
results of both CUC and HFS for the entire fiscal year in which the Merger
occurs and all prior fiscal periods presented therein; however, certain
expenses incurred to effect the Merger must be treated by CUC as current
charges against income rather than adjustments to its balance sheet.
CUC has received a letter from Ernst & Young LLP, its independent public
accountants, and HFS has received a letter from Deloitte & Touche LLP, its
independent public accountants, each letter dated the date of this Joint
Proxy Statement/Prospectus, stating that accounting for the Merger as a
pooling of interests is appropriate, if the Merger is consummated as
contemplated by the Merger Agreement.
The unaudited pro forma financial information contained in this Joint
Proxy Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger. See "SUMMARY," "SELECTED
FINANCIAL DATA" and "INDEX TO PRO FORMA FINANCIAL STATEMENTS."
HSR ACT AND OTHER REGULATORY APPROVALS
U.S. Antitrust Filing. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the rules and regulations
promulgated thereunder, certain transactions, including the Merger, may not
be consummated unless certain waiting period requirements have expired or
been terminated. On June 12, 1997, CUC and HFS filed a Premerger Notification
and Report Form pursuant to the HSR Act with the United States Department of
Justice (the "DOJ") and the Federal Trade Commission (the "FTC"). Under the
HSR Act, the Merger may not be consummated until 30 days (unless early
termination of this waiting period is granted) after the initial filing or,
if the DOJ or the FTC issues a Request for Documents and Other Additional
Information (a "second request"), 20 days after CUC and HFS have
substantially complied with such a second request (unless this period is
shortened pursuant to a grant of early termination). On July 11, 1997, the
FTC issued a second request with respect to the Merger, relating primarily to
the companies' timeshare exchange businesses.
HFS and CUC are engaged in discussions with the FTC concerning the
potential divestiture of Interval International Inc., CUC's timeshare
exchange business. It is expected that any such required divestiture would
not have a material financial impact on the combined company.
At any time before or after the Effective Time, the FTC, the DOJ or others
could take action under the antitrust laws with respect to the Merger,
including seeking to enjoin the consummation of the Merger, to rescind the
Merger, or to require the divestiture of certain assets of CUC or HFS. There
can be no assurance that a challenge to the Merger on antitrust grounds will
not be made or, if such a challenge is made, that it would not be successful.
Other Regulatory Approvals. As a result of the Merger, among other things,
CUC or HFS, as the case may be, may be required either to notify or obtain
the consent of (i) certain state regulatory authorities and federal secondary
market agencies in connection with various licenses or authorizations
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held by PHH Mortgage Services Corporation, a subsidiary of HFS ("PHH
Mortgage"), to act as a mortgage lender and servicer; (ii) certain insurance
regulatory authorities, including the New York State Department of Insurance
and the Colorado Division of Insurance, for the acquisition of control of
certain insurance company subsidiaries of HFS; (iii) certain regulatory
authorities in other countries where HFS and/or CUC conduct business pursuant
to certain antitrust and foreign investment laws and regulations governing
the conduct of business in such countries; and (iv) the New Jersey Casino
Control Commission and the Mississippi Gaming Commission in connection with
the activities of certain HFS subsidiaries providing credit verification and
marketing services to casinos in those two states.
If the approval of the Merger by any of the aforementioned authorities is
subject to compliance with certain conditions, there can be no assurance that
the parties will be able to satisfy or comply with such conditions or be able
to cause their respective subsidiaries to satisfy or comply with any such
conditions or that compliance or non-compliance will not have adverse
consequences for the combined company after consummation of the Merger. The
parties believe that the proposed Merger is compatible with such regulatory
requirements. Nevertheless, there can be no assurance that a challenge to the
proposed transaction on the grounds that the proposed Merger is not
compatible with the competition laws of a certain jurisdiction will not be
made or, if a challenge is made, what the result will be.
Under the Merger Agreement, CUC and HFS have agreed to use best efforts to
obtain all necessary actions or nonactions, waivers, consents and approvals
from any governmental authority necessary, proper or advisable to consummate
and make effective the Merger. While CUC and HFS believe that they will
receive the requisite regulatory approvals for the Merger, there can be no
assurance regarding the timing of such approvals or the ability of the
companies to obtain such approvals on satisfactory terms or otherwise. It is
a condition to the parties' respective obligations to consummate the Merger
that the waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have been terminated or shall have expired and that
all other consents, approvals and actions of, filings with and notices to a
governmental authority be made or obtained, the failure of which to be
obtained or taken (i) is reasonably expected to have a material adverse
effect on the combined company and its prospective subsidiaries or (ii) will
result in a violation of any laws. See "THE MERGER AGREEMENT--Conditions to
the Consummation of the Merger."
NO APPRAISAL RIGHTS
Holders of HFS Common Stock are not entitled to dissenters' appraisal
rights which would give them the right to obtain the payment of cash in
exchange for their HFS Common Stock as a result of the Merger. Holders of CUC
Common Stock are also not entitled to dissenters' appraisal rights in
connection with the Merger.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
CUC and HFS have each made forward-looking statements in this document
(and in documents that are incorporated by reference in this Joint Proxy
Statement/Prospectus) that are subject to risks and uncertainties. These
statements are based on the beliefs and assumptions of the respective
company's management, and on information currently available to such
management. Forward-looking statements include the information concerning
possible or assumed future results of operations of CUC and HFS set forth
under "SUMMARY," "SELECTED FINANCIAL DATA," "THE PROPOSED MERGER--Background
of the Merger," "--CUC's Rationale for the Merger; Recommendation of the CUC
Board of Directors," "--HFS's Rationale for the Merger; Recommendation of the
HFS Board of Directors," "--Opinion of CUC's Financial Advisor" and
"--Opinion of HFS's Financial Advisor" and "INDEX TO PRO FORMA FINANCIAL
STATEMENTS," and statements preceded by, followed by or that include the
words "believes," "expects," "anticipates," "intends," "plans," "estimates"
or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder
values of CUC and HFS may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond CUC's and HFS's ability to control or predict.
Stockholders are cautioned not to put
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undue reliance on any forward-looking statements. In addition, CUC and HFS do
not have any intention or obligation to update forward-looking statements
after they distribute this Joint Proxy Statement/ Prospectus, even if new
information, future events or other circumstances have made them incorrect or
misleading. For those statements, CUC and HFS claim the protection of the
safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Stockholders of CUC and HFS should understand that the following important
factors, in addition to those discussed elsewhere in the documents which are
incorporated by reference into this Joint Proxy Statement/Prospectus, could
affect the future results of the combined company following the Merger, and
could cause results to differ materially from those expressed in such
forward-looking statements: (i) the effect of economic conditions and
interest rates; (ii) the ability of CUC and HFS to successfully integrate
their operations; (iii) the impact of competitive services and pricing; (iv)
the financial resources of, and products available to, competitors; (v)
changes in laws and regulations, including changes in accounting standards;
(vi) customer demand; and (vii) opportunities that may be presented to and
pursued by the combined company following the Merger.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of CUC Common Stock to be issued to HFS stockholders in the
Merger have been registered under the Securities Act of 1933, as amended (the
"Securities Act"). These shares may be traded freely and without restriction
by those stockholders not deemed to be "affiliates" of HFS as that term is
defined under the Securities Act. An affiliate of HFS, as defined by the
rules promulgated under the Securities Act, is a person who directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, HFS. Any subsequent transfer by an affiliate
of HFS must be one permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 promulgated under the Securities Act,
in the case of such persons who become affiliates of CUC) or as otherwise
permitted under the Securities Act. These restrictions are expected to apply
to the directors and executive officers of HFS (as well as to certain other
related individuals or entities).
Securities and Exchange Commission (the "SEC") guidelines regarding
qualifying for the pooling of interests method of accounting also limit sales
of shares of the acquiring company and acquired company by affiliates of
either company in a business combination such as the Merger. These guidelines
indicate that the pooling of interests method of accounting will generally
not be challenged on the basis of sales by such affiliates if these persons
do not dispose of any of the shares of the corporation they own or any shares
of the corporation they receive in connection with a merger during the period
beginning 30 days prior to the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined entity
have been published (the "Pooling Restriction Period").
The obligation of CUC to consummate the Merger is conditioned upon HFS
having used its best efforts to cause each of its affiliates to deliver to
CUC a written agreement that such person will not dispose of (i) any CUC
Common Stock in violation of the Securities Act or the rules and regulations
promulgated thereunder or (ii) any CUC Common Stock or HFS Common Stock
during the Pooling Restriction Period.
The obligation of HFS to consummate the Merger is conditioned upon CUC
having used its best efforts to cause each of its affiliates to deliver CUC a
written agreement that such person will not dispose of any CUC Common Stock
or HFS Common Stock during the Pooling Restriction Period.
CUC has agreed in the Merger Agreement to publish financial results
covering the first full month of post-Merger combined operations within 45
days after the end of the first month after the Effective Time in which there
is at least 30 days of post-Merger combined operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED HISTORICAL COMBINING
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview. The managements of CUC and HFS believe that by combining
HFS's brands and consumer reach of more than 100 million customers annually
who use the travel and real estate services of HFS with CUC's direct
marketing expertise, club membership system and approximately 69
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million members worldwide, the combined company will be one of the foremost
consumer and business services companies in the world with new growth
opportunities not available to either company on its own. Revenues from such
opportunities are not included in the pro forma combined operating results
shown below.
Since the Merger will be accounted for as a pooling of interests,
unaudited historical combining operating results have been restated to
combine the results of operations of both CUC and HFS for all periods. Since
CUC currently reports on a January 31 fiscal year end and intends to change
to a December 31 fiscal year end at the Effective Time, references to 1996
and 1995 herein represent CUC's fiscal years ended January 31, 1997 and 1996,
respectively.
Results of Operations
<TABLE>
<CAPTION>
1996 1995 VARIANCE
------------ ------------ ----------
<S> <C> <C> <C>
Net revenue................................ $3,787,827 $2,992,122 27%
Operating expenses......................... 3,069,573 2,475,526 24%
Operating income........................... 718,254 516,596 39%
Operating income adjusted for one-time
charges................................... 898,199 613,625 46%
Net income................................. 421,340 302,825 39%
Fully diluted earnings per share ("EPS") .. $ .53 $ .41 29%
</TABLE>
Net income and EPS increased 39% ($118.5 million) and 29% ($.12),
respectively, from 1995 to 1996. Operating income increased 39% ($201.7
million) and 46% ($284.6 million), excluding one-time merger, integration,
restructuring and litigation costs associated with prior merger transactions
involving CUC, from 1995 to 1996.
The combined company possesses significant operating leverage as
demonstrated by a 27% increase in revenue, which translated into a 46%
increase in operating income (excluding one-time merger, integration,
restructuring and litigation costs). Operating expenses (excluding one-time
charges) increased 16% from 1995 to 1996. CUC's and HFS's managements believe
that future earnings (i) should be favorably affected by revenue growth
opportunities associated with CUC's direct marketing expertise and HFS's
travel and real estate customer base, including revenue derived from the
combined company's ability to cross-market within both HFS's and CUC's
businesses, and (ii) will also be enhanced as a result of both CUC's and
HFS's demonstrated operating leverage.
Liquidity and Capital Resources. CUC and HFS have demonstrated excellent
liquidity and access to liquidity through various sources. Most important,
both companies have generated significant cash flow from operations, and each
company has also demonstrated the ability to access public equity and debt
markets, as well as financial institutions for past strategic acquisitions.
Additionally, the combined company's cash and cash equivalents and working
capital approximated $883.9 million and $1.4 billion, respectively, at March
31, 1997. Each of CUC's and HFS's managements believe that the combined
company's liquidity will not be adversely affected by the Merger.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTERESTS
In considering the respective recommendations of the CUC Board and the HFS
Board, CUC stockholders and HFS stockholders should be aware that, as
described below, certain members of CUC's and HFS's managements and Boards of
Directors may have interests in the Merger that are different from, or in
addition to, the interests of CUC and HFS stockholders generally, and that
may create potential conflicts of interest. Three executive officers of CUC,
Walter A. Forbes, Christopher K. McLeod and E. Kirk Shelton, are members of
the 10-person CUC Board which approved the Merger. Five executive officers of
HFS, James E. Buckman, Stephen P. Holmes, Michael P. Monaco, Henry R.
Silverman and John D. Snodgrass, are members of the 15-person HFS Board which
approved the Merger. The CUC Board and the HFS Board were aware of the
interests of their respective directors and officers when they approved the
Merger and the Merger Agreement.
In addition to the items discussed below, such interests relate to or
arise from, among other things, the terms of the Merger Agreement providing,
after the Effective Time, for (i) the CUC Board to consist of 30 members, 15
of whom have been designated by each of HFS and CUC; (ii) the division of
certain senior management positions of the combined company among the
existing senior management of each of CUC and HFS; and (iii) the
indemnification of existing directors and officers of HFS. All such
additional interests are described below, to the extent material, and except
as described below or under "DIRECTORS AND MANAGEMENT OF CUC FOLLOWING THE
MERGER, " such persons have, to the knowledge of HFS and CUC, no material
interest in the Merger apart from those of stockholders generally.
EMPLOYMENT AGREEMENT OF CUC CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CUC has agreed to enter into an amended and restated employment agreement
with Mr. Forbes, CUC's Chairman and Chief Executive Officer (the "New Forbes
Employment Agreement"), which will become effective and replace and supersede
his current employment agreement (the "Current Forbes Employment Agreement")
upon the consummation of the Merger. Under the New Forbes Employment
Agreement, Mr. Forbes will be employed for a five-year period (the "Period of
Employment"), beginning on the date on which the Effective Time occurs (the
"Closing Date"), which term will be extended automatically on each
anniversary of the Closing Date for an additional year unless either CUC or
Mr. Forbes gives written notice that the Period of Employment will end at the
end of the then-existing Period of Employment. During the Period of
Employment through December 31, 1999, Mr. Forbes will serve as Chairman of
the CUC Board and as Chairman of the Executive Committee of CUC, and from and
after January 1, 2000, as President and Chief Executive Officer of CUC.
During the Period of Employment, Mr. Forbes will be paid an annual base
salary of not less than $1,250,000 and an annual bonus equal to the lesser of
(i) 0.75% of CUC's "EBITDA" (as defined in the New Forbes Employment
Agreement) or (ii) 100% of his annual base salary. Under the New Forbes
Employment Agreement, upon the consummation of the Merger, Mr. Forbes will
receive a grant of stock options with respect to 4 million shares of CUC
Common Stock with an exercise price equal to the fair market value of the CUC
Common Stock on the grant date, vesting in three equal installments on each
of the first three anniversaries of the Closing Date. Mr. Forbes will be
eligible to participate in CUC's other compensation and employee benefit
plans or programs, and to receive perquisites no less favorable than those
provided to the Chief Executive Officer of CUC (or, at such times as Mr.
Forbes is serving as Chief Executive Officer, those provided to the Chairman
of the CUC Board).
The New Forbes Employment Agreement provides for the continuation of
certain provisions of the Current Forbes Employment Agreement, including an
arrangement for split dollar life insurance; provisions for death, disability
and retirement; certain restrictive covenants, including a covenant not to
compete with CUC; and a provision that, in the event of a "Change of Control"
(as defined in the applicable agreement) other than the Merger, all then
unvested stock options and restricted stock held by Mr. Forbes will vest.
Under the New Forbes Employment Agreement, if CUC were to fail to appoint
and maintain Mr. Forbes as Chief Executive Officer from and after January 1,
2000 (for any reason other than his death, disability, retirement or
resignation) or, if before January 1, 2002, Mr. Forbes' employment were to be
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terminated by CUC other than in the event of a Termination for Cause (as
defined below) or by Mr. Forbes in a Constructive Discharge (as defined
below), CUC has agreed to pay Mr. Forbes $25,000,000 in cash, and grant him
stock options to acquire CUC Common Stock having a Black-Scholes value of
$12,500,000 (such options to be fully vested upon grant and to remain
exercisable for their term notwithstanding the termination of Mr. Forbes'
employment). In addition, in such event, any then unvested stock options and
restricted stock held by Mr. Forbes would vest and such stock options would
remain exercisable for the remainder of their terms. For these purposes: (i)
"Termination for Cause" means a termination of Mr. Forbes's employment by CUC
by written notice to him specifying the event relied upon for such
termination, due to Mr. Forbes's serious, willful misconduct with respect to
his duties under the New Forbes Employment Agreement (including but not
limited to conviction for a felony or perpetration of a common law fraud)
which has resulted or is likely to result in material economic damage to CUC
and which is not cured (if such breach is capable of being cured) within 30
days after written notice thereof to Mr. Forbes; and (ii) "Constructive
Discharge" means a termination of Mr. Forbes' employment by him because of a
failure of CUC to fulfill its obligations under the New Forbes Employment
Agreement, including any reduction of his compensation, failure to maintain
him in the positions specified above, any other material change by CUC in the
functions, duties or responsibilities of the position which would reduce the
ranking or level, dignity, responsibility, importance or scope of the
position, or the relocation of Mr. Forbes by CUC to a place of employment
that is more than 15 miles from the city limits of Stamford, Connecticut.
Under the New Forbes Employment Agreement, in the event of a termination
of Mr. Forbes' employment for any reason, in addition to the payments
described in the preceding paragraph, he will be entitled to receive
$10,000,000 as a cash retirement benefit, together with earned but unpaid
base salary and incentive compensation awards on a pro rata basis for the
year of termination; all then unvested stock options and restricted stock
will vest; all then unpaid premiums with respect to the split dollar life
insurance maintained on his behalf by CUC will be contributed to an escrow
agent; and welfare benefits for Mr. Forbes and his spouse will continue for
five years. Such benefits would have been payable to Mr. Forbes upon
termination of his employment following consummation of the Merger under the
Current Forbes Employment Agreement.
The New Forbes Employment Agreement provides that Mr. Forbes will be made
whole on an after-tax basis with respect to certain excise taxes which may in
certain cases be imposed upon payments under the agreement.
EMPLOYMENT AGREEMENT OF HFS CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CUC has agreed to enter into an amendment (the "Silverman Amendment") to
the employment agreement between HFS and Mr. Silverman, HFS's Chairman and
Chief Executive Officer, as amended and restated as of June 30, 1996 and
January 27, 1997 (the "Current Silverman Employment Agreement"), which
amendment will become effective upon the consummation of the Merger.
The Silverman Amendment provides for the employment of Mr. Silverman by
CUC from and after the consummation of the Merger. The Silverman Amendment
provides that Mr. Silverman will be employed for the Period of Employment,
which term will be extended automatically on each anniversary of the Closing
Date for an additional year unless either CUC or Mr. Silverman gives written
notice that the Period of Employment will end at the end of the then-existing
Period of Employment. During the Employment Period through December 31, 1999,
Mr. Silverman will serve as President and Chief Executive Officer of CUC, and
thereafter he will serve as Chairman of the CUC Board and Chairman of the
Executive Committee of CUC.
The Current Silverman Employment Agreement provides for Mr. Silverman to
receive an annual base salary of not less than $1,500,000 and an annual bonus
equal to the lesser of (i) .75% of CUC's "EBITDA" (as defined in the Current
Silverman Employment Agreement) for the applicable fiscal year or (ii) 150%
of his annual base salary. The Current Silverman Employment Agreement also
provides for the annual grant to Mr. Silverman, on each of July 1, 1998, 1999
and 2000, of options to acquire 2 million shares of HFS Common Stock, which
will be fully vested upon grant, at an exercise price equal to the fair
market value of the HFS Common Stock on the grant date. Under the Current
Silverman Employment
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Agreement, upon the occurrence of a Change of Control (as defined in the
Current Silverman Employment Agreement) in which HFS shareholders receive
consideration substantially in the form of stock or other equity securities,
Mr. Silverman would receive a lump sum amount, payable, in the case of the
Merger, in cash or shares of CUC Common Stock, equal to the value of any such
options that have not yet been granted (the "Remaining Options"). The Merger
will constitute a Change of Control giving rise to such payment under the
Current Silverman Employment Agreement. In consideration of Mr. Silverman's
waiver of his right to such payment, the Silverman Amendment provides for the
grant of options to acquire a number of shares of CUC Common Stock equal to
the number of shares covered by the Remaining Options, multiplied by the
Exchange Ratio, which product will aggregate approximately 14,418,600 shares
of CUC Common Stock. In addition, the Silverman Amendment contains a
provision consistent with the Current Silverman Employment Agreement that, in
the event of a Change of Control other than the Merger, Mr. Silverman would
receive, in cancellation of any such options then held, cash in an amount (or
in certain stock transactions, stock or other equity securities having a
value) equal to the value of such options, if that value were to exceed the
excess of the aggregate value of the underlying shares over the aggregate
exercise price under the options. The Silverman Amendment provides that Mr.
Silverman is entitled during the Period of Employment to receive perquisites
no less favorable than those provided to the Chairman of the Board of
Directors of CUC (or, at such times as Mr. Silverman is serving as such
Chairman of the Board, those provided to the Chief Executive Officer of CUC).
Mr. Silverman's compensation will not be changed as a result of the Silverman
Amendment.
The Silverman Amendment provides that if Mr. Silverman resigns his
employment in connection with a breach by CUC of the Current Silverman
Agreement (as amended by the Silverman Amendment), or if he is terminated by
CUC without Cause (as defined below), he will be entitled to receive a lump
sum cash payment equal to (i) the lesser of (a) 150% of his annual base
salary or (b) the sum of his annual base salary plus .75% of "EBITDA" (as
defined in the Current Silverman Employment Agreement) for the 12 months
preceding the date of termination, times (ii) the number of years and partial
years remaining in the Period of Employment. In addition, Mr. Silverman would
be entitled to continued health and welfare benefits during the remaining
Period of Employment and the vesting of any options and restricted stock.
Under the Silverman Amendment, if CUC were to fail to comply with the
requirement that Mr. Silverman serve as Chairman of the Board and Chairman of
the Executive Committee of CUC from and after January 1, 2000 for any reason
other than Mr. Silverman's death, disability or resignation, or if Mr.
Silverman's employment is terminated before January 1, 2002 by CUC other than
for Cause or by Mr. Silverman in connection with a breach by CUC of the
Current Silverman Agreement (as amended by the Silverman Amendment), CUC has
agreed to pay Mr. Silverman $25,000,000 in cash, and grant him stock options
to acquire CUC Common Stock having a Black-Scholes value of $12,500,000 (such
options to be fully vested upon grant and to remain exercisable for their
term notwithstanding the termination of Mr. Silverman's employment). For
these purposes, "Cause" means (i) the willful and continued failure by Mr.
Silverman substantially to perform his duties under the Current Silverman
Employment Agreement (as amended by the Silverman Amendment) (other than any
such failure resulting from Mr. Silverman's incapacity due to physical or
mental illness); (ii) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against CUC, as finally determined through
arbitration or final judgment of a court of competent jurisdiction (which
arbitration or judgment, due to the passage of time or otherwise, is not
subject to further appeal); or (iii) conviction of a felony or any crime
involving moral turpitude (which conviction, due to the passage of time or
otherwise, is not subject to further appeal).
The Silverman Amendment further provides that Mr. Silverman will be made
whole on an after-tax basis with respect to certain excise taxes which may in
certain cases be imposed upon payments under the Current Silverman Employment
Agreement (as amended by the Silverman Amendment) and other compensation and
benefit arrangements.
AGREEMENTS WITH OTHER EXECUTIVE OFFICERS
CUC has agreed to enter into new employment agreements with Mr. Shelton,
CUC's current President and Chief Operating Officer; Mr. McLeod, currently an
Executive Vice President and Member of the Office of the President of CUC;
Cosmo Corigliano, CUC's current Chief Financial Officer; and Amy N. Lipton,
CUC's current General Counsel (such agreements, respectively, the "New
Shelton
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Employment Agreement," the "New McLeod Employment Agreement," the "New
Corigliano Employment Agreement," and the "New Lipton Employment Agreement"
and collectively, the "New CUC Employment Agreements"). Like the New Forbes
Employment Agreement, each New CUC Employment Agreement will become effective
and replace and supersede the executive's current employment agreement upon
the consummation of the Merger, and provide for the Period of Employment
beginning on the Closing Date with automatic one-year extensions unless a
notice of nonrenewal is given.
Each New CUC Employment Agreement specifies the position and duties of the
executive during the Period of Employment. Mr. Shelton will serve as Senior
Executive Vice President of CUC, and President and Chief Executive Officer of
its CUC division. Mr. McLeod will serve as Executive Vice President of CUC
and President of its CUC software division. Mr. Corigliano will serve as
Chief Financial Officer of the CUC division through December 31, 1999, and
thereafter, as Chief Financial Officer of CUC. Ms. Lipton will serve as
General Counsel of the CUC division and Deputy General Counsel of CUC through
December 31, 1999, and thereafter, as a Senior Vice President and the General
Counsel of CUC.
Each New CUC Employment Agreement specifies the compensation and benefits
to be provided to the executive during the respective Period of Employment.
Mr. Shelton and Mr. McLeod will be paid annual base salaries of not less than
$650,000 and will be eligible for annual bonuses based on a target bonus of
$650,000; they will each receive, upon the consummation of the Merger, a
grant of stock options with respect to 1.8 million shares of CUC Common Stock
with an exercise price equal to the fair market value of the CUC Common Stock
on the grant date, vesting in four equal installments on each of the first
four anniversaries of the Closing Date. Mr. Corigliano and Ms. Lipton will
each be paid annual base salaries of not less than $300,000, and will be
eligible for an annual bonus based on a target bonus of $200,000 and
$150,000, respectively; they will each receive, upon the consummation of the
Merger, a grant of stock options with respect to 600,000 shares of CUC Common
Stock on the same terms and conditions as the grants to Messrs. Shelton and
McLeod. All four executives will be eligible to participate in all of CUC's
other compensation and employee benefit plans or programs.
The New CUC Employment Agreements provide for continuation of certain
provisions of the executive's respective corresponding current employment
agreements, including arrangements with respect to split dollar life
insurance for Messrs. Shelton and McLeod; provisions for death, disability
and retirement; certain restrictive covenants, including a covenant not to
compete with CUC; and certain provisions entitling the executives to certain
benefits upon a Change of Control (as defined in the applicable agreement),
which provisions have been amended in the New CUC Employment Agreements to
refer to any Change of Control other than in connection with the Merger.
Under these amended Change of Control provisions, in the event of a Change of
Control (other than the Merger) all then-unvested stock options and
restricted stock held by each of the four executives would vest.
Each New CUC Employment Agreement provides for certain payments in the
event of termination of the executive's employment under various
circumstances. The New Shelton Employment Agreement provides that if, before
January 1, 2002, Mr. Shelton's employment were to be terminated by CUC other
than for Cause (as defined below) or by Mr. Shelton in a Constructive
Discharge (as defined below), CUC has agreed to pay Mr. Shelton $12,500,000
in cash, and grant him stock options to acquire CUC Common Stock having a
Black-Scholes value of $7,500,000 (such options to be fully vested upon grant
and to remain exercisable for their term notwithstanding the termination of
Mr. Shelton's employment). In addition, if Mr. Shelton's employment were to
be terminated by CUC other than for Cause or by Mr. Shelton in a Constructive
Discharge, regardless of when such termination occurs, or if Mr. Shelton were
to resign for any reason, he would be entitled to receive a lump sum cash
payment equal to 500% of the sum of (i) his annual base salary and (ii) the
highest annual bonus he has received for any of the three preceding years (or
$520,000, if higher), plus any earned but unpaid base salary and incentive
compensation, and his benefits and perquisites would continue for 36 months.
In the case of a termination without Cause or a Constructive Discharge, all
stock options and restricted stock previously granted to him would vest; in
the case of a resignation, any options and restricted stock that would have
vested in the 36 months following such resignation would vest. For these
purposes, Cause and Constructive Discharge are defined in substantially the
same manner as in the New Forbes Employment Agreement, except that Mr.
Shelton will also be considered to have grounds for Constructive Discharge if
Mr. Forbes'
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employment is terminated by either CUC or Mr. Forbes for any reason before
January 1, 2002; if CUC fails to maintain Mr. Forbes as Chief Executive
Officer of CUC for the whole of the years 2000 and 2001; if Mr. Shelton fails
to be assigned, from and after January 1, 2000, duties and responsibilities
with respect to the combined operations of CUC and HFS that are substantially
the same as Mr. Shelton's current duties and responsibilities with respect to
the operations of CUC; or any individual other than Mr. Shelton, Mr. Forbes
or, prior to January 1, 2000, Mr. Silverman is appointed President or Chief
Operating Officer of CUC or to any other position reporting directly to the
Chief Executive Officer of CUC, which position has a rank or status higher
than that of Mr. Shelton's.
The New McLeod Employment Agreement provides that if Mr. McLeod's
employment were to be terminated by CUC other than for Cause or by Mr. McLeod
in a Constructive Discharge, or if Mr. McLeod were to resign for any reason,
he would be entitled to receive a lump sum cash payment equal to 500% of the
sum of (i) his annual base salary and (ii) the highest annual bonus he
received for any of the three preceding years (or $520,000, if higher), plus
any earned but unpaid base salary and incentive compensation, and his
benefits and perquisites for would continue for 36 months. In addition, all
stock options and restricted stock previously granted to him would vest. For
these purposes, Cause and Constructive Discharge are defined in the same
manner as in the New Forbes Employment Agreement.
The New Corigliano Employment Agreement and the New Lipton Employment
Agreement contain substantially similar severance provisions as the New
McLeod Employment Agreement with multiples of base salary and bonus ranging
from 200% to 500% becoming payable, depending upon the circumstances giving
rise to the termination, and providing for vesting of stock awards, and
continuation of benefits for a specified period of up to 60 months.
Each of the New CUC Employment Agreements further provides that the
executive will be made whole on an after-tax basis with respect to certain
excise taxes which may in certain cases be imposed upon payments under the
agreement.
As described above, the New CUC Employment Agreements will, at the
Effective Time, replace and supersede the corresponding current employment
agreements. These current employment agreements contain, among other things,
provisions under which, as a result of the consummation of the Merger, each
of the executives would have been entitled to terminate his or her own
employment and receive specified severance benefits, if he or she had not
entered into a New CUC Employment Agreement.
CUC has agreed to enter into new employment agreements with Mr. Monaco,
HFS's current Vice Chairman and Chief Financial Officer; Mr. Holmes, HFS's
current Vice Chairman; and Mr. Buckman, HFS's current Senior Executive Vice
President and General Counsel (such agreements, respectively, the "New Monaco
Employment Agreement," the "New Holmes Employment Agreement," and the "New
Buckman Employment Agreement," and collectively, the "New HFS Employment
Agreements"). Like the New CUC Employment Agreements, each New HFS Employment
Agreement will become effective and replace and supersede the executive's
current employment agreement upon the consummation of the Merger, and will
provide for a Period of Employment beginning on the Closing Date with
automatic one-year extensions unless a notice of nonrenewal is given.
Each New HFS Employment Agreement specifies the position and duties of the
executive during the Period of Employment. Mr. Monaco will serve as Vice
Chairman and Chief Financial Officer of CUC through December 31, 1999, and
thereafter, as Vice Chairman. Mr. Holmes will serve as Vice Chairman of CUC.
Mr. Buckman will serve as Senior Executive Vice President and General Counsel
of CUC through December 31, 1999, and thereafter, as Senior Executive Vice
President of CUC and General Counsel of CUC's HFS division.
Each New HFS Employment Agreement specifies the compensation and benefits
to be provided to the executive during the Period of Employment. Messrs.
Monaco and Holmes will be paid annual base salaries of not less than $650,000
and will be eligible for annual bonuses based on a target bonus of $650,000;
they will each receive, upon the consummation of the Merger, a grant of
shares of restricted CUC Common Stock with a fair market value of $1,100,000,
vesting in three equal installments on each of the first three anniversaries
of the Closing Date, and a grant of stock options with respect to 360,000
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<PAGE>
shares of CUC Common Stock with an exercise price equal to the fair market
value of the CUC Common Stock on the grant date, vesting in four equal
installments on each of the first four anniversaries of the Closing Date. Mr.
Buckman will be paid an annual base salary of not less than $500,000, and
will be eligible for an annual bonus based on a target bonus of $500,000; he
will receive, upon the consummation of the Merger, a grant of shares of
restricted CUC Common Stock with a fair market value of $1,400,000, vesting
in three equal installments on each of the first three anniversaries of the
Closing Date, and a grant of stock options with respect to 360,000 shares of
CUC Common Stock with an exercise price equal to the fair market value of the
CUC Common Stock on the grant date, vesting in four equal installments on
each of the first four anniversaries of the Closing Date. All three
executives will be eligible to participate in all of CUC's other compensation
and employee benefit plans or programs and to receive specified perquisites.
The New HFS Employment Agreements contain certain provisions that are
substantially the same as the corresponding provisions in the New CUC
Employment Agreements, including provisions for death, disability and
retirement; certain restrictive covenants, including a covenant not to
compete with CUC; and a provision that in the event of a Change of Control
(other than the Merger) all then-unvested stock options and restricted stock
held by each of the executives would vest.
Each New HFS Employment Agreement provides for certain payments in the
event of termination of the executive's employment under various
circumstances, consisting of a lump sum in cash equal to a multiple ranging
from 300% to 500% (or, in the case of Mr. Buckman, 200% to 400%) of the sum
of (i) his annual base salary and (ii) the highest annual bonus he received
for any of the three preceding years, or $520,000, if higher ($500,000 in the
case of Mr. Buckman), plus any earned but unpaid base salary and incentive
compensation. In addition, the executive's benefits and perquisites would
continue for a specified period and all then-unvested stock options and
restricted stock held by him would vest.
For purposes of the New HFS Employment Agreements, Cause and Constructive
Discharge are defined in substantially the same manner as in the New Forbes
Employment Agreement, except that (i) the "relocation" basis for Constructive
Discharge is triggered by a relocation more than 15 miles from the city
limits of Parsippany, New Jersey, and (ii) the executives will also be
considered to have grounds for Constructive Discharge if Mr. Silverman's
employment is terminated by either CUC or Mr. Silverman for any reason before
January 1, 2001 or if CUC fails to maintain Mr. Silverman as Chairman of the
Board and Executive Committee of CUC for the whole of the year 2000.
CERTAIN OTHER BENEFITS
All options and restricted stock held by each of the above-named CUC
executive officers will vest in full upon consummation of the Merger and
options granted to certain members of the CUC Board will also vest in full
upon consummation of the Merger. All options held by HFS directors or
employees will vest in full upon consummation of the Merger.
Under the CUC Executive Retirement Plan (the "SERP"), certain key
executives, including all of the named executive officers, are entitled to
receive certain cash payments upon retirement. The SERP provides that upon a
change of control, which would include the consummation of the Merger, each
participant will receive, in full settlement of all benefits under the SERP,
a cash lump sum payment equal to 75% of their targeted retirement benefit.
This lump sum payment may be reduced to the extent necessary to avoid any
"excess parachute payments." CUC believes that no significant reduction will
be required for any of the named executive officers of CUC other than Ms.
Lipton. However, to the extent that any such reduction were to occur, the
amount not paid upon consummation of the Merger would become payable in the
event that the executive's employment subsequently terminated. Upon
consummation of the Merger, officers and employees of CUC will receive lump
sum payments under the SERP in an aggregate amount of approximately $44
million. None of CUC's named executive officers will receive in excess of 18%
of such amount.
In addition to the grants of stock options to acquire shares of CUC Common
Stock and the grants of shares of restricted CUC Common Stock to be made to
Messrs. Silverman, Monaco, Holmes, Buckman, Forbes, Shelton, McLeod and
Corigliano and Ms. Lipton described above, pursuant to the
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<PAGE>
Merger Agreement, at the Effective Time certain other officers and key
employees of the combined company will be granted options to acquire an
aggregate of 8,625,000 shares of CUC Common Stock at an exercise price equal
to the fair market value of the CUC Common Stock on the date of grant, and
shares of restricted CUC Common Stock with a fair market value of $26.4
million.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that all rights to indemnification and
exculpation from liabilities existing in favor of the current or former
directors or officers of HFS and its subsidiaries as provided in their
respective certificates of incorporation and the by-laws and existing
indemnification agreements of HFS will be assumed by CUC, as the surviving
corporation in the Merger, and will continue in effect in accordance with
their terms, and directors and officers of HFS who become directors and
officers of CUC will be entitled to the same indemnification rights as are
afforded to other directors and officers of CUC. The Merger Agreement also
provides that for seven years after the Effective Time, CUC will provide
liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who were covered by HFS's
directors' and officers' liability insurance policy on terms with respect to
such coverage and amount no less favorable than those in effect on the date
of the Merger Agreement, provided that CUC will not be required to pay more
than 200% of the current amount paid by HFS to maintain such insurance.
In addition, the Restated By-Laws (as defined below) will provide for CUC
to indemnify and advance litigation expenses to directors and officers of CUC
to the fullest extent permitted by the Delaware General Corporation Law
("DGCL").
DIRECTORS AND MANAGEMENT OF CUC FOLLOWING THE MERGER
GENERAL
In connection with the Merger Agreement, HFS and CUC have agreed to
certain provisions relating to the governance of CUC following the Effective
Time in a "Plan for Corporate Governance" which is attached as Appendix D to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference
(the "Governance Plan"). In addition, certain changes will be made to the Old
CUC Certificate (as defined herein) and Old CUC By-Laws (as defined herein)
as the surviving corporation in the Merger in connection with the Governance
Plan. Forms of the proposed Amended and Restated Certificate of Incorporation
(the "Restated Certificate") and proposed Amended and Restated By-Laws (the
"Restated By-Laws") for CUC, to be put into effect at the Effective Time, are
attached as Appendices B and C, respectively, to this Joint Proxy
Statement/Prospectus and are incorporated herein by reference.
DIRECTORS
The Governance Plan provides that the CUC Board will initially consist of
30 members as set forth below, half of whom will be designated by each of CUC
and HFS. The 15 directors designated by HFS are the 15 current directors of
HFS and the 15 directors designated by CUC are the 10 current directors of
CUC and an additional 5 directors designated by CUC.
At the Effective Time, the CUC Board will be divided into three classes
initially consisting of 10 directors each (half of whom will be designated by
each of CUC and HFS), with initial terms expiring at the annual meetings of
stockholders to be held in 1998, 1999 and 2000, respectively. Each class of
directors elected at an annual meeting of stockholders of CUC after the
Effective Time will be elected for a three-year term.
Pursuant to the Restated By-Laws, following the Merger, Mr. Silverman will
serve as President and Chief Executive Officer of CUC and Mr. Forbes will
serve as Chairman of the Board of Directors of CUC. On January 1, 2000, Mr.
Forbes will become President and Chief Executive Officer of CUC and Mr.
Silverman will become Chairman of the Board of Directors of CUC. The Restated
By-Laws also provide that if, for any reason, Mr. Silverman ceases to serve
as President and Chief Executive Officer prior to January 1, 2000 and at such
time Mr. Forbes is Chairman of the Board, Mr. Forbes will become President
43
<PAGE>
and Chief Executive Officer, and if, for any reason, Mr. Forbes ceases to
serve as Chairman of the Board prior to January 1, 2000 and at such time Mr.
Silverman is President and Chief Executive Officer, Mr. Silverman will become
Chairman of the Board. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER;
CONFLICTS OF INTERESTS." Until January 1, 2002, an 80% vote of the CUC Board
will be required to remove Mr. Forbes as Chairman or Mr. Silverman as
President and Chief Executive Officer or to otherwise amend or repeal the
provisions discussed above relating to the roles and succession plans with
respect to Mr. Forbes and Mr. Silverman.
Set forth below is certain information with respect to the 30 individuals
who have been designated as the initial members of the CUC Board:
<TABLE>
<CAPTION>
POSITION WITH CUC CURRENT POSITION TERM
NAME AGE FOLLOWING THE MERGER WITH HFS OR CUC EXPIRING
- ------------------------ ----- ------------------------------ -------------------------------- ----------
<S> <C> <C> <C> <C>
Walter A. Forbes......... 54 Chairman of the Board Chairman of the Board and Chief 2000
Executive Officer of CUC
Henry R. Silverman....... 57 President, Chief Executive Chairman of the Board and Chief 2000
Officer and Director Executive Officer of HFS
Michael P. Monaco........ 49 Vice Chairman, Chief Financial Vice Chairman and Chief 2000
Officer and Director Financial Officer of HFS
Stephen P. Holmes........ 40 Vice Chairman and Director Vice Chairman of HFS 2000
Robert D. Kunisch........ 55 Vice Chairman and Director Vice Chairman of HFS 1998
Christopher K. McLeod ... 42 Vice Chairman and Director Executive Vice President of 1999
CUC, Chief Executive Officer
of CUC Software and Director
of CUC
E. Kirk Shelton.......... 42 Vice Chairman and Director President, Chief Operating 1998
Officer and Director of CUC
John D. Snodgrass........ 40 Vice Chairman and Director President, Chief Operating 1998
Officer, Vice Chairman and
Director of HFS
Robert T. Tucker......... 55 Vice Chairman, Director Secretary of CUC 1998
and Secretary
Kenneth A. Williams...... 42 Vice Chairman and Director Vice Chairman and Director of 1999
CUC
James E. Buckman......... 52 Senior Executive Vice Senior Executive Vice President, 2000
President, General Counsel General Counsel and Director
and Director of HFS
Bartlett Burnap.......... 65 Director Director of CUC 2000
Leonard S. Coleman....... 48 Director Director of HFS 1999
Christel DeHaan.......... 54 Director Director of HFS 1999
T. Barnes Donnelly....... 64 Director Director of CUC 1999
Martin L. Edelman........ 56 Director Director of HFS 2000
Frederick D. Green....... 58 Director -- 2000
Stephen A. Greyser....... 62 Director Director of CUC 1998
Dr. Carole G. Hankin ... 55 Director -- 1998
The Rt. Hon. Brian 58 Director Director of HFS 1998
Mulroney, P.C., LL.D. ..
Robert E. Nederlander ... 64 Director Director of HFS 1999
Burton C. Perfit......... 68 Director Director of CUC 1998
Anthony G. Petrello...... 42 Director -- 2000
Robert W. Pittman........ 43 Director Director of HFS 1998
E. John Rosenwald, Jr. .. 67 Director Director of HFS 1998
Robert P. Rittereiser ... 59 Director Director of CUC 2000
Stanley M. Rumbough, 77 Director Director of CUC 1999
Jr......................
Leonard Schutzman........ 50 Director Director of HFS 1999
Robert F. Smith.......... 63 Director Director of HFS 1999
Craig R. Stapleton....... 52 Director -- 1999
</TABLE>
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<PAGE>
The following five individuals designated by CUC to serve as members of
the CUC Board following consummation of the Merger will not have served as
directors of CUC or HFS prior to the Effective Time: Messrs. Green, Petrello,
Stapleton, Tucker and Dr. Hankin. The following three individuals have been
appointed as members of the HFS Board since the last annual meeting of HFS
stockholders: Messrs. Coleman, Kunisch and Mulroney. Biographical information
about each of these eight individuals is set forth below:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- ---- --------------------------------------------
<S> <C>
Leonard Coleman................ Mr. Coleman has served as President of The National League of
Professional Baseball Clubs since 1994, having previously served since
1992 as Executive Director, Market Development of Major League Baseball.
Mr. Coleman is a director of Beneficial Corporation, Owens Corning, the
Omnicom Group and New Jersey Resources. Mr. Coleman beneficially owns no
shares of HFS Common Stock, but he holds an option to purchase 50,000
shares of HFS Common Stock which will vest at the Effective Time.
Frederick D. Green............. Mr. Green is President and Chairman of Golf Services, Inc. Since 1969,
Golf Services and its affiliates have been engaged in the ownership and
development of residential and commercial real estate projects as well
as the creation and management of golf clubs. Mr. Green graduated from
Indiana University in 1960 and received an L.L.B from Stanford
University in 1963. Mr. Green practiced law with the Denver firm of
Holme Roberts & Owen from 1963 through 1967. Mr Green is the beneficial
owner of 3,000 shares of CUC Common Stock.
Dr. Carole G. Hankin........... Dr. Hankin is Superintendent of Schools in Syosset, New York, a suburban
K-12 school district; she has served in that district since 1990. She
earned her doctorate and two master's degrees from Columbia University,
Teachers College, as well as a bachelor of arts degree from Sarah
Lawrence College, and certification from the Cornell University School
of Industrial and Labor Relations.
Robert D. Kunisch.............. Mr. Kunisch has been Vice Chairman of HFS since April 1997, having
previously been Chairman of the Board (since 1989), Chief Executive
Officer (since 1988) and President (since 1984) of PHH Corporation. He
is a member of the board directors of CSX Corporation, Mercantile
Bankshares Corporation and GenCorp, Inc. Mr. Kunisch is the beneficial
owner of 427,781 shares of HFS Common Stock and he holds a fully-vested
option to purchase 400,000 shares of HFS Common Stock.
The Rt. Hon. Brian Mulroney, Mr. Mulroney, Prime Minister of Canada from 1984 to 1993, is currently
P.C., LL.D.................... Senior Partner in the Montreal-based law firm, Oglivy Renault. He is a
member of several corporate boards of directors, including Archer
Daniels Midland Company Inc., Barrick Gold Corporation and Petrofina,
S.A. Mr. Mulroney beneficially owns no shares of HFS Common Stock, but
he holds an option to purchase 50,000 shares of HFS Common Stock which
will vest at the Effective Time.
45
<PAGE>
NAME PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- ---- --------------------------------------------
Anthony G. Petrello............ Mr. Petrello has been President and Chief Operating Officer of Nabors
Industries, Inc. (an international drilling contractor) since 1992 and a
member of the Executive Committee of Nabors Industries Inc. since 1991.
Mr. Petrello has also been a director of Danielson Holding Corporation,
a financial services holding company, since 1996. From 1979 to 1991, Mr.
Petrello was with Baker & McKenzie, a law firm, where Mr. Petrello was
Managing Partner of its New York office until his resignation in 1991.
Mr. Petrello continues as of counsel to Baker & McKenzie, and the firm
continues to provide legal services to CUC. Mr. Petrello holds a J.D.
from Harvard Law School and a B.S. and M.S. from Yale University. Mr.
Petrello is the beneficial owner of 31,800 shares of CUC Common Stock.
Craig R. Stapleton............. Mr. Stapleton has been President of Marsh & McLennan Real Estate
Advisors, Inc. since 1983. Mr. Stapleton is also a director of Alleghany
Properties, Inc. (a real estate investment concern), T.B. Woods Inc. and
Vacu Dry Co. Mr. Stapleton holds an M.B.A. from Harvard Business School
and a B.A. from Harvard College. Mr. Stapleton is the beneficial owner
of 2,000 shares of CUC Common Stock.
Robert T. Tucker............... Mr. Tucker has been Secretary of CUC since 1977. From 1972 through 1992,
Mr. Tucker was a partner in Baker & McKenzie, a law firm. Since 1992,
Mr. Tucker has been engaged in private legal practice. During CUC's last
fiscal year, Mr. Tucker provided legal services to CUC for which he
received aggregate compensation of $161,968. Mr. Tucker is the
beneficial owner of 400 shares of CUC Common Stock, which amount does
not include options to purchase 75,000 shares of CUC Common Stock which
will vest at the Effective Time.
</TABLE>
BOARD COMPOSITION AND COMMITTEES
The Restated By-Laws provide for the appointment by the CUC Board of an
Executive Committee (which also will act as a Nominating Committee), a
Compensation Committee and an Audit Committee.
The Executive Committee will consist of four CUC Directors (as defined
below) and four HFS Directors (as defined below). Until the third anniversary
of the Effective Time, the CUC Board will delegate to the Executive Committee
full and exclusive power and authority to evaluate director candidates for
election to the CUC Board and committees of the CUC Board, to nominate
directors for election to the CUC Board at any annual or special meeting of
stockholders, and to elect directors to fill vacancies (i) on the CUC Board
between stockholder meetings or (ii) on any committee of the CUC Board (to
the extent an alternate member has not been previously designated by the CUC
Board). The Executive Committee will also have and may exercise all of the
powers of the Board of Directors when the CUC Board is not in session,
including the power to authorize the issuance of stock, except that the
Executive Committee will have no power to (a) alter, amend or repeal the
Restated By-Laws or any resolution or resolutions of the CUC Board, (b)
declare any dividend or make any other distribution to the stockholders of
CUC, (c) appoint any member of the Executive Committee, or (d) take any other
action which legally may be taken only by the full CUC Board. The Chairman of
the Board will serve as Chairman of the Executive Committee. Six of the
members of the Executive Committee will, to the extent practicable, be
officers of CUC and the remaining members will be independent directors. The
initial members of the Executive Committee will be Messrs. Forbes, Shelton,
McLeod and Rittereiser from CUC and Messrs. Silverman, Monaco, Holmes and
Edelman from HFS.
Pursuant to the Restated By-Laws, nominations of directors for election to
the CUC Board and the election of directors to fill vacancies arising between
stockholders' meetings or the election of directors
46
<PAGE>
to fill vacancies on any committee of the CUC Board will be undertaken by the
Executive Committee such that the number of HFS Directors and CUC Directors
on the CUC Board or any committee of the CUC Board will be equal.
The term "HFS Director" means (i) any person serving as a director of HFS
on May 27, 1997 (or any person appointed by the HFS Board after May 27, 1997
to fill a vacancy on the HFS Board created other than due to an increase in
the size of the HFS Board) who continues as a director of CUC at the
Effective Time and (ii) any person who becomes a director of CUC and who was
designated as such by the remaining HFS Directors prior to his or her
election; and the term "CUC Director" means (a) any person serving as a
director of CUC on May 27, 1997 (or any person appointed by the CUC Board
after May 27, 1997 to fill a vacancy on the CUC Board created other than due
to an increase in the size of the CUC Board) who continues as a director of
CUC at the Effective Time, (b) any of the five persons designated by the CUC
Directors to become a director of CUC at the Effective Time, and (c) any
person who becomes a director of CUC and who was designated as such by the
remaining CUC Directors prior to his or her election.
Resolutions regarding the filling of a CUC Board vacancy between
stockholder meetings, the filling of a vacancy on any committee of the CUC
Board or the nomination of a director for election at any annual or special
meetings of stockholders in a manner that (i) is consistent with the
Governance Plan will require the approval by only three members of the
Executive Committee (or only two members if there are then two vacancies on
the Executive Committee) or (ii) is inconsistent with the Governance Plan
will require approval by at least seven members of the Executive Committee.
Until the third anniversary of the Effective Time, any change to the above
procedure will require the affirmative vote of 80% of the CUC Board.
Each of the Compensation and Audit Committees will consist of two CUC
Directors and two HFS Directors. The Restated By-Laws will provide that,
until the third anniversary of the Effective Time, the CUC Directors will
nominate the Chairman of the Audit Committee and the HFS Directors will
nominate the Chairman of the Compensation Committee.
Upon establishing each of the committees, the CUC Board will designate
alternates with respect to each member of each committee so as to maintain
50% representation on each committee by each of the CUC Directors and HFS
Directors.
The Restated By-Laws will provide that, until the third anniversary of the
Effective Time, the vote of 80% of the CUC Board will be required to change
the structure, authority or procedures of the CUC Board committees discussed
above.
SENIOR EXECUTIVES OF CUC FOLLOWING THE MERGER
In addition to Mr. Forbes and Mr. Silverman, the other executive officers
of CUC following the Merger are expected to be:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------- -----------------------------------------------------
<S> <C>
Michael P. Monaco....... Vice Chairman and Chief Financial Officer
Stephen P. Holmes....... Vice Chairman
Robert D. Kunisch....... Vice Chairman
Christopher K. McLeod .. Vice Chairman
E. Kirk Shelton......... Vice Chairman
John D. Snodgrass....... Vice Chairman
James E. Buckman........ Senior Executive Vice President and General Counsel
</TABLE>
Effective as of the Effective Time, employment agreements between CUC and
Mr. Corigliano, currently Chief Financial Officer of CUC, and Ms. Lipton,
currently General Counsel of CUC, will be amended and restated to provide
among other things, that they will become Chief Financial Officer and General
Counsel of CUC, respectively, on January 1, 2000.
47
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS; EXECUTIVE COMPENSATION; STOCK
OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
Information concerning current directors and executive officers of CUC,
executive compensation and ownership of CUC Common Stock by management and
principal stockholders is contained in CUC's Annual Report on Form 10-K for
the fiscal year ended January 31, 1997 (the "CUC 1997 10-K"), which is
incorporated herein by reference.
Information concerning current directors and executive officers of HFS,
executive compensation and ownership of HFS's voting securities by management
and principal stockholders is contained in HFS's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "HFS 1996 10-K"), which is
incorporated herein by reference.
THE NEW STOCK PLAN
DESCRIPTION OF THE NEW STOCK PLAN
As contemplated by the Merger Agreement, the New Stock Plan will become
effective upon consummation of the Merger. If approved, following
consummation of the Merger, the New Stock Plan will be available in addition
to the other stock plans of CUC, including the plan submitted to CUC
stockholders for approval at the CUC 1997 Annual Meeting. Set forth below is
a discussion of the material terms of the New Stock Plan. A copy of the New
Stock Plan is attached as Appendix E to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference.
Subject to adjustment as provided in the New Stock Plan, the New Stock
Plan authorizes the granting of up to 25 million shares of CUC Common Stock
through (i) incentive stock options ("ISOs") and non-qualified stock options
("NQOs") (in each case, with or without related stock appreciation rights
("SARs")), to acquire CUC Common Stock, and (ii) awards of restricted shares
of CUC Common Stock ("Restricted Stock") (collectively, "Awards") to such
directors, officers and other employees of CUC and its affiliates as may be
designated by the Compensation Committee of the CUC Board or such other
committee as the CUC Board may designate (the "Compensation Committee"). All
directors, officers and employees of CUC and its affiliates who are
responsible for or contribute to the management, growth and profitability of
the business of CUC and its affiliates are eligible to receive Awards under
the New Stock Plan; provided that non-employee directors are eligible to
receive only NQOs, as described below, and Restricted Stock. No participant
in the New Stock Plan may be granted Awards covering in excess of 10 million
shares of CUC Common Stock in any five-year consecutive period; provided
that, with respect to the five (5) year period beginning as of the Closing
Date, no participant may be granted Awards covering in excess of the sum of
(i) 10 million shares of CUC Common Stock, plus (ii) the number of shares of
CUC Common Stock covering the following Awards: the options on 4 million
shares to be awarded to Mr. Forbes upon consummation of the Merger pursuant
to the New Forbes Employment Agremeent; the options on 14,418,600 shares to
be awarded to Mr. Silverman upon consummation of the Merger pursuant to the
Silverman Amendment; the options on 1.8 million shares, 1.8 million shares,
600,000 shares and 600,000 shares to be awarded to Messrs. Shelton, McLeod
and Corigliano and Ms. Lipton, respectively, upon consummation of the Merger
pursuant to the New CUC Employment Agreements; the options on 360,000 shares
to be awarded to each of Messrs. Monaco, Holmes and Buckman upon consummation
of the Merger pursuant to the New HFS Employment Agreements; and the shares
of Restricted Stock having a value of $1.1 million, $1.1 million and $1.4
million to Messrs. Monaco, Holmes and Buckman, respectively, to be awarded
upon consummation of the Merger pursuant to the New HFS Employment
Agreements. Upon consummation of the Merger, certain officers and key
employees of the combined company will be granted shares of Restricted Stock,
ISOs and/or NQOs. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS
OF INTERESTS."
The Compensation Committee will administer the New Stock Plan, approve the
eligible participants who will receive Awards, determine the form and terms
of the Awards and have the power to fix vesting periods.
Section 162(m) of the Code provides that publicly traded companies may not
deduct compensation paid to the chief executive officer or any of the four
most highly compensated other officers ("Covered
48
<PAGE>
Employees") to the extent such compensation exceeds $1,000,000 in any one tax
year, unless the payments, among other things, are made based upon the
attainment of objective performance goals that are established by a committee
of the Board, comprised solely of two or more outside directors, based upon
business criteria and other material terms approved by stockholders. The New
Stock Plan is designed so that options and SARs granted with a fair market
value exercise price, and awards of Restricted Stock designated as
"Performance Awards" (as described below), that are made to Covered Employees
will be considered performance-based and hence fully deductible. However, the
Compensation Committee will have the discretion to grant awards to Covered
Employees that will not qualify for the exemption from Section 162(m).
Moreover, in certain cases such as death or disability (as described below),
Performance Awards may become payable even though the performance goals are
not met, in which event the Performance Awards will not be exempt from
Section 162(m) and CUC might lose part or all of its tax deduction.
Under the terms of the New Stock Plan, the Compensation Committee may from
time to time grant options to purchase shares of CUC Common Stock at a price
(generally payable in cash and/or shares of CUC Common Stock) determined by
the Compensation Committee which may not be less than the Fair Market Value
(as defined in the New Stock Plan) of the shares of CUC Common Stock, as
determined by the mean between the highest and lowest sales prices on the
NYSE or such other exchange on which the CUC Common Stock is listed on the
date the option is granted. Generally, options may not be exercised later
than ten years after the date of grant. The Compensation Committee may also
grant SARs related to the options granted under the New Stock Plan. An SAR
would entitle the holder thereof to receive, upon exercise, the appreciation
from the option price to the fair market value of the shares of CUC Common
Stock on the date of exercise, such appreciation being payable in cash and/or
in shares of CUC Common Stock as determined by the Compensation Committee.
Exercise of an SAR cancels the related option to the extent of such exercise,
and the shares of CUC Common Stock related thereto are not available for
future grants under the New Stock Plan.
The Compensation Committee will determine the times at which an option may
be exercised. Except as otherwise determined and as set forth below, an
option may only be exercised during employment or generally during the three
months following termination of employment for any reason other than death,
permanent disability or retirement. Stock options generally may be exercised
during the period of one year after termination of employment due to death or
disability if the optionee is still in the employ of CUC or any of its
affiliates at the time of death or disability, provided that in the event of
death prior to expiration of the option term following termination of
employment for disability, options generally may be exercised during the
period of one year following the date of death. After an optionee retires
from CUC or any of its affiliates, the optionee's stock options generally may
thereafter be exercised to the extent to which they were exercisable at the
time of the optionee's retirement and may be exercised at any time during the
five-year period following retirement (or such shorter period as the
Compensation Committee determines); provided that in the event of death prior
to the expiration of the option, options generally may be exercised during
the period of one year following the date of death.
The New Stock Plan provides that the Compensation Committee may establish
option exercise procedures for purposes of permitting an optionee to defer
receipt of compensation beyond the date of the option exercise.
Under the New Stock Plan, the Compensation Committee may also make awards
of Restricted Stock. The Committee may condition the grant or vesting of such
awards on the attainment of certain performance goals and/or upon the
participant's continued service with CUC or any of its affiliates. During the
period (the "Restricted Period") commencing with the grant of Restricted
Stock and ending on attainment of the applicable performance goals or
satisfaction of the requisite period of service, the participant is not
permitted to sell, transfer, assign or otherwise dispose of the Restricted
Stock. The participant generally has the right during the Restricted Period
to vote the Restricted Stock and to receive cash dividends paid thereon.
However, the Compensation Committee may determine that such cash dividends be
deferred and reinvested in additional Restricted Stock and that dividends
payable in CUC Common Stock be paid in Restricted Stock. Upon termination of
employment prior to the end of the Restricted Period, the Restricted Stock
will be forfeited, although the Compensation Committee may waive any
remaining restrictions upon termination of employment due to retirement or
involuntary termination of employment other than for cause.
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The Compensation Committee may designate an award of Restricted Stock to a
Covered Employee as a qualified performance-based award ("Performance Award")
and condition the vesting of such awards upon the attainment of specified
levels of one or more of the following performance goals: earnings per share,
sales, net profit after tax, gross profit, operating profit, cash generation,
return on equity, change in working capital, and/or shareholder return. The
Compensation Committee will not have the power to waive achievement of such
goals, except upon the death or disability of the participant. Approval of
the New Stock Plan by stockholders will be considered to constitute approval
of these goals for purposes of Section 162(m) of the Code.
At the time any Award under the New Stock Plan is granted, the
Compensation Committee may grant the participant the right to receive a cash
payment in an amount specified by the Compensation Committee, to be paid when
the award results in compensation income to the participant and to help the
participant pay the resulting taxes. Awards under the New Stock Plan may be
transferable under certain circumstances described in the New Stock Plan.
The New Stock Plan provides for the use of authorized but unissued shares
or treasury shares. To the extent that treasury shares are not used,
authorized but unissued shares of CUC Common Stock have been reserved for
issuance upon exercise of options or distribution of Awards granted under the
New Stock Plan.
No Awards may be granted under the New Stock Plan after the tenth
anniversary of the New Stock Plan's approval by the stockholders of each of
HFS and CUC, but Awards theretofore granted may extend beyond that date. The
New Stock Plan may be amended or discontinued by the CUC Board at any time,
but no termination may impair the rights of any holders of options or awards
granted prior thereto without such holder's consent. Subject to certain
limitations, the Compensation Committee may amend the terms of any Award
retroactively or prospectively, but the New Stock Plan does not permit the
Compensation Committee to cause a Performance Award to fail to be exempt from
Section 162(m) or impair the rights of any holder without the holder's
consent. The Compensation Committee has the power to interpret the Plan and
to make all other determinations necessary or advisable for its
administration.
Except as otherwise described herein, benefits under the New Stock Plan to
the Chief Executive Officer and the other executive officers named above and
to the non-employee directors and other employees of CUC are not currently
determinable because the New Stock Plan is discretionary.
FEDERAL INCOME TAX CONSIDERATIONS
CUC has been advised by Wachtell, Lipton, Rosen & Katz, its special
outside legal counsel in connection with the Merger, that, based on the
present provisions of the Code and regulations promulgated thereunder, the
federal income tax consequences of the grant, vesting and exercise of Awards
under the New Stock Plan and the subsequent disposition of stock acquired
thereby will be as described below.
THE FOLLOWING DISCUSSION ADDRESSES ONLY THE GENERAL FEDERAL INCOME TAX
CONSEQUENCES OF AWARDS. IT DOES NOT ADDRESS THE IMPACT OF STATE AND LOCAL
TAXES, THE FEDERAL ALTERNATIVE MINIMUM TAX, AND SECURITIES LAWS RESTRICTIONS,
AND IS NOT INTENDED AS TAX ADVICE TO PARTICIPANTS IN THE NEW STOCK PLAN, WHO
SHOULD CONSULT THEIR OWN TAX ADVISORS.
Non-Qualified Options. Generally, an optionee will not recognize any
taxable income, and CUC will not be allowed a tax deduction, upon the
granting of an NQO. Upon the exercise of an NQO, the optionee realizes
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares acquired at the time the NQO is exercised over the
exercise price for such shares. At that time, CUC will be allowed a tax
deduction equal to the amount of ordinary taxable income recognized by the
optionee, subject to the limitations described below.
When an optionee exercises an NQO by paying the exercise price solely in
cash, the basis in the shares acquired is equal to the fair market value of
the shares on the date ordinary income is recognized, and the holding period
for such shares begins on the day after the shares are received. When an
optionee exercises an NQO by exchanging previously acquired shares of CUC
Common Stock held as capital assets
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in partial or full payment of the exercise price, shares of CUC Common Stock
received by the optionee equal in number to the previously acquired shares
exchanged therefor will be received free of tax and will have the same basis
and holding period as such previously acquired shares. The optionee will
recognize ordinary taxable income equal to the fair market value of any
additional shares received by the optionee, less the amount of any cash paid
by the optionee in payment of the exercise price. The optionee will have a
basis in such additional shares equal to their fair market value on the date
ordinary income is recognized and the holding period of such shares will
commence on the day after the shares are received.
Upon subsequent disposition of shares acquired upon exercise of an NQO,
the difference between the amount realized on the sale and the basis in the
shares is treated as long-term or short-term capital gain or loss, depending
on the holding period for the shares. Long-term capital gain treatment is
applicable if the shares are held for more than one year. The Code limits the
deductibility of capital losses. The subsequent disposition of shares
acquired by exercise of an NQO will not result in any additional tax
consequences to CUC.
Incentive Stock Options. Generally, an optionee will not recognize any
taxable income and CUC will not be allowed a tax deduction upon the granting
of an ISO. Upon the exercise of an ISO, the optionee will not realize
ordinary taxable income and CUC will not be allowed a tax deduction, as long
as the optionee is an employee of CUC (or of a participating subsidiary) from
the time of the grant through the date three months before the ISO was
exercised. (The foregoing requirement is waived with respect to exercises by
the estate of an optionee who dies while employed, or within three months
after the termination of his or her employment, and the three-month period is
extended to one year in the case of a termination because of total and
permanent disability.) If the foregoing requirement is not met, the exercise
of an ISO is treated in the same manner as the exercise of an NQO (see
above). The basis for the shares so acquired equals the exercise price, and
the holding period for the shares begins on the day after the date the shares
are received.
Generally, upon the disposition of shares acquired through the exercise of
an ISO, the optionee will recognize long-term capital gain or loss to the
extent the amount realized on the sale of such shares is greater than or less
than the exercise price, as long as the disposition is not a "disqualifying
disposition." A "disqualifying disposition" generally occurs if shares
acquired upon exercise of an ISO are disposed of by the optionee prior to the
expiration of two years from the date of grant of the option or within one
year of the date of transfer of shares to the optionee. (However, disposition
by the estate of a deceased employee is not considered a disqualifying
disposition even if it occurs before these dates.) Upon a disqualifying
disposition, the optionee realizes ordinary taxable income (and CUC will be
allowed a tax deduction, subject to the limitations described below) in an
amount equal to the excess, if any, of (i) the lesser of (a) the fair market
value of the shares on the date the ISO is exercised, or (b) the amount
realized on such disqualifying disposition over (ii) the exercise price. The
excess, if any, of the amount realized upon such qualifying disposition over
the fair market value of the shares on the date of exercise will be taxed as
long-term or short-term capital gain depending on the holding period
involved. Long-term capital gain treatment is applicable if the shares were
held for more than one year.
Generally, if the optionee exchanges previously acquired shares of CUC
Common Stock in partial or full payment of the exercise price of an ISO, the
exchange will not affect the ISO treatment of the exercise and, except as
otherwise described herein, no gain or loss or other income will be
recognized upon the disposition of the previously acquired shares. Shares of
CUC Common Stock received by the optionee equal in number to the previously
acquired shares exchanged therefor will have the same basis (increased by the
amount of ordinary income, if any, recognized on the exchange) and the same
holding period for capital gains purposes as the previously acquired shares.
Optionees will not, however, be able to use the old holding period for
purposes of satisfying the holding period requirement for avoiding a
disqualifying disposition of the ISO. Shares of CUC Common Stock received by
the optionee in excess of the number of previously acquired shares will have
a basis of zero and a holding period which commences on the day after the
date the shares are received upon exercise of the ISO. If payment of the
exercise price is made using shares of CUC Common Stock acquired upon
exercise of an ISO, the delivery to CUC of these previously acquired shares
will be considered a disposition of the shares for the purpose of determining
whether a disqualifying disposition has occurred.
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Stock Appreciation Rights. Generally, a participant will not recognize any
taxable income, and CUC will not be allowed a tax deduction, upon the
granting of the SAR. Upon exercise of an SAR, the holder generally will
realize ordinary taxable income in an amount equal to the sum of any cash
received and the fair market value of any CUC Common Stock received. The
optionee's basis in any shares of CUC Common Stock received is equal to the
amount of ordinary income recognized with respect to such shares, and, upon
subsequent disposition, any further gain or loss is either short-term or
long-term capital gain or loss depending on the holding period of the shares.
The holding period for such shares commences on the day after the shares are
received. CUC will be allowed a tax deduction equal to the amount of ordinary
income recognized by the holder, subject to the limitations described below.
Restricted Stock. Generally, a participant will not recognize any taxable
income, and CUC will not be allowed a tax deduction, upon the grant of
Restricted Stock. Upon the lapsing of restrictions on restricted stock, the
holder will recognize ordinary income equal to the fair market value of the
shares on the date of such lapse. Alternatively, the participant may elect,
within 30 days after the grant of restricted stock, to recognize ordinary
income at the time of the grant, in which event the amount of such ordinary
income will be equal to the fair market value of the shares on the date of
grant. In either event, at the time the participant recognizes income with
respect to the Restricted Stock, CUC is entitled to a deduction in an equal
amount, subject to the limitations described below.
Withholding. CUC has a right to withhold any sums required by federal,
state, local or foreign tax laws with respect to the exercise of any option
or SAR or the lapse of restrictions on any Restricted Stock, or to require
payment of such amounts before delivery of shares.
Limitations on CUC's Ability to Take Deductions; Excess Parachute
Payments. CUC must satisfy applicable federal tax reporting requirements with
respect to Awards in order to be entitled to the deductions described above.
In addition, Section 162(m) of the Code provides that compensation of an
individual who is a Covered Employee may not be deducted to the extent such
compensation exceeds $1 million in any taxable year, unless such compensation
qualifies as "performance-based" under Section 162(m). The New Stock Plan
permits the making of awards that would not qualify as performance-based
compensation. See "--Description of the New Stock Plan." Furthermore, there
can be no assurance that awards thereunder that are intended to be
performance-based within the meaning of Section 162(m) will in fact so
qualify.
If Awards are granted, accelerated or enhanced in connection with a change
of control of CUC, all or a portion of the value of such Awards may
constitute "excess parachute payments." CUC would not be permitted to deduct
excess parachute payments, and the recipient of such a payment would be
subject to a 20 percent federal excise tax. Furthermore, excess parachute
payments to Covered Employees would be subject to the $1 million limitation
on deduction of their compensation by an equal amount, and thus could result
in other compensation to such individuals being nondeductible.
THE FOREGOING DISCUSSION IS INTENDED FOR GENERAL INFORMATION PURPOSES
ONLY, NOT AS SPECIFIC TAX ADVICE. IT DOES NOT ADDRESS THE IMPACT OF STATE AND
LOCAL TAXES, THE FEDERAL ALTERNATIVE MINIMUM TAX, AND SECURITIES LAWS
RESTRICTIONS.
INFORMATION CONCERNING THE HFS SPECIAL MEETING
PURPOSE, TIME AND PLACE
This Joint Proxy Statement/Prospectus is being furnished to stockholders
of HFS in connection with the solicitation of proxies by the HFS Board from
holders of HFS Common Stock for use at HFS's special meeting to be held on
October 1, 1997, at 10:00 a.m., local time, at the offices of HFS, 6 Sylvan
Way, Parsippany, New Jersey 07054, and at any adjournments or postponements
thereof (the "HFS Special Meeting"). At the HFS Special Meeting, holders of
HFS Common Stock will be asked to consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger; (ii) a proposal to approve the New Stock Plan,
the terms of which are
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described above under "THE NEW STOCK PLAN" and set forth in Appendix E to
this Joint Proxy Statement/Prospectus (collectively, proposals (i) and (ii)
above, the "HFS Proposals"); and (iii) such other matters as may properly
come before the HFS Special Meeting. The New Stock Plan will become effective
only upon consummation of the Merger.
RECORD DATE; QUORUM; VOTE REQUIRED
The HFS Board has fixed the close of business on August 18, 1997 as the
record date for determining the holders of HFS Common Stock entitled to
notice of, and to vote at, the HFS Special Meeting (the "HFS Record Date").
Only holders of record of HFS Common Stock at the close of business on the
HFS Record Date will be entitled to notice of, and to vote at, the HFS
Special Meeting. At the close of business on the HFS Record Date, 158,919,230
shares of HFS Common Stock were issued and outstanding and were held by
approximately 2,053 holders of record. The HFS Common Stock constitutes the
only outstanding class of voting securities of HFS, and each share of HFS
Common Stock is entitled to one vote on each matter to be acted upon or which
may come before the HFS Special Meeting. Votes may be cast at the HFS Special
Meeting in person or by proxy. See "--Proxies."
The presence at the HFS Special Meeting, either in person or by proxy, of
the holders of a majority of the issued and outstanding shares of HFS Common
Stock entitled to vote is necessary to constitute a quorum to transact
business at the HFS Special Meeting. In the event that a quorum is not
present at the HFS Special Meeting, it is expected that such meeting will be
adjourned or postponed in order to solicit additional proxies.
The affirmative vote of the holders of a majority of all outstanding
shares of HFS Common Stock is required to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger.
Under applicable Delaware law, in determining whether the proposal to approve
and adopt the Merger Agreement has received the requisite number of
affirmative votes, abstentions will be counted and have the same effect as a
vote against the proposal. Brokers who hold shares of HFS Common Stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof. Any shares which
are not voted ("broker non-votes") because the nominee-broker lacks such
discretionary authority will be counted and have the same effect as a vote
against the proposal.
The affirmative vote of the holders of a majority of the shares of HFS
Common Stock cast on the proposal to approve the New Stock Plan is required
to approve the New Stock Plan, provided that the total number of votes cast
on such proposal represents over 50% of the number of votes entitled to be
cast on such proposal. Abstentions will have the same effect as votes against
approval of the New Stock Plan. However, broker non-votes (resulting from a
nominee-broker's lack of discretionary authority to vote the shares on behalf
of the respective beneficial owners) will be disregarded and will have no
effect on the votes on the New Stock Plan. Adoption of the New Stock Plan is
also conditioned upon its approval by the CUC stockholders at the CUC Special
Meeting.
As of the close of business on the HFS Record Date, HFS's directors and
executive officers and their affiliates may be deemed to be the beneficial
owners of 1,778,696 outstanding shares (excluding shares underlying stock
options) of HFS Common Stock, or approximately 1.12% of the then outstanding
shares of HFS Common Stock. It is expected that such executive officers and
directors of HFS will vote for approval of the HFS Proposals.
THE HFS BOARD HAS APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE
MERGER IS FAIR AND IN THE BEST INTERESTS OF HFS AND ITS STOCK-HOLDERS AND
RECOMMENDS THAT HFS STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, THE MERGER AND THE NEW STOCK PLAN.
PROXIES
Shares of HFS Common Stock represented by properly executed proxies
received in time for the HFS Special Meeting will be voted at the HFS Special
Meeting in the manner specified on such proxies.
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Proxies which are properly executed but which do not contain voting
instructions will be voted FOR approval of each of the HFS Proposals. It is
not expected that any matter other than those contemplated by the HFS
Proposals will be brought before the HFS Special Meeting; however, if other
matters are properly presented, the persons named in such proxy will have
authority to vote in accordance with their judgment on any other such matter,
including without limitation, any proposal to adjourn or postpone the meeting
or otherwise concerning the conduct of the meeting.
The grant of a proxy on the enclosed HFS proxy card does not preclude a
stockholder from voting in person at the HFS Special Meeting. A stockholder
may revoke a proxy at any time prior to its exercise by (i) delivering, prior
to the HFS Special Meeting, to Jeanne M. Murphy, Secretary, HFS Incorporated,
6 Sylvan Way, Parsippany, New Jersey 07054, a written notice of revocation
bearing a later date or time than the proxy; (ii) delivering to the Secretary
of HFS a duly executed proxy bearing a later date or time than the revoked
proxy; or (iii) attending the HFS Special Meeting and voting in person.
Attendance at the HFS Special Meeting will not by itself constitute
revocation of a proxy.
For participants in the HFS Incorporated Employee Savings Plan (the
"Savings Plan") with shares of HFS Common Stock credited to their accounts,
voting instructions for the trustee of the Savings Plan are also being
solicited through this Joint Proxy Statement/Prospectus. In accordance with
the provisions of the Savings Plan, the trustee will vote shares of HFS
Common Stock in accordance with instructions received from the participants
to whose accounts such shares are credited, provided that, to the extent such
instructions are not received prior to twelve o'clock noon, Eastern Standard
Time, on September 19, 1997, the trustee will vote the shares with respect to
which it has not received instructions proportionately in accordance with the
shares for which it has received instructions. Instructions given with
respect to shares in Savings Plan accounts may be changed or revoked only in
writing, and no such instructions may be revoked after twelve o'clock noon,
Eastern Standard Time, on September 24, 1997. Participants in the Savings
Plan are not entitled to vote in person at the HFS Special Meeting.
If a participant in the Savings Plan has shares of HFS Common Stock
credited to his or her account in the Savings Plan and also owns other shares
of HFS Common Stock, he or she should receive separate proxy cards for shares
credited to his or her account in the Savings Plan and any other shares that
he or she owns. All such proxy cards should be completed, signed and returned
to register voting instructions for all shares owned by a participant or held
for a participant's benefit in the Savings Plan.
HFS will bear the cost of solicitation of proxies from its stockholders,
except that HFS and CUC intend to share equally the cost of preparing and
printing this Joint Proxy Statement/Prospectus, including related filing
fees. In addition to solicitation by mail, the directors, officers and
employees of HFS and its subsidiaries may solicit proxies from stockholders
of HFS by telephone, telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and HFS will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
In addition, HFS has retained ChaseMellon Shareholder Services, LLP
("ChaseMellon") to assist HFS in the solicitation of proxies from
stockholders in connection with the HFS Special Meeting. ChaseMellon will
receive a fee of $8,500 as compensation for its services and reimbursement of
its out-of-pocket expenses in connection therewith. HFS has agreed to
indemnify ChaseMellon against certain liabilities arising out of or in
connection with its engagement.
HFS STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR HFS COMMON STOCK WILL BE MAILED BY CUC TO FORMER HFS
STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
APPRAISAL RIGHTS
Stockholders of HFS will have no dissenters' appraisal rights under the
DGCL in connection with the Merger Agreement and the consummation of the
Merger. See "THE PROPOSED MERGER--No Appraisal Rights."
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INFORMATION CONCERNING THE CUC SPECIAL MEETING
PURPOSE, TIME AND PLACE
This Joint Proxy Statement/Prospectus is being furnished to stockholders
of CUC in connection with the solicitation of proxies by the CUC Board from
holders of CUC Common Stock for use at CUC's special meeting to be held on
October 1, 1997, at 10:00 a.m., local time, at the Hyatt Regency Greenwich,
1800 East Putnam Avenue, Old Greenwich, Connecticut, and at any adjournments
or postponements thereof (the "CUC Special Meeting"). At the CUC Special
Meeting, holders of CUC Common Stock will be asked to consider and vote upon
(i) a proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger, the issuance of CUC Common Stock
to HFS stockholders pursuant to the Merger Agreement (the "Share Issuance")
and the amendment and restatement of CUC's Amended and Restated Certificate
of Incorporation (the "Old CUC Certificate") at the time of the Merger,
including the change of CUC's name to Cendant Corporation (the "Certificate
Amendment"); (ii) a proposal to approve the New Stock Plan (collectively,
proposals (i) and (ii) above, the "CUC Proposals"); and (iii) such other
business as may properly come before the CUC Special Meeting or any
adjournment or postponement thereof. A copy of the proposed form of the
Restated Certificate, which includes the proposed amendments, is attached
hereto as Appendix B. The New Stock Plan will become effective only upon
consummation of the Merger.
RECORD DATE; QUORUM; VOTE REQUIRED
The CUC Board has fixed the close of business on August 18, 1997 as the
record date for determining the holders of CUC Common Stock entitled to
notice of, and to vote at, the CUC Special Meeting (the "CUC Record Date").
Only holders of record of CUC Common Stock at the close of business on the
CUC Record Date will be entitled to notice of, and to vote at, the CUC
Special Meeting. At the close of business on the CUC Record Date, 410,570,684
shares of CUC Common Stock were issued and outstanding and were held by
approximately 9,160 holders of record. The CUC Common Stock constitutes the
only outstanding class of voting securities of CUC, and each share of CUC
Common Stock is entitled to one vote on each matter to be acted upon or which
may come before the CUC Special Meeting. Votes may be cast at the CUC Special
Meeting in person or by proxy. See "--Proxies."
The presence at the CUC Special Meeting, either in person or by proxy, of
the holders of not less than one-third of the shares of CUC Common Stock
entitled to vote is necessary to constitute a quorum to transact business at
the CUC Special Meeting. In the event that a quorum is not present at the CUC
Special Meeting, it is expected that such meeting will be adjourned or
postponed in order to solicit additional proxies.
The affirmative vote of the holders of a majority of all outstanding
shares of CUC Common Stock is required to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the Merger,
the Share Issuance and the Certificate Amendment. Under applicable Delaware
law, in determining whether the proposal to approve and adopt the Merger
Agreement has received the requisite number of affirmative votes, abstentions
will be counted and have the same effect as a vote against the proposal.
Brokers who hold shares of CUC Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions
from the beneficial owners thereof. Any shares which are not voted ("broker
non-votes") because the nominee-broker lacks such discretionary authority
will be counted and have the same effect as a vote against the proposal.
The affirmative vote of the holders of a majority of the shares of CUC
Common Stock cast on the proposal to approve the New Stock Plan is required
to approve the New Stock Plan, provided that the total number of votes cast
on such proposal represents over 50% of the total number of votes entitled to
be cast on such proposal. Abstentions will have the same effect as votes
against approval of the New Stock Plan. However, broker non-votes (resulting
from a nominee-broker's lack of discretionary authority to vote the shares on
behalf of the respective beneficial owners) will be disregarded and will have
no effect on the votes on the New Stock Plan. Adoption of the New Stock Plan
is also conditioned upon its approval by the HFS stockholders at the HFS
Special Meeting.
As of the close of business on the CUC Record Date, CUC's directors and
executive officers and their affiliates may be deemed to be the beneficial
owners of 29,961,799 outstanding shares (excluding shares
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underlying stock options) of CUC Common Stock, or approximately 7.4% of the
then outstanding shares of CUC Common Stock. It is expected that such
executive officers and directors of CUC will vote for approval of the CUC
Proposals.
THE CUC BOARD HAS APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE
MERGER IS FAIR AND IN THE BEST INTERESTS OF CUC AND ITS STOCKHOLDERS AND
RECOMMENDS THAT CUC STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, THE MERGER AND THE NEW STOCK PLAN.
PROXIES
Shares of CUC Common Stock represented by properly executed proxies
received in time for the CUC Special Meeting will be voted at the CUC Special
Meeting in the manner specified on such proxies. Proxies which are properly
executed but which do not contain voting instructions will be voted FOR
approval of each of the CUC Proposals. It is not expected that any matter
other than those contemplated by the CUC Proposals will be brought before the
CUC Special Meeting; however, if other matters are properly presented, the
persons named in such proxy will have authority to vote in accordance with
their judgment on any other such matter, including without limitation, any
proposal to adjourn or postpone the meeting or otherwise concerning the
conduct of the meeting.
The grant of a proxy on the enclosed CUC proxy card does not preclude a
stockholder from voting in person at the CUC Special Meeting. A stockholder
may revoke a proxy at any time prior to its exercise by (i) delivering, prior
to the CUC Special Meeting, to Robert T. Tucker, Secretary, CUC International
Inc., 707 Summer Street, Stamford, Connecticut 06901, a written notice of
revocation bearing a later date or time than the proxy; (ii) delivering to
the Secretary of CUC a duly executed proxy bearing a later date or time than
the revoked proxy; or (iii) attending the CUC Special Meeting and voting in
person. Attendance at the CUC Special Meeting will not by itself constitute
revocation of a proxy.
Participants in the Savings Investment Plan of CUC (the "CUC SIP") who
receive this Joint Proxy Statement/Prospectus in their capacity as
participants will receive a voting instructions form in the form of a proxy
card. The trustee of the CUC SIP will vote the shares, in person or by proxy,
in accordance with the instructions the trustee receives on or before
September 26, 1997. If timely voting instructions are not received, the
trustee will (i) in the case of the proposal to approve and adopt the Merger
Agreement, vote shares of CUC Common Stock under the CUC SIP in favor of the
Merger Proposal proportionately in accordance with the shares for which it
has received instructions; and (ii) in the case of approving the New Stock
Plan, abstain from voting any such shares of CUC Common Stock as to which no
written instructions are received.
CUC will bear the cost of solicitation of proxies from its stockholders,
except that CUC and HFS intend to share equally the cost of preparing and
printing this Joint Proxy Statement/Prospectus, including related filing
fees. In addition to solicitation by mail, the directors, officers and
employees of CUC and its subsidiaries may solicit proxies from stockholders
of CUC by telephone, telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and CUC will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
In addition, CUC has retained D.F. King & Co., Inc. ("D.F. King") to
assist CUC in the solicitation of proxies from stockholders in connection
with the CUC Special Meeting. D.F. King will receive a fee of $8,000 as
compensation for its services and reimbursement of its out-of-pocket expenses
in connection therewith. CUC has agreed to indemnify D.F. King against
certain liabilities arising out of or in connection with its engagement.
APPRAISAL RIGHTS
Stockholders of CUC will have no dissenters' appraisal rights under the
DGCL in connection with the Merger Agreement and the consummation of the
Merger. See "THE PROPOSED MERGER--No Appraisal Rights."
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement contemplates the Merger of HFS with and into CUC,
with CUC continuing as the surviving corporation and changing its name to
Cendant Corporation. This section of the Joint Proxy Statement/Prospectus
describes material provisions of the Merger Agreement. The description of the
Merger Agreement contained in this Joint Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached as Appendix A to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. All
stockholders of CUC and HFS are urged to read carefully the Merger Agreement
in its entirety.
CLOSING; EFFECTIVE TIME
The closing of the Merger (the "Closing") will take place at 10:00 a.m. on
the Closing Date, which will be no later than the second business day after
satisfaction or waiver of the conditions set forth in the Merger Agreement,
unless another time or date is agreed to by CUC and HFS. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
Subject to the provisions of the Merger Agreement, as soon as practicable
on the Closing Date, the parties will consummate the Merger by filing a
Certificate of Merger or other appropriate documents with the Secretary of
State of Delaware. The Merger will 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 will agree and specify in
the Certificate of Merger.
AMENDMENTS TO CUC CERTIFICATE
Pursuant to the Merger Agreement, the Old CUC Certificate will be amended
and restated as of the Effective Time in the form of the Restated Certificate
attached as Appendix B to this Joint Proxy Statement/Prospectus. The Restated
Certificate will be the Amended and Restated Certificate of Incorporation of
the surviving corporation in the Merger until thereafter changed or amended
as provided therein or by applicable law.
AMENDMENTS TO CUC BY-LAWS
Pursuant to the Merger Agreement, the By-Laws of CUC, as in effect
immediately prior to the Effective Time (the "Old CUC By-Laws"), will be
amended and restated as of the Effective Time in the form of the proposed
Restated By-Laws attached as Appendix C to this Joint Proxy Statement/
Prospectus. The Restated By-Laws will be the By-Laws of the surviving
corporation in the Merger until thereafter changed or amended as provided
therein or by applicable law.
CONSIDERATION TO BE RECEIVED IN THE MERGER
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 (i) each share of
HFS Common Stock that is owned by HFS or CUC will automatically be cancelled
and retired and will cease to exist, and no consideration will be delivered
in exchange therefor, and (ii) each issued and outstanding share of HFS
Common Stock (other than shares to be cancelled in accordance with clause
(i)) will be converted into the right to receive 2.4031 validly issued, fully
paid and nonassessable shares of CUC Common Stock. As of the Effective Time,
all such shares of HFS Common Stock will no longer be outstanding and will
automatically be cancelled and retired and will cease to exist, and each
holder of a Certificate (as defined below) will cease to have any rights with
respect thereto, except the right to receive the shares of CUC Common Stock
in accordance with the Exchange Ratio 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 the terms of the Merger
Agreement.
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EXCHANGE OF SHARES
As of the Effective Time, CUC will deposit with such bank or trust company
as may be designated by CUC and reasonably satisfactory to HFS (the "Exchange
Agent"), for the benefit of the holders of shares of HFS Common Stock, for
exchange in accordance with the Merger Agreement, through the Exchange Agent,
certificates representing the shares of CUC Common Stock issuable as
described under "--Consideration to be Received in the Merger" in exchange
for outstanding shares of HFS Common Stock. As soon as reasonably practicable
after the Effective Time, the Exchange Agent will 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 shares
of CUC Common Stock a letter of transmittal and instructions for surrendering
the Certificates in exchange for shares of CUC Common Stock. Upon surrender
of a Certificate for cancellation to the Exchange 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
will 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 the Merger Agreement and cash
in lieu of any fractional share of CUC Common Stock as described below, and
the Certificate so surrendered will be cancelled.
No certificates or scrip representing fractional shares of CUC Common
Stock will be issued upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of CUC. As promptly as practicable following the
Effective Time, the Exchange Agent will determine the excess of (A) the
number of whole shares of CUC Common Stock delivered to the Exchange Agent by
CUC pursuant to the Merger Agreement over (B) the aggregate number of whole
shares of CUC Common Stock to be distributed to former holders of HFS Common
Stock pursuant to the Merger Agreement (such excess being herein called the
"Excess Shares"). Following the Effective Time, the Exchange Agent will sell
the Excess Shares at then-prevailing prices on the NYSE. The Exchange Agent
will determine the portion of the net proceeds from the sale of such Excess
Shares to which each former holder of HFS Common Stock is entitled, if any,
by multiplying the amount of the aggregate net proceeds 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.
Notwithstanding the foregoing, CUC 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
Composite Transaction Tape (as reported in The Wall Street Journal, or, if
not reported therein, any other authoritative source) during the 10 trading
days preceding the fifth trading day prior to the Closing Date (the "Average
CUC Price").
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary and essentially identical mutual
representations and warranties by each of CUC and HFS relating to, among
other things, (i) corporate organization, structure and power; (ii)
subsidiaries; (iii) capitalization; (iv) authorization, execution, delivery,
performance and enforceability of, required consents, approvals, orders and
authorizations of governmental authorities relating to, and noncontravention
of certain agreements as a result of, the Merger Agreement; (v) documents
filed by each of CUC and HFS with the SEC, the accuracy of information
contained therein and the absence of undisclosed liabilities of each of CUC
and HFS; (vi) the accuracy of information supplied by each of CUC and HFS in
connection with the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part (the "Registration Statement"); (vii) absence
of material changes or events with respect to each of CUC and HFS since the
date of their last audited financial statements; (viii) compliance with
applicable laws and litigation; (ix) absence of changes in benefit plans; (x)
matters
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relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (xi) tax matters; (xii) required stockholder votes in connection
with the Merger Agreement; (xiii) satisfaction of the requirements of certain
state takeover statutes; (xiv) the absence of actions that would prevent
using the "pooling of interests" method to account for the Merger; (xv)
engagement of and payment of fees to brokers, investment bankers, finders and
financial advisors in connection with the Merger Agreement; (xvi) opinions of
financial advisors; (xvii) ownership by CUC of HFS Common Stock and ownership
by HFS of CUC Common Stock; (xviii) intellectual property matters; and (xix)
certain material contracts.
CONDUCT OF BUSINESS
Pursuant to the Merger Agreement, CUC and HFS have each agreed that,
except for certain exceptions, as otherwise expressly contemplated by the
Merger Agreement or as consented to by the other party in writing, such
consent not to be unreasonably withheld or delayed, during the period from
the date of the Merger Agreement to the Effective Time, each party will, and
will 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, to 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 will 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 the Merger
Agreement to the Effective Time, each of CUC and HFS will not, and will not
permit any of their respective subsidiaries (except as specifically set forth
in the Merger Agreement or such company's disclosure schedule thereto) to:
(i) other than dividends and distributions by a direct or indirect wholly
owned subsidiary of such party to its parent, or by a subsidiary that is
partially owned by such party or any of its subsidiaries, provided that
such party or any such subsidiary receives or is to receive its
proportionate share thereof, (a) declare, set aside, or pay any dividends
on, or make any other distributions in respect of, or enter into any
agreement with respect to the voting of, any of such party's capital
stock; (b) split, combine or reclassify any of such party's capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of such party's capital stock,
except for issuances of such party's common stock upon conversion of such
party's convertible securities which are described in the Merger Agreement
(collectively, the "Convertible Securities") or upon the exercise of
employee stock options, in each case, outstanding as of the date of the
Merger Agreement in accordance with their present terms, including
cashless exercise, or issued after the date of the Merger Agreement
pursuant to provisions of the Merger Agreement; or (c) purchase, redeem or
otherwise acquire any shares of such party's capital stock or such party's
subsidiaries' capital stock or any rights, warrants, or options to acquire
any such securities (except in the case of clause (c), for (x) the
repurchase of up to 30,000 shares of such party's common stock after
consultation with the other party and in compliance with the accounting
requirements necessary in order to account for the Merger as a pooling of
interests, and (y) the deemed acceptance of shares upon cashless exercise
of such party's 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 such party's 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 capital stock or warrants to purchase such
stock in connection with any acquisition permitted under clause (iv) below
and in compliance with the accounting requirements necessary in order to
account for the Merger as a pooling of interests, (y) the issuance of such
party's common stock upon conversion of such party's Convertible
Securities in accordance with their present terms at the option of the
holders thereof, and (z) the issuance of such party's common stock upon
the exercise of such party's employee stock options in each case,
outstanding as of the date of the Merger Agreement in accordance with
their terms or the issuance of new employee stock options (and shares of
common stock upon the exercise thereof) granted after the date of the
Merger Agreement in the ordinary course of business consistent with past
practice (1) for new employees (so long as such
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additional amount of common stock subject to employee stock options issued
to new employees does not exceed 1,000,000 shares of common stock, in the
case of CUC, or 416,130 shares of common stock, in the case of HFS, in the
aggregate) or (2) in connection with employee promotions;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents (other than the amendments to the Old CUC
Certificate and the Old CUC By-Laws described herein);
(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 either 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 such party to perform its
obligations under the Merger Agreement and which is reasonably expected to
be accretive to such party's earnings within 12 months following
consummation;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever or otherwise dispose of any of such
party's 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 clause (vii) under "Representations and Warranties" above 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 such party's rated debt securities by Standard & Poor's
Ratings Services and by Moody's Investor Service, Inc. from those in
effect as of the date of the Merger Agreement; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions.
NO SOLICITATION
The Merger Agreement provides that CUC and HFS will not, nor will they
permit any of their respective subsidiaries to, nor will they authorize or
permit any of their respective officers, directors or employees or any
investment banker, financial adviser, attorney, accountant or other
representative retained by them or any of their respective 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 Takeover
Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if the
respective Board of Directors 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 its respective stockholders under
applicable law, CUC or HFS, as the case may be, may, in response to a
Superior Proposal (as defined below) which was not solicited by it, which did
not otherwise result from a breach of this provision of the Merger Agreement
and which is made or received prior to obtaining the approval of the CUC
Proposals and the HFS Proposals by the CUC stockholders and the HFS
stockholders, respectively, and subject to providing written notice of its
decision to take such action to the other party and compliance with the
obligation under the Merger Agreement to advise the other party of any
request for information or any Takeover Proposal, their material terms and
conditions and the identity of the person making such request or Takeover
Proposal, (a) furnish information with respect to such party and its
subsidiaries to any person making a Superior Proposal pursuant to a customary
confidentiality agreement (as determined by such party based on the advice of
its outside counsel, the terms of which are no more favorable to such person
than the Confidentiality Agreement) and (b) participate in negotiations
regarding such Superior Proposal. For purposes of the Merger Agreement, a
"Takeover Proposal" means (1) any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase
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of a business that constitutes 50% or more of the net revenues, net income or
the assets of either party and its subsidiaries, taken as a whole, or 25% or
more of any class of equity securities of such party, (2) 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 such party or (3) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving such party or the common stock
of such party (or any subsidiary of such party whose business constitutes 50%
or more of the net revenues, net income or the assets of such party and its
subsidiaries, taken as a whole), other than the transactions contemplated by
the Merger Agreement.
Except as expressly permitted by the Merger Agreement, neither the CUC
Board nor the HFS Board, nor any committee thereof, will (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to the
other party, the approval or recommendation by such Board of Directors or
such committee of the Merger or the Merger Agreement, (ii) approve or
recommend or propose publicly to approve or recommend any Takeover Proposal
or (iii) cause such party to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Takeover Proposal (an "Acquisition Agreement"). Notwithstanding the
foregoing, at any time prior to the obtaining of approval of the CUC
Proposals and the HFS Proposals by the CUC stockholders and the HFS
stockholders, respectively, the CUC Board or the HFS Board, as the case may
be, 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 its respective stockholders under
applicable law, may terminate the Merger Agreement, solely in order to enter
into an Acquisition Agreement with respect to any Superior Proposal, but only
at a time that is after the fifth business day following the other party's
receipt of written notice advising such other party that the Board of
Directors of such party is prepared to accept a Superior Proposal specifying
the material terms and conditions of such Superior Proposal and identifying
the person making such Superior Proposal. For purposes of the Merger
Agreement, a "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 the common stock then outstanding of
either party to the Merger Agreement or all or substantially all the assets
of such party and otherwise on terms which the Board of Directors of such
party determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable
to such party'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 such party based on the advice of its financial
advisor, is reasonably capable of being obtained by such third party. The
terminating party must pay a fee in the amount of $300 million (the
"Termination Fee") to the nonterminating party upon such termination. See
"--Termination" and "--Termination Fees."
HFS STOCK OPTIONS AND HFS STOCK PLANS
The parties have agreed that as soon as practicable following the date of
the Merger Agreement, the HFS Board (or, if appropriate, any committee
administering the HFS 1992 Stock Option Plan and the HFS 1993 Stock Option
Plan (such plans, collectively, the "HFS Stock Plans")) will adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) reflect the adjustment in accordance with their existing terms of all
outstanding HFS employee stock options granted under HFS Stock Plans,
whether vested or unvested, to provide that, from and after the Effective
Time, each HFS employee stock option outstanding immediately prior to the
Effective Time (collectively, "HFS Employee Stock Options") shall
represent an option to acquire, on the same terms and conditions as were
applicable under such HFS 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 of the Merger Agreement
(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
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nearest whole share, at a price per share of CUC Common Stock equal to (a)
the exercise price for the shares of HFS Common Stock otherwise
purchasable pursuant to such HFS Employee Stock Option divided by (b) the
Exchange Ratio, 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.
At the Effective Time, by virtue of the Merger, the HFS Stock Plans will
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, will be obligations of CUC following the
Effective Time. Prior to the Effective Time, CUC will take all necessary
actions 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 will 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
will be kept effective (and the current status of the prospectus or
prospectuses required thereby will 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.
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 the Merger Agreement.
COMPANY OFFICERS; EMPLOYMENT CONTRACTS; NEW STOCK PLAN
Prior to the Effective Time, CUC will adopt resolutions, establishing the
CUC Board and committees thereof from and after the Effective Time. From and
after the Effective Time, the members of the CUC Board, the committees of the
CUC Board, the composition of such committees (including chairmen thereof)
and the officers of CUC will be as set forth on or designated in accordance
with the Restated Certificate, the Restated By-Laws and the Governance Plan
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 the Governance Plan 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 the Governance Plan. If
any officer (other than Mr. Forbes or Mr. Silverman) set forth on or
designated in accordance with the Governance Plan 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 of the Merger Agreement or any
such employee to be designated by CUC, or HFS, in the case of any such
employee of HFS on the date of the Merger Agreement or any such employee to
be designated by HFS, will designate another person to serve in such person's
stead.
Pursuant to and in accordance with the Merger Agreement and the amended
and/or restated employment agreements referred to in the immediately
succeeding paragraph, (i) at the Effective Time and until January 1, 2000,
Mr. Forbes will serve as Chairman of the Board of Directors and Chairman of
the Executive Committee of CUC, and from and after January 1, 2000, Mr.
Forbes will be President and Chief Executive Officer of CUC but will not be
Chairman of the Board or Chairman of the Executive Committee of CUC, and (ii)
at the Effective Time and until January 1, 2000, Mr. Silverman will serve as
President and Chief Executive Officer of CUC, and from and after January 1,
2000, Mr. Silverman will 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, for any reason, Mr. Forbes ceases to serve as Chairman of
the Board prior to January 1, 2000 and at such time Mr. Silverman is
President and Chief Executive Officer, Mr. Silverman will become Chairman of
the Board. If, for any reason, Mr. Silverman ceases to serve as President and
Chief Executive Officer prior to January 1, 2000 and at such time Mr. Forbes
is Chairman
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of the Board, Mr. Forbes will become President and Chief Executive Officer.
If either of such persons is unable or unwilling to hold such offices for the
period set forth in his employment agreement, his successor will be selected
by the CUC Board in the manner set forth in the Restated By-Laws.
At or prior to the Effective Time, CUC agreed to enter into the amended
and restated employment agreements substantially in the forms set forth in
the Merger Agreement, with certain officers of CUC as described under
"INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTERESTS" and HFS
and CUC have agreed to enter into amendments to and/or restatements of the
employment agreements substantially in the forms set forth in the Merger
Agreement with certain officers of HFS as described under "INTERESTS OF
CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTERESTS." Such agreements will
become effective and replace or amend the executives' current employment
agreements upon consummation of the Merger.
At the Effective Time, certain officers and key employees of the combined
company as described under "INTERESTS OF CERTAIN PERSONS IN THE MERGER;
CONFLICTS OF INTERESTS", will be granted (i) shares of restricted CUC Common
Stock with an aggregate value of $30 million (based on the Average CUC
Price), the terms and conditions with respect to which will 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 the options granted
to Mr. Silverman pursuant to the Current Silverman Employment Agreement, as
amended by the Silverman Amendment, will be no less favorable to the terms
and conditions of outstanding options held by Mr. Silverman as of the date
hereof.
HFS CONVERTIBLE NOTES
From and after the date of the Merger Agreement and prior to the Effective
Time, each of CUC or HFS, as applicable, will 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
Senior Notes due 2003, to implement the provisions of such Indentures which
provide that such notes will be convertible into shares of CUC Common Stock
and not HFS Common Stock from and after the Effective Time.
TRANSITION PLANNING
Mr. Silverman and Mr. Forbes, as Chairmen of HFS and CUC, respectively,
jointly will be responsible for coordinating all aspects of transition
planning and implementation relating to the Merger and the other transactions
contemplated by the Merger Agreement. If either such person ceases to be
Chairman of his respective company for any reason, such person's successor as
Chairman will assume his predecessor's responsibilities under this provision.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of various conditions,
which include, in addition to the other customary closing conditions, the
following:
(i) the CUC stockholders and the HFS stockholders having each approved
and adopted the CUC Proposals and the HFS Proposals, respectively;
(ii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act having expired or been terminated;
(iii) other than the filing with the Secretary of the State of Delaware
described under "--Closing; Effective Time" and filings pursuant to the
HSR Act, all consents approvals and actions of, filings with and notices
to any federal, state, local or foreign government, any court,
administrative,
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regulatory or other governmental agency, commission or authority or any
nongovernmental self-regulatory agency, commission or authority (a
"Governmental Entity") required of HFS, CUC or any of their subsidiaries
to consummate the Merger and the other transactions contemplated thereby,
the failure of which to be obtained or taken (a) is reasonably expected to
have a material adverse effect on CUC and its prospective subsidiaries,
taken as a whole, or (b) will result in a violation of any laws, shall
have been obtained, all in form and substance reasonably satisfactory to
HFS and CUC;
(iv) no judgment, order, decree, statute, law, ordinance, rule or
regulation enacted, entered, promulgated, enforced or issued by any court
or other Governmental Entity of competent jurisdiction or other legal
restraint or prohibition (collectively, "Restraints") being in effect (a)
preventing the consummation of the Merger, or (b) 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;
(v) the Registration Statement having become effective under the
Securities Act prior to the mailing of this Joint Proxy
Statement/Prospectus by each of HFS and CUC to their respective
stockholders and not being the subject of any stop order or proceedings
seeking a stop order, either threatened or initiated by the SEC;
(vi) the shares of CUC Common Stock issuable to HFS' stockholders in the
Merger, the shares of CUC Common Stock issuable upon exercise of Adjusted
Options and upon exercise of the options to purchase shares of CUC Common
Stock issuable under the New Stock Plan and the shares of restricted CUC
Common Stock issued pursuant to the New Stock Plan having been approved
for listing on the NYSE, subject to official notice of issuance;
(vii) CUC and HFS each having received letters from each of HFS's
independent accountants and CUC's independent accountants, dated as of the
date the Registration Statement is declared effective and as of the
Closing Date, in each case, delivered to CUC and HFS to the effect 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
the Merger Agreement; and
(viii) CUC having taken all such actions as necessary so that (a) the
Certificate Amendment and the amendments to the Old CUC By-Laws become
effective not later than the Effective Time; (b) the CUC Board resolutions
set forth as an exhibit to the Merger Agreement are adopted to be
effective upon the Effective Time; and (c) at the Effective Time, the
composition of the CUC Board and the committees of such Board complies
with the Restated Certificate, the Restated By-Laws and the Governance
Plan.
In addition, each party's obligation to effect the Merger is subject to
the satisfaction or waiver of the following additional conditions:
(a) the representations and warranties of the other party to the Merger
Agreement set forth in the Merger Agreement being true and correct as of
the date of the Merger Agreement and as of the Closing Date as though
made on and as of the Closing Date (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 "materially" or "material
adverse effect," as such terms are defined below), does not have, and is
not likely to have, individually or in the aggregate, a material adverse
effect on such other party; provided that certain representations and
warranties with respect to the absence of changes in benefit plans and
ERISA compliance and certain material contracts will be deemed true and
correct at and as of the Closing Date regardless of changes therein
caused by an acquisition permitted under the Merger Agreement, or by the
incurrence of indebtedness permitted under the Merger Agreement, except
to the extent that such changes have, or could reasonably be expected to
have, a material adverse effect on the other party;
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(b) the other party to the Merger Agreement having performed in all
material respects all obligations required to be performed by it under
the Merger Agreement on or prior to the Closing Date;
(c) CUC and HFS having received from their respective legal counsel,
Wachtell, Lipton, Rosen & Katz and Skadden, Arps, Slate, Meagher & Flom
LLP, on a date immediately prior to the mailing of this Joint Proxy
Statement/Prospectus and on the Closing Date, opinions in each case
dated as of such respective dates to the effect that (a) the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of
the Code and that CUC and HFS will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (b) no
gain or loss will be recognized by CUC or HFS as a result of the Merger;
(c) no gain or loss will be recognized by the stockholders of HFS upon
the exchange of their shares of HFS Common Stock for shares of CUC
Common Stock pursuant to the Merger (except to the extent such
stockholders receive cash in lieu of fractional shares of CUC Common
Stock); (d) 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 (e) the holding
period of the 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
that such shares of HFS Common Stock were held as capital assets by the
stockholder at the Effective Time; and
(d) at any time after the date of the Merger Agreement any material
adverse change relating to the other party not having occurred.
A "material adverse change" or "material adverse effect" means, when used
in connection with CUC or HFS, 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 CUC or HFS
and their respective subsidiaries taken as a whole, and the terms "material"
and "materially" have correlative meanings.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (except in the case of clause (iv) hereof), whether before or after
approval of the CUC Proposals and the HFS Proposals by the CUC stockholders
and the HFS stockholders, respectively:
(i) by mutual written consent of CUC and HFS;
(ii) by either CUC or HFS:
(a) if the Merger has not been consummated by December 31, 1997;
provided, however, that the right to terminate the Merger
Agreement pursuant to this clause (a) will not be available to any
party whose failure to perform any of its obligations under the
Merger Agreement has resulted in the failure of the Merger to be
consummated by such date; provided, however, that the Merger
Agreement may be extended not more than 30 days by either party by
written notice to the other party if the Merger has not 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;
(b) if the CUC stockholders or the HFS stockholders have not
approved the CUC Proposals or the HFS Proposals, respectively, at
their respective stockholder meetings duly convened therefor or at
any adjournment or postponement thereof; or
(c) if any Restraints having the effects set forth in clause (iv)
under "--Conditions to the Consummation of the Merger" are in
effect and have become final and nonappealable; provided that the
party seeking to terminate the Merger Agreement pursuant to this
clause (c) has used best efforts to prevent the entry of and to
remove such Restraint;
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(iii) By CUC, on the one hand, or HFS, on the other hand, if the other
party has breached or failed to perform in any material respect any of its
representations, warranties, covenants, or other agreements contained in
the Merger Agreement, which breach or failure to perform would give rise
to the failure of those conditions to the Merger described in clauses (a)
and (b) under "--Conditions to the Consummation of the Merger," and which
breach is incapable of being cured by the party in breach, or is not cured
within 45 days of written notice thereof; or
(iv) Prior to the approval of the CUC Proposals and the HFS Proposals, by
CUC or HFS, respectively, in accordance with the second sentence of the
second paragraph under "--No Solicitation;" provided that, in order for
the termination of the Merger Agreement pursuant to this paragraph (iv) to
be deemed effective, such party will have complied with all the provisions
described under "--No Solicitation," including the notice provisions
therein and the payment of the Termination Fee.
TERMINATION FEES
The Merger provides that (i) if a Takeover Proposal is made known to any
party or any of its subsidiaries or has been made directly to its
stockholders generally or any person has publicly announced an intention
(whether or not conditional) to make a Takeover Proposal and thereafter the
Merger Agreement is terminated pursuant to the provisions described in clause
(ii)(a) or (b) under "--Termination," or (ii) the Merger Agreement is
terminated by either party pursuant to clause (iv) under "--Termination,"
then the party which was the subject of the Takeover Proposal or which
terminated the Merger Agreement pursuant to clause (iv) under "--Termination"
will promptly, but in no event later than two days after the date of such
termination, pay the other party the Termination Fee ($300 million) payable
by wire transfer of same day funds, provided, however, that no Termination
Fee will be payable to the other party pursuant to clause (i) of this
paragraph unless and until, within 18 months of such termination, such party
or any of its subsidiaries enters into any Acquisition Agreement or any
transaction which would be a Takeover Proposal is consummated, in which event
the Termination Fee will be payable upon the first to occur of such events.
The Merger Agreement further provides that if one party should fail to pay
the Termination Fee due, and, in order to obtain such payment, the other
party commences a suit which results in a judgment against such defaulting
party, the defaulting party will pay the costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the Termination Fee at the prime rate of Citibank
N.A. in effect on the date such payment was required to be made.
EXPENSES
Whether or not the Merger is consummated, all fees and expenses incurred
in connection with the Merger, the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees or
expenses, except that each of CUC and HFS will bear and pay one-half of the
costs and expenses incurred in connection with (i) the filing, printing and
mailing of the Registration Statement and this Joint Proxy
Statement/Prospectus (including SEC filing fees), and (ii) the filings of the
Premerger Notification and Report Forms under the HSR Act (including filing
fees).
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto at any time
before or after the approval by the CUC stockholders or the HFS stockholders
of the CUC Proposals and the HFS Proposals, respectively; provided, however,
that, after any such approval, there will not be made any amendment that by
law requires further approval by such party's stockholders without the
further approval of such stockholders. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
At any time prior to the Effective Time, a party may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties, (ii) waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document
delivered pursuant
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to the Merger Agreement or (iii) subject to the proviso of the first sentence
of the immediately preceding paragraph, waive compliance by the other party
with any of the agreements or conditions contained in the Merger Agreement.
Any agreement on the part of a party to any such extension or waiver will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to the Merger Agreement to assert any of its
rights under the Merger Agreement or otherwise will not constitute a waiver
of such rights.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CUC AND HFS
The rights of HFS stockholders are currently governed by the DGCL and the
Restated Certificate of Incorporation and the By-Laws of HFS (the "HFS
Certificate" and the "HFS By-Laws," respectively). The rights of CUC
stockholders are currently governed by the DGCL, the Old CUC Certificate and
the Old CUC By-Laws. In accordance with the Merger Agreement, at the
Effective Time, CUC will amend and restate the Old CUC Certificate and the
Old CUC By-Laws. Accordingly, upon consummation of the Merger, the rights of
CUC stockholders and HFS stockholders who become stockholders of CUC in the
Merger will be governed by the DGCL, the Restated Certificate and the
Restated By-Laws. The following are summaries of the material differences
between the current rights of HFS stockholders and CUC stockholders and those
of CUC stockholders following the Merger.
The following discussions are not intended to be complete and are
qualified by reference to the Old CUC Certificate, the Old CUC By-Laws, the
Restated Certificate, the Restated By-Laws, the HFS Certificate and the HFS
By-Laws. Copies of the Restated Certificate and the Restated By-Laws, in
substantially the forms proposed to be in effect at the Effective Time, are
attached to this Joint Proxy Statement/Prospectus as Appendices B and C,
respectively, and are incorporated herein by reference. Copies of the Old CUC
Certificate, the Old CUC By-Laws, the HFS Certificate and the HFS By-Laws are
incorporated by reference herein and will be sent to stockholders of CUC and
HFS, respectively, upon request. See "WHERE YOU CAN FIND MORE INFORMATION."
AUTHORIZED CAPITAL
HFS. The total number of authorized shares of capital stock of HFS is
600,000,000 shares of HFS Common Stock and 10,000,000 shares of preferred
stock, par value $1.00.
CUC. The total number of authorized shares of capital stock of CUC is
600,000,000 shares of CUC Common Stock and 1,000,000 shares of preferred
stock, par value $.01 ("CUC Preferred Stock").
Following the Merger the total number of authorized shares of capital
stock will be 2,000,000,000 shares of CUC Common Stock and 10,000,000 shares
of CUC Preferred Stock.
BOARD OF DIRECTORS
HFS. Pursuant to the HFS Certificate, the number of directors of HFS will
not be more than 20, with the precise number determined by a majority of the
HFS Board. The current number of HFS directors is 15. The HFS Board is not
divided into classes and the directors are elected for one-year terms by the
stockholders at their annual meeting. A quorum at any meeting of the HFS
Board consists of a majority of the total number of directors.
CUC. Pursuant to the Old CUC Certificate and the Old CUC By-Laws, the
number of directors shall be fixed from time to time by the CUC Board but
shall not be less than three. Currently, there are 10 CUC directors. The Old
CUC Certificate and the Old CUC By-Laws provide for three classes of
directors, with each class elected for a term of three years and consisting
as nearly as possible of one third of the total number of directors on the
CUC Board. At each annual meeting of stockholders, one class of directors is
elected for a three-year term. Classification of directors has the effect of
making it more difficult for stockholders to change the composition of the
CUC Board. A quorum at any meeting of the CUC Board consists of a third of
the total number of directors if there were no vacancies (the "Entire
Board").
No changes will be made to such provisions of the Old CUC Certificate and
the Old CUC By-Laws at the Effective Time, except that pursuant to the
Governance Plan, the size of the CUC Board will be
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set by resolution at 30 and pursuant to the Restated By-Laws (i) until the
third anniversary of the Effective Time, an affirmative vote of 80% of Entire
Board will be required in order to change the number of directors, and (ii) a
quorum at any meeting of the CUC Board shall consist of a majority of the
Entire Board. See "DIRECTORS AND MANAGEMENT OF CUC FOLLOWING THE
MERGER--Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
HFS. Pursuant to the HFS Certificate and the HFS By-Laws, there shall be
at all times an Audit Committee and an Executive Committee of the HFS Board
and the HFS Board may, by a resolution passed by a majority of the total
number of directors, designate one or more other committees.
CUC. Pursuant to the Old CUC Certificate, the CUC Board may, by a majority
vote, designate one or more committees, each committee to consist of one or
more of the directors of CUC. Pursuant to the Old CUC By-Laws, there shall be
at all times an Executive Committee of the Board.
Pursuant to the Restated Certificate, the CUC Board's authority to
designate committees shall be subject to the provisions of the Restated
By-Laws. Pursuant to the Restated By-Laws, from and after the Effective Time
the CUC Board shall have the following committees: (i) an Executive Committee
consisting of four CUC Directors and four HFS Directors and whose Chairman
shall be the Chairman of the Board; (ii) a Compensation Committee consisting
of two CUC Directors and two HFS Directors and whose Chairman shall be an HFS
Director; and (iii) an Audit Committee consisting of two CUC Directors and
two HFS Directors and whose Chairman shall be a CUC Director. The CUC Board
may designate one or more directors as alternate members of any committee to
fill any vacancy on a committee and to fill a vacant chairmanship of a
committee occurring as a result of a member or chairman leaving the
committee, whether through death, resignation, removal or otherwise. Until
the third anniversary of the Effective Time, the affirmative vote of 80% of
the Entire Board will be required in order to remove a director from a
committee, change the chairmanship of a committee, designate an alternate
member to any committee, designate any additional committee, or amend, modify
or repeal or adopt any provision inconsistent with the provisions described
herein.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
HFS. Pursuant to the HFS Certificate and the HFS By-Laws, vacancies
occurring in any HFS directorship and newly created HFS directorships shall
be filled by a majority vote of the remaining directors.
CUC. Pursuant to the Old CUC Certificate, newly created directorships
resulting from any increase in the number of directors and any vacancies on
the CUC Board resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office.
Pursuant to the Restated By-Laws, until the third anniversary of the
Effective Time, the CUC Board will delegate to the Executive Committee the
full and exclusive power and authority to nominate directors for election to
the CUC Board at the next stockholders' meeting at which directors are to be
elected, elect directors to fill vacancies on the CUC Board between
stockholders' meetings and fill vacancies on any committee of the CUC Board
to the extent an alternate member has not been previously designated. Such
nominations and elections of directors and members of committees shall be
undertaken by the Executive Committee such that (i) the number of HFS
Directors and CUC Directors on the CUC Board or any committee of the CUC
Board shall be equal and (ii) the remaining HFS Directors (if the number of
HFS Directors is less than the number of CUC Directors) or the remaining CUC
Directors (if the number of CUC Directors is less than the number of HFS
Directors) shall designate the person to be nominated or elected. Any
resolution regarding such election or nomination as described above in a
manner that (a) is consistent with the two preceding sentences will require
the approval by only three members of the Executive Committee (or only two
members if there are then two vacancies on the Executive Committee) or (b) is
inconsistent with the two preceding sentences will require approval by at
least seven members of the Executive Committee. Until the third anniversary
of the Effective Time, the affirmative vote of at
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least 80% of the Entire Board shall be required in order for the CUC Board to
amend, modify or repeal, or adopt any provision inconsistent with, the
provisions of the Restated By-Laws described herein. See "DIRECTORS AND
MANAGEMENT OF CUC FOLLOWING THE MERGER."
REMOVAL OF DIRECTORS
HFS. The HFS By-Laws provide that a director may only be removed for cause
by the affirmative vote of the holders of a majority of the outstanding
shares of stock entitled to vote for the election of directors.
CUC. Pursuant to the Old CUC Certificate, any director may be removed from
office without cause only by the affirmative vote of the holders of 80% of
the combined voting power of the then outstanding shares of stock entitled to
vote generally in the election of directors voting together as a single
class, and a similar vote is required in order to amend this provision.
No change will be made to the provisions of the Old CUC Certificate
described herein at the Effective Time.
OFFICERS
HFS. Pursuant to the HFS By-Laws, generally, the HFS Board may appoint
officers for such terms as determined by the HFS Board.
CUC. Pursuant to the Old CUC By-Laws, the CUC Board may appoint officers
who shall hold their offices at the pleasure of the CUC Board.
Pursuant to the Restated By-Laws, Mr. Forbes shall be the Chairman of the
Board from and after the Effective Time and until January 1, 2000, at which
time Mr. Silverman will be Chairman of the Board. If, for any reason Mr.
Forbes ceases to serve as Chairman of the Board prior to January 1, 2000 and
at such time Mr. Silverman is President and Chief Executive Officer, Mr.
Silverman shall become Chairman of the Board. Mr. Silverman will be President
and Chief Executive Officer from and after the Effective Time and until
January 1, 2000, at which time Mr. Forbes will be President and Chief
Executive Officer. If, for any reason Mr. Silverman ceases to serve as
President and Chief Executive Officer prior to January 1, 2000 and at such
time Mr. Forbes is Chairman of the Board, Mr. Forbes shall become President
and Chief Executive Officer. Until January 1, 2002, the affirmative vote of
80% of the Entire Board shall be required in order for the Board to (i)
amend, modify, repeal or adopt any provision inconsistent with the provisions
described herein, (ii) remove Mr. Forbes or Mr. Silverman from the positions
specifically provided for in their employment agreements with CUC and HFS,
respectively, or (iii) modify either of the respective roles, duties or
authority of Messrs. Forbes and Silverman.
SPECIAL MEETINGS OF STOCKHOLDERS
HFS. A special meeting of HFS stockholders may be called either by the HFS
Board or by the Executive Committee thereof. The President or Secretary of
HFS is required to call a special meeting whenever requested in writing to do
so by stockholders holding not less than 20% of the HFS capital stock then
outstanding and entitled to vote.
CUC. A special meeting of CUC stockholders may be called only by the
Chairman of the CUC Board, the President, or the CUC Board pursuant to a
resolution approved by a majority of the Entire Board.
No change will be made to the provisions of the Old CUC Certificate and
the Old CUC By-Laws described herein at the Effective Time.
QUORUM AT STOCKHOLDER MEETINGS
HFS. The holders of a majority of the issued and outstanding stock
entitled to vote thereat, present in person or by proxy, shall constitute a
quorum at all stockholder meetings.
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CUC. The holders of one-third of the shares entitled to vote at any
meeting of the stockholders, present in person or by proxy, shall constitute
a quorum at all stockholder meetings.
No change will be made to the provisions of the Old CUC By-Laws described
herein at the Effective Time.
STOCKHOLDER ACTION BY WRITTEN CONSENT
HFS. The HFS By-Laws allow stockholders to take any action without a
meeting, without prior notice and without a vote, upon the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which all shares were present
and voted.
CUC. The Old CUC Certificate prohibits stockholder action by written
consent in lieu of a meeting. As a result, stockholder action can be taken
only at an annual or special meeting of stockholders. This prevents the
holders of a majority of the outstanding voting stock of CUC from using the
written consent procedure to take stockholder action without giving all the
stockholders of CUC entitled to vote on a proposed action the opportunity to
participate in determining the proposed action.
No change will be made to the provisions of the Old CUC Certificate
described herein at the Effective Time.
ADVANCE NOTICE OF STOCKHOLDER-PROPOSED BUSINESS AT ANNUAL MEETINGS
HFS. The HFS Certificate and the HFS By-Laws do not include a provision
which requires that advance notice be given to HFS of stockholder-proposed
business to be conducted at annual meetings.
CUC. The Old CUC By-Laws provide that for business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of CUC. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of CUC not less than 60 days nor more than 90
days prior to the meeting; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following
the date on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary must
set forth as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting, (ii) the name and address, as they appear on CUC's
books, of the stockholder proposing such business, (iii) the class and number
of shares of CUC which are beneficially owned by the stockholder, and (iv)
any material interest of the stockholder in such business.
In addition, the Old CUC By-Laws provide that for a stockholder to
properly nominate a director at a meeting of stockholders, the stockholder
must have given timely notice thereof in writing to the Secretary of CUC. To
be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of CUC (i) in the case of an annual
meeting, at least 90 days prior to the date of the last annual meeting of CUC
stockholders and (ii) with respect to a special meeting of stockholders, the
close of business on the 10th day following the date on which notice of such
meeting is first given to stockholders. Such stockholder's notice to the
Secretary must set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated,
(ii) a representation that the stockholder is a holder of record of CUC
Common Stock and intends to appear in person or by proxy at the meeting to
nominate each such nominee, (iii) a description of all arrangements between
such stockholder and each nominee, (iv) such other information with respect
to each nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC, and (v) the consent of each
nominee to serve as a director of CUC if so elected.
No change will be made to the provisions of the Old CUC By-Laws described
herein at the Effective Time.
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AMENDMENT OF GOVERNING DOCUMENTS
HFS. The DGCL provides that an amendment to a corporation's certificate of
incorporation requires the recommendation of the corporation's board of
directors, the approval of a majority of all shares entitled to vote thereon
unless a higher vote is required in the corporation's certificate of
incorporation (which the HFS Certificate does not provide), voting together
as a single class, and the approval of a majority of the outstanding stock of
each class entitled to vote thereon. The HFS By-Laws may be amended by the
HFS Board (except with respect to the action by written consent of the
stockholders or the amendment provisions thereof) and may also be amended by
the affirmative vote of a majority of the shares present at a stockholders
meeting at which a quorum is present.
CUC. In addition to the provisions of the DGCL described above, pursuant
to the Old CUC Certificate, the affirmative vote of the holders of at least
80% of the voting power of all shares of CUC entitled to vote generally in
the election of directors, voting together as a single class, shall be
required to alter, amend, adopt any provision inconsistent with, or repeal,
Article 9 of the Old CUC Certificate or any provision hereof. Article 9 of
the Old CUC Certificate includes, among others, provisions with respect to
the number of directors, classification of the CUC Board, filling of
vacancies on the CUC Board, removal of directors, absence of stockholder
action by written consent and amendments to the Old CUC By-Laws. Pursuant to
the Old CUC Certificate, the CUC Board shall have power to make, alter, amend
and repeal the Old CUC By-Laws (except so far as the by-laws adopted by the
stockholders shall otherwise provide). Any by-laws made by the directors
under the powers conferred thereby may be altered, amended or repealed by the
directors or by the stockholders. Notwithstanding the foregoing, the
provisions of the Old CUC By-Laws relating to annual and special stockholder
meetings, absence of stockholder action by written consent, election and
nomination of directors, filling of vacancies on the CUC Board and removal of
directors shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 80% of the voting power of all the shares of CUC entitled
to vote generally in the election of directors, voting together as a single
class.
In addition to the provisions of the Old CUC Certificate which require a
super-majority of CUC stockholders to approve certain amendments to the Old
CUC Certificate and the Old CUC By-Laws, the Restated By-Laws require the
affirmative vote of 80% of the Entire Board in order for the CUC Board to
adopt certain amendments to the Restated By-Laws as described under "--Board
of Directors," "--Committees of the Board of Directors," "Newly Created
Directorships and Vacancies" and "--Officers."
FAIR PRICE PROVISIONS
HFS. The HFS Certificate does not include any provision governing the
approval requirements of business combinations.
CUC. Under the DGCL and the Old CUC Certificate, an agreement of merger,
sale, lease or exchange of all or substantially all of CUC's assets must be
approved by the CUC Board and adopted by the holders of a majority of the
outstanding shares of stock entitled to vote thereon. However, the Old CUC
Certificate includes what generally is referred to as a "fair price
provision," which requires the affirmative vote of the holders of at least
80% of the outstanding shares of capital stock entitled to vote generally in
the election of CUC's directors, voting together as a single class, to
approve certain business combination transactions (including certain mergers,
recapitalization and the issuance or transfer of securities of CUC or a
subsidiary having an aggregate fair market value of $10 million or more)
involving CUC or a subsidiary and an owner or any affiliate of an owner of 5%
or more of the outstanding shares of capital stock entitled to vote, unless
either (i) such business combination is approved by a majority of
disinterested directors, or (ii) the shareholders receive a "fair price" for
their CUC securities and certain other procedural requirements are met. The
Old CUC Certificate provides that this provision may not be repealed or
amended in any respect except by the affirmative vote of the holders of not
less than 80% of the outstanding shares of capital stock entitled to vote
generally in the election of CUC directors.
71
<PAGE>
No change will be made to the provision of the Old CUC Certificate
described herein at the Effective Time.
DISQUALIFIED STOCKHOLDERS
HFS. The HFS Certificate provides that stockholders of HFS who (i)
beneficially own five percent or more of the outstanding capital stock of HFS
and have not cooperated in providing information required by certain gaming
authorities, or (ii) who are required by certain gaming authorities to be
qualified with respect to certain gaming licenses held by HFS or its
subsidiaries, and have failed to be so qualified, or (iii) who have been
found to be disqualified with respect to certain gaming licenses, shall not
be entitled to vote any shares of capital stock of HFS beneficially owned by
them and such shares shall not be considered as outstanding or entitled to
vote. Upon the request of HFS, such stockholder shall dispose of such
stockholder's publicly-traded stock of HFS within 10 days of receipt of such
request or such stock shall be redeemed by HFS.
CUC. No similar provision is included in any of the CUC governing
documents and none is required to be included in the Restated Certificate
following consummation of the Merger.
DESCRIPTION OF CAPITAL STOCK OF CUC FOLLOWING THE MERGER
Set forth below is a summary of the material terms of the capital stock of
CUC. For a description of the Governance Plan, which affects certain rights
of CUC stockholders, see "DIRECTORS AND MANAGEMENT OF CUC FOLLOWING THE
MERGER" and the Restated Certificate and the Restated By-Laws, in
substantially the forms to be adopted at the Effective Time, copies of which
are attached as Appendices B and C, respectively, to this Joint Proxy
Statement/Prospectus.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of CUC consists of 600,000,000 shares of CUC
Common Stock and 1,000,000 shares of CUC Preferred Stock. Under the Restated
Certificate, the authorized capital stock of CUC will increase to
2,000,000,000 shares of CUC Common Stock and 10,000,000 shares of CUC
Preferred Stock. CUC Common Stock and CUC Preferred Stock may be issued by
CUC from time to time upon such terms and for such consideration as may be
determined by the CUC Board. Such issuances, up to the aggregate amounts
authorized by the Old CUC Certificate or the Restated Certificate,
respectively, do not require approval by the stockholders. CUC also may issue
CUC Common Stock from time to time pursuant to CUC employee benefit plans.
CUC COMMON STOCK
Holders of shares of CUC Common Stock have no preemptive, redemption or
conversion rights. The holders of CUC Common Stock, subject to any
preferential rights of CUC Preferred Stock, are entitled to receive dividends
when and as declared by the CUC Board out of funds legally available therefor
and to share ratably in the assets of CUC legally available for distribution
to its stockholders in the event of its liquidation, dissolution or winding
up.
Each holder of CUC Common Stock is entitled to one vote per share of CUC
Common Stock held of record by them and holders of CUC Common Stock may not
cumulate votes in elections of directors. Except as otherwise required by law
or except as provided with respect to any series of CUC Preferred Stock, the
holders of CUC Common Stock will possess all voting power. As a result, the
holders of CUC Common Stock and (if issued) CUC Preferred Stock entitled to
exercise more than 50% of the voting rights in an election of directors can
elect 100% of the directors to be elected if they choose to do so. In such
event, the holders of the remaining CUC Common Stock or (if issued) CUC
Preferred Stock voting for the election of directors will not be able to
elect any persons to the CUC Board.
As of the close of business on August 18, 1997, 410,570,684 shares of CUC
Common Stock were issued and outstanding (including shares of restricted CUC
Common Stock). The issued and outstanding shares of CUC Common Stock are duly
authorized, fully paid and nonassessable. As of the close of business on
August 18, 1997, no shares of CUC Preferred Stock were issued and
outstanding.
72
<PAGE>
CUC PREFERRED STOCK
The CUC Board is authorized at any time and from time to time to provide
for the issuance of all or any shares of CUC Preferred Stock in one or more
series, and to fix the designation and the powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions of each such series.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF HFS COMMON STOCK
It is a condition to the Merger that the shares of CUC Common Stock that
will be issued in connection with the Merger be authorized for listing on the
NYSE, subject to official notice of issuance. If the Merger is consummated,
HFS Common Stock will cease to be listed on the NYSE.
EXPERTS
The consolidated financial statements and schedule of CUC appearing in
CUC's Annual Report (Form 10-K) for the year ended January 31, 1997
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference which,
as to the years ended January 31, 1996 and 1995, is based in part on the
reports of Deloitte & Touche LLP, independent auditors of Sierra, KPMG Peat
Marwick LLP, independent auditors of Davidson, and Price Waterhouse LLP,
independent accountants of Ideon. The financial statements and schedule
referred to above are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three month periods ended April 30, 1997 and 1996,
incorporated by reference in this Joint Proxy Statement/ Prospectus, Ernst &
Young LLP have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report, included in CUC's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997 and incorporated herein by
reference, states that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their report on such information should be restricted considering the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared
or certified by the auditors within the meaning of Section 7 and 11 of the
Securities Act.
The financial statements of HFS and its consolidated subsidiaries, except
PHH, as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, incorporated in this Joint Proxy
Statement/Prospectus by reference from the Current Report on Form 8-K dated
July 16, 1997 filed by HFS have been audited by Deloitte & Touche LLP, as
stated in their reports which are incorporated herein by reference. The
financial statements of PHH (consolidated with those of HFS) as of December
31, 1996 and January 31, 1996 and for the year ended December 31, 1996 and
each of the years in the two-year period ended January 31, 1996 have been
audited by KPMG Peat Marwick LLP, as stated in their report incorporated
herein by reference. Their report contains an explanatory paragraph that
states that PHH adopted the provisions of Statement of Financial Standards
No. 122 "Accounting for Mortgage Service Rights" in the year ended January
31, 1996. Such financial statements of HFS and its consolidated subsidiaries
are incorporated by reference herein in reliance upon the respective reports
of such firms given upon their authority as experts in accounting and
auditing. All of the foregoing firms are independent auditors.
The consolidated financial statements of Century 21 NORS as of and for the
year ended July 31, 1995, which appear in the Form 8-K dated February 16,
1996 of HFS have been incorporated by reference herein in reliance upon the
report dated January 12, 1995, of White, Nelson & Co. LLP, independent
certified public accountants, incorporated by reference herein, given upon
the authority of said firm as expert in accounting and auditing.
The Independent Auditor's Report relating to the consolidated financial
statements of Century 21 and subsidiaries as of and for the years ended July
31, 1995, 1994 and 1993, which appears in the Form
73
<PAGE>
8-K dated February 16, 1996 of HFS has been incorporated by reference herein
in reliance upon the report dated September 25, 1995, of Tony H. Davidson,
CPA independent certified public accountant, incorporated by reference
herein, given upon the authority of said individual as expert in accounting
and auditing.
The consolidated balance sheets of Coldwell Banker and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for each of the
two years in the period ended December 31, 1995, which appear in the Form 8-K
dated May 8, 1996, as amended by the Form 8-K/A dated March 27, 1997 of HFS
have been incorporated by reference herein in reliance upon the report dated
February 27, 1996 of Coopers & Lybrand L.L.P., independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The financial statements of Century 21 of Eastern Pennsylvania, Inc. (an
"S" corporation) as of and for the years ended April 30, 1995 and 1994, which
appear in the Form 8-K dated February 16, 1996, as amended March 27, 1997, of
HFS have been incorporated by reference herein in reliance upon the report
dated June 22, 1995 of Woolard, Krajnik, & Company, independent certified
public accountants, incorporated by reference herein, given upon the
authority of said firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September
30, 1993 of Coldwell Banker and subsidiaries (formerly Coldwell Banker
Residential Holding Company and subsidiaries) have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Avis, Inc. as of February 29,
1996 and February 28, 1995 and for each of the three years then ended,
included in the HFS Current Report on Form 8-K dated August 29, 1996, as
amended by the Form 8-K/A dated December 5, 1996 and as further amended by
the Form 8-K/A dated March 27, 1997, have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The combined financial statements of Resort Condominiums International,
Inc. as of and for the year ended December 31, 1995, included in the HFS
Current Report on Form 8-K/A dated March 26, 1997, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report dated
February 23 ,1996, except for Notes 9 to 11, as to which the date is February
7, 1997 and have been incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule of PHH and subsidiaries have been incorporated herein by reference
from the HFS Current Report on Form 8-K/A, for the year ended April 30, 1996
in reliance upon the reports of KPMG Peat Marwick LLP, independent auditors,
incorporated herein by reference, given upon the authority of said firm as
experts in accounting and auditing. Their reports contain an explanatory
paragraph that states that PHH adopted the provisions of Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights" in 1996.
Representatives of Ernst & Young LLP are expected to be present at the CUC
Special Meeting and representatives of Deloitte & Touche LLP are expected to
be present at the HFS Special Meeting. These representatives will have an
opportunity to make statements at these meetings if they so desire and will
be available to respond to appropriate questions.
LEGAL MATTERS
Certain legal matters with respect to the validity of the CUC Common Stock
to be issued pursuant to the Merger and the federal income tax consequences
of the Merger will be passed upon for CUC by Wachtell, Lipton, Rosen & Katz,
CUC's special outside legal counsel in connection with the Merger.
74
<PAGE>
Certain legal matters with respect to the federal income tax consequences of
the Merger will be passed upon for HFS by Skadden, Arps, Slate, Meagher &
Flom LLP, HFS's special outside counsel.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Any CUC stockholder proposals for the 1998 Annual Meeting of CUC
Stockholders must be received by the Office of the Secretary, CUC
International Inc., 707 Summer Street, Stamford, Connecticut 06901, no later
than January 5, 1998 for inclusion in the proxy statement and form of proxy.
In addition, the Old CUC By-Laws provide that any stockholder wishing to make
a nomination for director, or wishing to introduce a proposal or other
business, at the 1998 Annual Meeting of CUC Stockholders must, in the case of
nomination of a director, give notice to the Secretary of CUC by March 13,
1998 and, in the case of other business, by April 12, 1998 but not before
March 13, 1998. Such notice requirements are subject to certain exceptions
and any such notice must meet certain other requirements set forth in the Old
CUC By-Laws.
CUC stockholders can receive a copy of the Old CUC By-Laws free of charge
by writing to the Secretary of CUC.
Due to the contemplated consummation of the Merger, HFS does not currently
expect to hold a 1997 Annual Meeting of Stockholders because, following the
Merger, HFS will not be a publicly traded company. In the event that the
Merger is not consummated and such a meeting is held, to be eligible for
inclusion in HFS's proxy statement and form of proxy relating to that
meeting, proposals of stockholders intended to be presented at such meeting
must be received by HFS within a reasonable time after HFS announces publicly
the date of the meeting and before HFS mails its proxy statement to
stockholders in connection with such meeting.
WHERE YOU CAN FIND MORE INFORMATION
CUC and HFS file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that the companies file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. CUC and HFS public filings are also available to
the public from commercial document retrieval services and at the Internet
Worldwide web site maintained by the SEC at "http://www.sec.gov." Reports,
proxy statements and other information concerning CUC and HFS also may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
CUC has filed the Registration Statement to register with the SEC the
shares of CUC Common Stock to be issued to HFS stockholders in the Merger.
This Joint Proxy Statement/Prospectus is a part of the Registration Statement
and constitutes a prospectus of CUC, as well as a proxy statement of CUC for
the CUC Special Meeting and a proxy statement of HFS for the HFS Special
Meeting.
As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not
contain all the information that stockholders can find in the Registration
Statement or the exhibits to the Registration Statement.
The SEC allows CUC and HFS to "incorporate by reference" information into
this Joint Proxy Statement/Prospectus, which means that the companies can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be part of this Joint Proxy Statement/Prospectus, except for any
information superseded by information contained directly in the Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates by
reference the documents set forth below that CUC and HFS have previously
filed with the SEC. These documents contain important information about the
companies and their financial condition.
75
<PAGE>
<TABLE>
<CAPTION>
CUC SEC FILINGS (FILE NO. 1-10308) PERIOD
- --------------------------------------- -------------------------------------------------
<S> <C>
Annual Report on Form 10-K............ Year ended January 31, 1997
Quarterly Reports on Form 10-Q........ Quarter ended April 30, 1997
Current Reports on Form 8-K........... Dated February 4, 1997, February 13,
1997, February 26, 1997, March 17,
1997, May 29, 1997 and August 15, 1997
Registration Statements on Form 8-A .. Dated July 27, 1984 and August 15, 1989, setting
forth a description of the CUC Common Stock
(including any amendment or report filed for the
purpose of updating such description)
</TABLE>
<TABLE>
<CAPTION>
HFS SEC FILINGS (FILE NO. 1-11402) PERIOD
- ------------------------------------ ------------------------------------------------
<S> <C>
Annual Report on Form 10-K......... Year ended December 31, 1996 (except for items
6, 7 and 8 which are superceded by the HFS Form
8-K dated July 16, 1997)
Quarterly Reports on Form 10-Q .... Quarters ended March 31, 1997 and June 30, 1997
Current Reports on Form 8-K........ Dated February 16, 1996 (as amended by the Form
8-K/A dated March 27, 1997), April 5, 1996 (as
amended by the Form 8-K/A dated March 27, 1997),
May 8, 1996 (as amended by the Form 8-K/A dated
March 27, 1997), August 29, 1996 (as amended by
the Form 8-K/A dated December 5, 1996 and as
further amended by the Form 8-K/A dated March
27, 1997), November 15, 1996 (as amended by the
Form 8-K/A dated December 4, 1996 and as further
amended by the Form 8-K/A dated March 27, 1997),
May 14, 1997, May 28, 1997, July 15, 1997 and
July 16, 1997
</TABLE>
We incorporate by reference additional documents that CUC or HFS may file
with the SEC between the date of this Joint Proxy Statement/Prospectus and
the dates of the special meetings. These include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
CUC has supplied all information contained or incorporated by reference in
this Joint Proxy Statement/Prospectus relating to CUC, and HFS has supplied
all such information relating to HFS.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC or the SEC's Internet world wide web site described above. Documents
incorporated by reference are available from us without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this Joint Proxy Statement/Prospectus. Stockholders may obtain documents
incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate company at
the following addresses:
CUC INTERNATIONAL INC.
707 Summer Street
Stamford, Connecticut 06901
Attention: Corporate Secretary
Tel: (203) 324-9261
76
<PAGE>
HFS INCORPORATED
6 Sylvan Way
Parsippany, New Jersey 07054
Attention: Corporate Secretary
Tel: (201) 428-9700
If you would like to request documents from us, please do so by September
18, 1997 to receive them before the special meetings. If you request any
incorporated documents from us we will mail them to you by first-class mail,
or other equally prompt means, within one business day of receipt of your
request.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT THE
SPECIAL MEETINGS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY
STATEMENT/ PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED AUGUST
28, 1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE,
AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF CUC COMMON STOCK IN THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
77
<PAGE>
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section A: Unaudited pro forma combining financial statements of CUC for the Merger
as of March 31, 1997 and for the year ended December 31, 1996 and the
three-month period ended March 31, 1997................................. F-2-F-7
Section B: Unaudited pro forma financial statements of HFS excluding the Merger as
of March 31, 1997 and for the year ended December 31, 1996 ............ F-8-F-21
Section C: Unaudited historical combining financial statements of CUC for the
Merger as of March 31, 1997 and for each of the years ended December
31, 1994, 1995 and 1996 and each of the three-month periods ended
March 31, 1996 and 1997................................................. F-22-F-30
</TABLE>
F-1
<PAGE>
SECTION A
CUC INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
FOR THE MERGER
The accompanying unaudited pro forma combining financial statement gives
effect to the Merger, which will be accounted for as a pooling of interests.
In connection with the Merger, CUC intends to change its fiscal year end from
January 31 to December 31. The underlying pro forma combining balance sheet
as of March 31, 1997 and statements of income for the year ended December 31,
1996 and three-month period ended March 31, 1997 reflect the combining of the
historical financial results of CUC with the pro forma financial results of
HFS prior to the Merger. The pro forma financial results of HFS include all
of HFS's transactions prior to the Merger.
The pro forma combining financial statement reflects adjustments for the
pooling of CUC and HFS, including reclassifications to conform to the
presentation expected to be used by the merged companies and shares issued in
connection with the Merger.
The pro forma combining financial statement does not purport to present
the results of operations of (i) CUC, had the Merger occurred or (ii) HFS had
the business combinations described in Section B occurred on the dates
specified, nor are they necessarily indicative of the operating results that
may be achieved in the future.
The unaudited pro forma combining financial statement is based on certain
assumptions and adjustments described in the pro forma financial statements
of HFS excluding the Merger, as set forth in Section B herein, and should be
read in conjunction therewith and with the consolidated financial statements
and related notes thereto of CUC and HFS incorporated by reference into this
Joint Proxy Statement/Prospectus and the financial statements and related
notes thereto of certain of the acquired companies previously filed with the
SEC pursuant to Regulation S-X Rule 3.05, "Financial Statements of Business
Acquired or to be Acquired," which are incorporated by reference in this
Joint Proxy Statement/Prospectus.
TERMS OF THE MERGER
Approval of the proposed Merger by both the CUC stockholders and HFS
stockholders is a condition to the consummation of the Merger.
In the Merger, each issued and outstanding share of HFS Common Stock,
other than HFS Common Stock owned by HFS or CUC, will be converted into the
right to receive 2.4031 shares of CUC Common Stock.
F-2
<PAGE>
SECTION A
CUC INTERNATIONAL INC.
PAGE 1 OF 2
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT
--------------------------
4/30/97 3/31/97
------------ -------------
HISTORICAL PRO FORMA PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 812,164 $ 71,707 $ 883,871
Restricted cash....................... 89,849 89,849
Marketable securities................. 356,831 20,103 376,934
Receivables, net...................... 593,253 613,616 1,206,869
Other current assets.................. 239,861 234,614 474,475
------------ ------------- ------------
Total current assets................. 2,002,109 1,029,889 3,031,998
------------ ------------- ------------
Deferred membership acquisition costs . 383,418 383,418
Franchise agreements, net.............. 956,012 956,012
Excess of costs over fair value of net
assets acquired, net.................. 396,168 1,797,734 2,193,902
Other intangible assets, net........... 31,643 596,622 628,265
Other assets........................... 287,348 749,902 1,037,250
------------ ------------- ------------
3,100,686 5,130,159 8,230,845
------------ ------------- ------------
Assets under management and mortgage
programs
Net investment in leases and leased
vehicles............................. 3,484,445 3,484,445
Relocation receivables ............... 684,207 684,207
Mortgage loans held for sale.......... 1,215,422 1,215,422
Mortgage servicing rights and fees ... 244,904 244,904
5,628,978 5,628,978
------------ ------------- ------------
Total assets........................... $3,100,686 $10,759,137 $13,859,823
============ ============= ============
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and pro
forma HFS financial statements to conform to the presentation expected to
be used by the combined companies.
See notes to pro forma combining financial statements.
F-3
<PAGE>
SECTION A
CUC INTERNATIONAL INC. PAGE 2 OF 2
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT
--------------------------
4/30/97 3/31/97
------------ -------------
HISTORICAL PRO FORMA PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENTS COMPANIES
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities--accounts payable,
accrued expenses, and other current
liabilities.............................. $ 444,953 $ 1,210,438 $ 1,655,391
------------ ------------- ------------
Deferred income........................... 697,594 407,642 1,105,236
Long-term debt............................ 565,979 978,749 1,544,728
Other non-current liabilities............. 9,835 133,461 143,296
1,718,361 2,730,290 4,448,651
------------ ------------- ------------
Liabilities under management and mortgage
programs
Debt..................................... 4,952,815 4,952,815
Deferred income taxes.................... 244,800 244,800
------------ ------------- ------------
5,197,615 5,197,615
------------ ------------- ------------
Shareholders' equity
Common stock............................. 4,152 1,596 $ 2,169 (a) 7,917
Additional paid-in capital............... 676,132 2,347,708 (192,639)(a) 2,831,201
Retained earnings........................ 799,858 688,379 1,488,237
Treasury stock........................... (57,436) (190,470) 190,470 (a) (57,436)
Restricted stock, deferred compensation . (28,556) (28,556)
Foreign currency translation adjustment . (11,825) (15,981) (27,806)
------------ ------------- ------------
Total shareholders' equity............... 1,382,325 2,831,232 4,213,557
------------ ------------- -------------- ------------
Total liabilities and shareholders'
equity.................................... $3,100,686 $10,759,137 $ $13,859,823
============ ============= ============== ============
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and pro
forma HFS financial statements to conform to the presentation expected to
be used by the combined companies.
See notes to pro forma combining financial statements.
F-4
<PAGE>
SECTION A
CUC INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------
1/31/97 12/31/96
------------ ------------ PRO FORMA
HISTORICAL PRO FORMA PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net ..... $1,972,430 $1,915,999 $3,888,429
Software.............................. 375,225 375,225
Fleet leasing (net of depreciation
and interest costs of $1,132,408) ... 56,660 56,660
Other................................. 30,279 30,279
------------ ------------ ------------
Net revenues.......................... 2,347,655 2,002,938 4,350,593
------------ ------------ ------------
EXPENSES
Operating............................. 688,280 916,041 1,604,321
Marketing and reservation............. 887,852 285,954 1,173,806
General and administrative............ 266,228 73,373 339,601
Depreciation and amortization......... 58,658 164,212 222,870
Merger, and restructuring charges ... 179,945 179,945
Interest, net......................... (9,549) 42,460 32,911
Other ................................ 5,698 5,698
------------ ------------ ------------
Total expenses........................ 2,071,414 1,487,738 3,559,152
------------ ------------ ------------
Income before income taxes............ 276,241 515,200 791,441
Provision for income taxes............ 112,142 208,141 320,283
------------ ------------ ------------
Net income ........................... $ 164,099 $ 307,059 $ 471,158
============ ============ ============
PER SHARE INFORMATION (b)
Net income per share
Primary.............................. $ 0.41 $ 1.76 $ 0.57
Fully diluted........................ 0.40 1.75 0.57
Weighted average shares outstanding
Primary.............................. 405,073 177,072 248,450 830,595
Fully diluted ....................... 409,521 177,840 249,527 836,888
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and pro
forma HFS financial statements to conform to the presentation expected
to be used by the combined companies.
See notes to unaudited pro forma combining financial statements.
F-5
<PAGE>
SECTION A
CUC INTERNATIONAL INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
------------------------
4/30/97 3/31/97
------------ -----------
HISTORICAL PRO FORMA
------------ PRO FORMA PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net ..... $544,037 $491,931 $1,035,968
Software.............................. 80,634 80,634
Fleet leasing (net of depreciation
and interest costs of $286,075) ..... 15,319 15,319
Other................................. 18,635 18,635
------------ ----------- ------------
Net revenues.......................... 624,671 525,885 1,150,556
------------ ----------- ------------
EXPENSES
Operating............................. 204,105 221,799 425,904
Marketing and reservation............. 219,793 60,798 280,591
General and administrative............ 76,092 31,905 107,997
Depreciation and amortization......... 15,702 36,451 52,153
Interest, net......................... (5,055) 20,342 15,287
------------ ----------- ------------
Total expenses........................ 510,637 371,295 881,932
------------ ----------- ------------
Income before income taxes............ 114,034 154,590 268,624
Provision for income taxes............ 43,561 63,486 107,047
------------ ----------- ------------
Net income ........................... $ 70,473 $ 91,104 $ 161,577
============ =========== ============
PER SHARE INFORMATION (B)
Net income per common share
Primary and fully diluted ........... $ 0.17 $ 0.52 $ 0.19
Weighted average number of common and
dilutive common equivalent shares
outstanding
Primary.............................. 434,006 177,193 248,619 859,818
Fully diluted ....................... 437,091 177,225 248,664 862,980
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and pro
forma HFS financial statements to conform to the presentation expected
to be used by the combined companies.
See notes to unaudited pro forma combining financial statement.
F-6
<PAGE>
SECTION A
CUC INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA COMBINING
FINANCIAL STATEMENTS
(A) EQUITY
In connection with the Merger, each outstanding share of HFS Common Stock
will be converted into the right to receive 2.4031 shares of CUC Common
Stock. In addition each share of HFS Common Stock that is owned by HFS or
CUC will be cancelled and retired. The pro forma adjustment assumes that
all 156.7 million shares of HFS Common Stock outstanding at March 31,
1997 (inclusive of 30.3 million shares of HFS Common Stock issued in
connection with the merger of HFS with PHH and exclusive of 2.9 million
shares of HFS Common Stock in treasury which will be cancelled and
retired in connection with the Merger) will be converted into
approximately 376.5 million shares of CUC Common Stock in accordance with
the Exchange Ratio.
(B) PER SHARE INFORMATION
Net income per share has been computed based upon the combined weighted
average outstanding shares of CUC Common Stock and HFS Common Stock for
each period. The historical weighted average number of equivalent
outstanding shares of HFS Common Stock for each period has been adjusted
to reflect the Exchange Ratio of 2.4031 shares of CUC Common Stock for
each share of HFS Common Stock.
CUC/HFS MERGER COSTS
It is expected that CUC will incur pre-tax transaction costs associated
with the Merger which are expected to range from $600 million to $650
million, of which approximately $125 million will be lump sum payments.
These costs associated with the Merger are being established by the
combined management. In determining the amount of the reserve for these
costs, management is considering the costs relating to facility and
systems consolidations, the costs associated with exiting certain
activities and the costs associated with implementing the combined
business strategy.
F-7
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF HFS
EXCLUDING THE MERGER
The accompanying unaudited pro forma financial statements give effect to
the business combination of HFS and PHH which was accounted for as a pooling
of interests (the "PHH Merger"). Accordingly, the underlying historical HFS
consolidated balance sheet as of March 31, 1997 and the historical
consolidated statement of income for the year ended December 31, 1996,
reflect the combining of the historical financial results of PHH with the
historical financial results of HFS.
The pro forma balance sheet includes a one-time restructuring charge
incurred in connection with the PHH Merger for severance, facility
consolidation and other transaction related costs. Such charge of $303
million ($227 million, after tax), is reflected as a pro forma adjustment to
reduce stockholders' equity.
The pro forma statement of income for the year ended December 31, 1996 is
presented as if the following transactions had occurred on January 1, 1996:
(i) the acquisition of Avis, Inc. ("Avis") and the November 1996 issuance of
HFS Common Stock (the "Avis Offering") as partial consideration for Avis;
(ii) the acquisition of Resort Condominiums International, Inc. and its
affiliates ("RCI") and the issuance of HFS common stock as partial
consideration for RCI; (iii) the May 31, 1996 acquisition of the common stock
of Coldwell Banker and the related contribution of Coldwell Banker's owned
real estate brokerage offices (the "Owned Brokerage Business") to a newly
created independent trust (the "Trust") (the "Coldwell Banker Transaction");
(iv) the receipt of proceeds from an offering of HFS' common stock (the
"Second Quarter 1996 Offering") to the extent necessary to fund (a) the
acquisition of Coldwell Banker and the related repayment of indebtedness and
acquisition expenses and (b) the cash consideration portion in the Avis
acquisition; (v) the acquisitions of: the six non-owned Century 21 NORS
during the second quarter of 1996, Travelodge on January 23, 1996 and ERA on
February 12, 1996 (collectively, the "Other 1996 Acquisitions"); and (vi) the
February 22, 1996 issuance of $240 million of 4 3/4% Convertible Senior Notes
Due 2003 to the extent such proceeds were used to finance the Other 1996
Acquisitions.
HFS intends to undertake an initial public offering of a majority interest
in the corporation which owns all company-owned Avis car rental locations
("ARAC") in 1997, the proceeds of which will be used to pay down outstanding
indebtedness of ARAC and for general corporate purposes, including possible
acquisitions. HFS expects to enter into franchise, information technology and
other agreements to provide services to ARAC based on terms to be determined.
All of HFS's aforementioned acquisitions have been accounted for using the
purchase method of accounting. Accordingly, assets acquired and liabilities
assumed have been recorded at their estimated fair values which are subject
to further refinement, including appraisals and other analyses, with
appropriate recognition given to the effect of current interest rates and
income taxes. Management does not expect that the final allocation of the
purchase price for the above acquisitions will differ materially from the
preliminary allocations. HFS has entered into certain immaterial transactions
which are not reflected in the pro forma statement of income.
The pro forma financial statements do not purport to present the financial
position or results of operations of HFS had the transactions and events
assumed therein occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future.
The pro forma statement of income does not reflect cost savings and revenue
enhancements that management believes have been and may continue to be
realized following the acquisitions. These cost savings have been and are
expected to be realized primarily through the restructuring of operations as
well as revenue enhancements expected to be realized through leveraging of
HFS's preferred alliance programs. No assurances can be made as to the amount
of cost savings or revenue enhancements, if any, that actually will be
realized.
The pro forma financial statements are based on certain assumptions and
adjustments described in the Notes to Pro Forma Financial Statements and
should be read in conjunction therewith and with the consolidated financial
statements and related notes thereto of HFS incorporated by reference into
this Joint Proxy Statement/Prospectus and the financial statements and
related notes of the acquired companies previously filed with the SEC
pursuant to Regulation S-X Rule 3-05, "Financial Statements of Businesses
Acquired or to be Acquired" which are incorporated by reference in this Joint
Proxy Statement/Prospectus.
F-8
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES PAGE 1 OF 2
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
HFS ADJUSTMENTS HFS
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 71,707 $ 71,707
Restricted cash............................. 89,849 89,849
Other accounts and notes receivable, net ... 620,416 $ (6,800)(a) 613,616
Deferred income taxes, net.................. 74,279 64,000 (b) 138,279
Other current assets........................ 116,438 116,438
------------- ------------- ------------
TOTAL CURRENT ASSETS.......................... 972,689 57,200 1,029,889
------------- ------------- ------------
Property and equipment, net.................. 329,690 (6,500)(a) 323,190
Franchise agreements, net.................... 956,012 956,012
Excess of cost over fair value
of net assets acquired, net................. 1,820,234 (22,500)(a) 1,797,734
Other intangible assets--net................. 596,622 596,622
Investment in car rental operations
of Avis Inc., net........................... 78,019 78,019
Other assets................................. 355,993 (7,300)(a) 348,693
------------- ------------- ------------
5,109,259 20,900 5,130,159
------------- ------------- ------------
ASSETS UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Net investment in leases and leased
vehicles................................... 3,484,445 3,484,445
Relocation receivables...................... 684,207 684,207
Mortgage loans held for sale................ 1,215,422 1,215,422
Mortgage servicing rights and fees ......... 244,904 244,904
------------- ------------
5,628,978 5,628,978
------------- ------------
Total assets.................................. $10,738,237 $ 20,900 $10,759,137
============= ============= ============
</TABLE>
- ------------
Note: Certain reclassifications have been made to the historical HFS
consolidated balance sheet to conform to HFS's pro forma
classification.
See notes to unaudited pro forma financial statements.
F-9
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES PAGE 2 OF 2
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
HFS ADJUSTMENTS HFS
------------- -------------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other accrued expenses .... $ 741,177 $ 741,177
Income taxes payable............................ 40,547 40,547
Accrued acquisition obligations................. $ 229,900 (c) 229,900
Due to car rental operations of Avis Inc., net . 45,615 45,615
Short-term debt................................. 150,000 150,000
Current portion of long-term debt............... 3,199 3,199
------------- -------------- ------------
TOTAL CURRENT LIABILITIES......................... 980,538 229,900 1,210,438
------------- -------------- ------------
Long-term debt................................... 978,749 978,749
Deferred income.................................. 407,642 407,642
Other non-current liabilities.................... 36,533 30,000 (c) 66,533
Deferred income taxes............................ 78,928 (12,000)(b) 66,928
------------- -------------- ------------
2,482,390 247,900 2,730,290
LIABILITIES UNDER MANAGEMENT AND MORTGAGE
PROGRAMS
Debt............................................. 4,952,815 4,952,815
Deferred income taxes............................ 244,800 244,800
------------- ------------
5,197,615 5,197,615
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, issued; 159,612 shares ............ 1,596 1,596
Additional paid-in capital ...................... 2,347,708 2,347,708
Retained earnings ............................... 915,379 (227,000)(d) 688,379
Treasury stock................................... (190,470) (190,470)
Foreign currency equity adjustment .............. (15,981) (15,981)
------------- -------------- ------------
TOTAL STOCKHOLDERS' EQUITY........................ 3,058,232 (227,000) 2,831,232
------------- -------------- ------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY......................... $10,738,237 $ 20,900 $10,759,137
============= ============== ============
</TABLE>
- ------------
Note: Certain reclassifications have been made to the historical HFS
consolidated balance sheet to conform to HFS's pro forma
classification.
See notes to unaudited pro forma financial statements.
F-10
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
ACQUIRED PRO FORMA
HFS COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
NET REVENUES
Service fees, net ..................... $1,340,534 $623,159 $ 11,835 (e) $1,915,999
(235,625)(f)
176,096 (h)
Fleet leasing (net of depreciation
and interest costs of $1,132,408) ... 56,660 56,660
Other.................................. 40,717 5,718 46,435
Equity in earnings (loss) of Avis Inc.
car rental operations................. 2,261 (18,417)(h) (16,156)
------------ ----------- -------------- ------------
Net revenues............................ 1,440,172 628,877 (66,111) 2,002,938
------------ ----------- -------------- ------------
EXPENSES
Operating.............................. 660,079 479,075 79,886 (h) 916,041
(75,636)(i)
(227,363)(j)
Marketing and reservation.............. 157,347 128,607 285,954
General and administrative............. 73,373 73,373
Depreciation and amortization.......... 97,811 40,884 25,517 (k) 164,212
Interest, net.......................... 19,695 (17,728) 11,718 (l) 42,460
6,000 (h)
22,775 (g)
Other.................................. 6,114 (416)(m) 5,698
------------ ----------- -------------- ------------
Total expenses.......................... 1,008,305 636,952 (157,519) 1,487,738
------------ ----------- -------------- ------------
Income (loss) before income taxes ...... 431,867 (8,075) 91,408 515,200
Provision (benefit) for income taxes ... 174,626 (6,689) 40,204(n) 208,141
------------ ----------- -------------- ------------
Net income (loss)....................... $ 257,241 $ (1,386) $ 51,204 $ 307,059
============ =========== ============== ============
PER SHARE INFORMATION (PRIMARY)
Net income ............................ $ 1.59 $ 1.76
============ ============
Weighted average shares outstanding .. 164,378 12,694(o) 177,072
============ ============== ============
PER SHARE INFORMATION (FULLY DILUTED)
Net income ............................ $ 1.58 $ 1.75
============ ============
Weighted average shares outstanding . 165,146 12,694(o) 177,840
============ ============== ============
</TABLE>
- ------------
Note: Certain reclassifications have been made to the historical results
of HFS and acquired companies to conform to HFS's pro forma
classification.
See notes to unaudited pro forma financial statements.
F-11
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL (1)
---------------------------------------------------
AVIS, (2) COLDWELL OTHER 1996 TOTAL
AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL
------------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Service fees ........................ $32,335 $284,996 $295,478 $10,350 $623,159
Other ............................... 4,067 1,651 5,718
------------- ---------- ----------- -------------- ------------
Net revenues ....................... 32,335 284,996 299,545 12,001 628,877
------------- ---------- ----------- -------------- ------------
EXPENSES
Operating ........................... 25,379 130,113 312,348 11,235 479,075
Marketing and reservation............ 128,607 128,607
Depreciation and amortization ...... 15,345 16,097 9,021 421 40,884
Interest, net ....................... (22,376) 3,155 1,493 (17,728)
Other ............................... 4,838 512 764 6,114
------------- ---------- ----------- -------------- ------------
Total expenses ..................... 40,724 257,279 325,036 13,913 636,952
------------- ---------- ----------- -------------- ------------
Income (loss) before income taxes ... (8,389) 27,717 (25,491) (1,912) (8,075)
Provision (benefit) for income taxes 99 3,644 (10,432) (6,689)
------------- ---------- ----------- -------------- ------------
Net income (loss) .................... $(8,488) $ 24,073 $(15,059) $(1,912) $ (1,386)
============= ========== =========== ============== ============
</TABLE>
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
(2) The historical consolidated statement of operations of Avis, as
adjusted, has been adjusted to present only the historical operating
results intended to be retained by HFS.
Note: Certain reclassifications have been made to the historical results of
acquired companies to conform to HFS's pro forma classification.
See notes to unaudited pro forma financial statements.
F-12
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF OTHER 1996 ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CENTURY 21
NORS (1) TRAVELODGE (1) ERA (1) TOTAL
------------ -------------- ---------- ---------
<S> <C> <C> <C> <C>
NET REVENUES
Service fees ..................... $6,668 $688 $ 2,994 $10,350
Other ............................ 449 1,202 1,651
------------ -------------- ---------- ---------
Net revenues .................... 7,117 688 4,196 12,001
------------ -------------- ---------- ---------
EXPENSES
Operating......................... 7,566 552 3,117 11,235
Depreciation and amortization ... 285 136 421
Interest, net .................... 2 1,491 1,493
Other............................. 764 764
------------ -------------- ---------- ---------
Total expenses .................. 7,853 552 5,508 13,913
------------ -------------- ---------- ---------
Income (loss) before income taxes (736) 136 (1,312) (1,912)
Provision for income taxes ........
------------ -------------- ---------- ---------
Net income (loss) ................. $ (736) $136 $(1,312) $(1,912)
============ ============== ========== =========
</TABLE>
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
Note: Certain reclassifications have been made to the historical results
of acquired companies to conform to HFS's pro forma classification.
See notes to unaudited pro forma financial statements.
F-13
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
A. HFS/PHH MERGER COSTS AND RESTRUCTURING--ASSET ADJUSTMENTS
The pro forma adjustment reflects the write-down of $43.1 million of
assets principally as a result of exiting certain activities in connection
with the merger of HFS with PHH.
B. HFS/PHH MERGER COSTS AND RESTRUCTURING--DEFERRED INCOME TAXES
The pro forma adjustment reflects the recording of deferred income taxes
associated with the charge reflecting estimated restructuring and transaction
costs to be incurred in connection with the merger of HFS with PHH.
C. HFS/PHH MERGER COSTS AND RESTRUCTURING--ACCRUED LIABILITIES
The pro forma adjustment reflects estimated restructuring and transaction
costs to be incurred in connection with the merger of HFS with PHH, including
the planned involuntary terminations of employees, facility and system
consolidations and terminations, costs associated with exiting certain
activities and merger related professional fees.
D. HFS/PHH MERGER COSTS AND RESTRUCTURING--STOCKHOLDERS' EQUITY
The pro forma adjustment reflects a one-time charge of $303 million ($227
million after tax) for estimated restructuring and transaction costs to be
incurred in connection with the merger of HFS with PHH.
E. SERVICE FEE REVENUE:
The pro forma adjustment reflects the elimination of franchise revenue
paid by the Century 21 NORS to Century 21 under sub-franchise agreements
(offset against operating expense--see Note f) and the addition of franchise
fees to be received under franchise contracts with owned brokerage offices
upon contribution of the Owned Brokerage Business to the Trust. Pro forma
adjustments to service fee revenue consist of the following ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Eliminate:
Century 21 revenue included as Century 21 NORS operating expense $(1,003)
Add:
Franchise fees from Owned Brokerage Business..................... 12,838
------------------
Total........................................................... $11,835
==================
</TABLE>
The Franchise fees from the Owned Brokerage Business, which are based on
the franchise contracts with the Trust, are calculated at approximately 5.7%
of gross commissions earned by the Owned Brokerage Business on sales of real
estate properties.
F. OWNED BROKERAGE BUSINESS REVENUE:
The pro forma adjustment reflects the elimination of revenue generated
from Coldwell Banker's 318 formerly owned brokerage offices. HFS contributed
the net assets of the Owned Brokerage Business to the Trust upon consummation
of the Coldwell Banker acquisition. The free cash flow of the Trust is
expended at the discretion of the trustees to enhance the growth of funds
available for advertising and promotion.
F-14
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
G. OTHER REVENUE:
The pro forma adjustment reflects the elimination of revenue associated
with investment income generated from RCI cash and marketable securities
which were distributed in the form of a dividend to the former shareholder of
RCI prior to consummation of the RCI acquisition.
H. CAR RENTAL OPERATING COMPANY OPERATIONS:
At the time HFS acquired Avis, it had developed and announced a plan (the
"Plan") to do the following:
1. Retain certain assets acquired, including the reservation system,
franchise agreements, trademarks and tradenames and certain
liabilities.
2. Segregate the assets used in the car rental operations in ARAC and to
dispose of approximately 75% of ARAC within one year through an initial
public offering ("IPO") thereby diluting HFS' interest to 25%. All of
the proceeds from the IPO will be retained by the ARAC.
3. Enter into a license agreement with ARAC licencing its use of the
trademarks and tradename under which HFS is to provide other franchise
services.
HFS' investment in ARAC at the date of acquisition was $75 million which
represented the estimated value of its 100% interest in ARAC at such date
ARAC is accounted for under the equity method since HFS' control is temporary
based on the planned IPO of ARAC. If the IPO is not consummated within one
year of HFS' acquisition of Avis, HFS will consolidate ARAC. Upon completion
of the IPO, the value of ARAC is expected to increase to $300 million (with
the $225 million of estimated IPO proceeds retained by ARAC) with HFS'
interest at 25% equal to $75 million, its current investment balance. If the
results of the IPO do not confirm the preliminary purchase price allocation
for the investment in ARAC, then such investment will be adjusted with a
corresponding adjustment to excess of cost over fair value of net assets
acquired.
F-15
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
H. CAR RENTAL OPERATING COMPANY OPERATIONS: (Continued)
The pro forma adjustments are comprised of the following ($000's):
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY FOR THE PERIOD OCTOBER
1, 1996 17, 1996
THROUGH OCTOBER 16, THROUGH DECEMBER 31,
1996 1996 TOTAL
---------------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Historical income before taxes from ARAC car
rental operations................................. $ 69,799 --
ADJUSTMENTS TO ARAC:
ELIMINATION OF HISTORICAL EXPENSE ASSOCIATED
WITH:
Reservation and information technology services
(HFS Expense)(i)................................ $ 63,594 $ 16,292 $ 79,886
============
Depreciation and amortization.................... 27,425 --
ADDITION OF PRO FORMA EXPENSES ASSOCIATED WITH:
Depreciation and amortization (ii)............... (14,504) --
Increased financing costs (iii).................. (803) 75,712 -- $ 16,292
---------- ----------
HFS SERVICE FEE ADJUSTMENTS:
Reservation and information technology services
(i)............................................ (63,594) (16,292)
Service fees from franchised locations (iv) .... (15,562) (4,289)
Royalty payment from Avis Inc. to HFS (v) ...... (61,505) (140,661) (14,854) (35,435) $(176,096)
---------- ----------- ---------- ----------- ============
Adjusted income (loss) before taxes from ARAC .... 4,850 (19,143)
Provision for income taxes........................ 1,945 --
----------- -----------
Adjusted net income (loss) from ARAC ............. 2,905 (19,143)
HFS ownership percentage........................... 25% 100%
----------- -----------
HFS's equity in earnings (loss) of Avis Inc.'s car
rental operations................................. $ 726 $(19,143) $ (18,417)
=========== =========== ============
OTHER REVENUE ADJUSTMENT:
Elimination of historical interest income related
to cash consideration portion of Avis
acquisition (vi)................................. $ 6,000 -- $ 6,000
=========== =========== ============
</TABLE>
- ------------
(i) Subsequent to the IPO, HFS will retain and operate the
telecommunications and computer processing system which services ARAC
for reservations, rental agreement processing, accounting and fleet
control. The historical financial statements of Avis, as adjusted,
reflect the costs incurred in connection with providing reservation
and information technology services under a pre-existing agreement
and the corresponding revenue recorded as a result of an intercompany
charge at cost for such services rendered to ARAC. The pro forma
adjustment reflects a planned contractual agreement with ARAC, under
which HFS will charge ARAC at cost for reservation and information
technology services provided.
(ii) The estimated fair value of Avis property and equipment intended to
be retained by ARAC is $101.0 million, comprised primarily of
furniture, fixtures, and leasehold improvements, which is amortized
on a straight-line basis over the estimated useful lives, which
average seven years. Excess of cost over fair value of net assets
acquired by ARAC is valued at $154.0 million and is amortized on a
straight line basis over a benefit period of 40 years.
(iii) In connection with the acquisition of Avis, approximately $1 billion
of tax-advantaged debt was repaid and replaced by a similar amount of
non tax-advantaged debt. This resulted in an increase in interest
rates, due to the loss of tax benefits from the Employee Stock
Ownership Plan ("ESOP") financing which were passed through from
various lenders to Avis ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Eliminate former
facilities ............... $(127,018)
Add current facilities ... 127,821
------------------
Increased financing cost . $ 803
==================
</TABLE>
F-16
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
H. CAR RENTAL OPERATING COMPANY OPERATIONS: (Continued)
(iv) Reflects historical franchise fee revenue from third parties.
(v) In connection with HFS's plan to dispose of approximately 75% of
ARAC, HFS will enter into a franchise agreement with ARAC for ARAC's
use of the Avis trademarks and tradename. The royalty payment to be
made to HFS from ARAC for use of the Avis trademarks and tradename is
calculated at 4.0% of the revenues generated by ARAC which is the net
royalty percentage HFS expects to receive pursuant to the franchise
agreement. Such payments are calculated as follows ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
<S> <C>
Revenues generated by
ARAC...................... $1,908,985
Royalty percentage......... 4.0%
------------------
Royalty payment to HFS .... $ 76,359
==================
</TABLE>
(vi) The pro forma adjustment eliminates historical interest income on the
portion of cash generated from the Second Quarter 1996 Offering which
was used to finance the Avis acquisition.
I. OPERATING EXPENSE:
The pro forma adjustments reflects the elimination of; (i) royalty
payments made by the Century 21 NORS to Century 21 under subfranchise
agreements (offset against service fee revenue--See Note b); (ii) the payment
of Coldwell Banker stock options as a result of change in control provisions
in connection with the acquisition of Coldwell Banker by HFS and; (iii) a
one-time bonus payment paid to RCI employees by the former shareholder of RCI
pursuant to the stock purchase agreement in connection with the acquisition
of RCI by HFS ($000's).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Franchise fees ....... $ 1,003
Stock option expense 40,801
Bonus payment......... 33,832
------------------
Total................ $75,636
==================
</TABLE>
J. OPERATING EXPENSE:
The pro forma adjustment reflects the elimination of expenses associated
with Coldwell Banker's formerly owned brokerage offices (See Note c). The
majority of Owned Brokerage Business expenses are directly attributable to
the business. Based on HFS's due diligence of Coldwell Banker the Company
determined that common expenses were allocated to the owned brokerage
business based on a reasonable allocation method. Such allocations were based
on the ratio of number of employees, the amount of space occupied and revenue
generated by the Owned Brokerage Business relative to Coldwell Banker in the
aggregate and multiplied by corresponding common costs as appropriate to
determine allocable expenses.
F-17
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
K. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment for depreciation and amortization is comprised of
($000's):
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
COLDWELL OTHER 1996
RCI AVIS BANKER ACQUISITIONS TOTAL
----------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Elimination of historical
expense.................. $(16,097) $(15,345) $(9,021) $ (421) $(40,884)
Property, equipment and
furniture and fixtures .. 6,686 4,924 482 -- 12,092
Intangible assets......... 20,114 24,658 8,495 1,042 54,309
----------- ----------- ---------- -------------- -----------
Total.................... $ 10,703 $ 14,237 $ (44) $ 621 $ 25,517
=========== =========== ========== ============== ===========
</TABLE>
RCI
The fair value of RCI's property and equipment is estimated at
approximately $55.7 million and is amortized on a straight-line basis over
the estimated useful lives, ranging from seven to thirty years.
RCI's intangible assets consist of customer lists and excess of cost over
fair value of net assets acquired. Estimated fair value of RCI's customer
lists are approximately $100 million and are amortized on a straight-line
basis over the period to be benefited which is 10 years. The fair value
ascribed to customer lists is determined based on the historical renewal
rates of RCI members. The excess of cost over fair value of net assets
acquired is estimated at approximately $477.7 million and is determined to
have a benefit period of forty years, which is based on RCI being a leading
provider of services to the timeshare industry, which includes being the
world's largest provider of timeshare exchange programs.
Avis
The estimated fair value of Avis' property and equipment retained by HFS
is $96.0 million, comprised primarily of reservation equipment and related
assets and to the Avis Headquarters office. Such property and equipment is
amortized on a straight-line basis over the estimated benefit periods ranging
from 5 to 30 years. Avis's intangible assets recorded by HFS (not applicable
to ARAC) are comprised of the Avis trademark, a reservation system and
customer data base, and excess of cost over fair value of net assets
acquired. The estimated fair value of the Avis trademark is approximately
$400 million and is amortized on a straight-line basis over a benefit period
of 40 years. The estimated fair value of the reservation system and customer
data base are approximately $95.0 million and $14.0 million, respectively and
are amortized on a straight line basis over the periods to be benefited which
are 10 years and 6.5 years, respectively.
The excess of cost over fair value of net assets acquired applicable to
the allocated portion of the business to be retained by HFS is estimated at
approximately $317.6 million and is determined to have a benefit period of 40
years, which is based on Avis' position as the second largest car rental
system in the world, the recognition of its brand name in the car rental
industry and the longevity of the car rental business.
Coldwell Banker
The estimated fair value of Coldwell Banker's property and equipment
(excluding land) of $15.7 million, is amortized on a straight-line basis over
the estimated benefit periods ranging from five to 25 years. Coldwell
Banker's intangible assets are comprised of franchise agreements and excess
of cost over fair value of net assets acquired. The franchise agreements with
the brokerage offices comprising the Trust
F-18
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
K. DEPRECIATION AND AMORTIZATION: (Continued)
are valued independently of all other franchise agreements with Coldwell
Banker affiliates. Franchise agreements within the Trust and independent of
the Trust are valued at $218.5 million and $218.7 million, respectively, and
are amortized on a straight line basis over the respective benefit periods of
40 years and 35 years, respectively. The benefit period associated with Trust
franchise agreements was based upon a long history of gross commission
sustained by the Trust. The benefit period associated with the Coldwell
Banker affiliates' franchise agreements was based upon the historical
profitability of such agreements and historical renewal rates. The excess of
cost over fair value of net assets acquired is estimated at approximately
$347.0 million and is determined to have a benefit period of 40 years, which
is based on Coldwell Banker's position as the largest gross revenue producing
real estate company in North America, the recognition of its brand name in
the real estate brokerage industry and the longevity of the real estate
brokerage business.
Other 1996 Acquisitions
The estimated fair values of Other 1996 Acquisitions franchise agreements
aggregate $61.0 million and are being amortized on a straight-line basis over
the periods to be benefited, which range from twelve to thirty years. The
estimated fair values of Other Acquisitions excess of cost over fair value of
net assets acquired aggregate $187.4 million and are each being amortized on
a straight-line basis over the periods to be benefited, which are 40 years.
L. INTEREST EXPENSE:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Elimination of historical interest expense of
($000's):
Other 1996 Acquisitions............................... $(1,493)
RCI................................................... (399)
Reversal of Coldwell Banker............................ (3,155)
RCI.................................................... 15,495
4 3/4% Notes to finance Other 1996 Acquisitions ....... 1,270
------------------
Total................................................ $11,718
==================
</TABLE>
Coldwell Banker
The pro forma adjustment reflects the reversal of historical interest
expense relating to the following ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Expense associated with the Owned Brokerage Business (i) ..................... $ (179)
Expense associated with revolving credit facility borrowings which were
repaid with proceeds from offering (ii)...................................... 3,334
------------------
Total........................................................................ $3,155
==================
</TABLE>
(i) HFS paid substantially all outstanding debt of Coldwell Banker at the
consummation date of the acquisition. Therefore, a determination as
to the reasonableness of allocated Coldwell Banker interest to the
Owned Brokerage Business is unnecessary.
(ii) At the date of acquisition, HFS repaid $105 million of Coldwell
Banker indebtedness which represented borrowings under a revolving
credit facility at a variable rate of interest (LIBOR plus a margin
ranging from .5% to 1.25%).
F-19
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
L. INTEREST EXPENSE: (Continued)
RCI
The pro forma adjustment reflects the recording of interest expense on
$285 million of borrowings under HFS's revolving credit facilities at an
interest rate of 6.3% which is the variable rate in effect on the date of
borrowing. Borrowings represent the amount used as partial consideration in
the RCI acquisition.
4 3/4% Notes
The pro forma adjustment reflects interest expense and amortization of
deferred financing costs related to the February 22, 1996 issuance of the 4
3/4% Notes (5.0% effective interest rate) to the extent that such proceeds
were used to finance the acquisitions of ERA ($36.8 million), Travelodge
($39.3 million), and the Century 21 NORS ($95.0 million).
Effect of a 1/8% variance in variable interest rates
As mentioned above, interest expense was incurred on borrowings under the
HFS's revolving credit facility which partially funded the acquisition of
RCI. HFS recorded interest expense using the variable interest rate in effect
on the respective borrowing dates. The effect on pro forma net income
assuming a 1/8% variance in the variable interest rate used to calculate
interest expense is immaterial.
M. OTHER EXPENSES:
The pro forma adjustment eliminates charitable contributions made by the
former stockholder of RCI.
N. INCOME TAXES:
The pro forma adjustment to income taxes is comprised of ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1996
------------------
<S> <C>
Reversal of historical (provision) benefit of:
HFS........................................... $(174,626)
RCI........................................... (3,644)
Avis.......................................... (99)
Coldwell Banker............................... 10,432
Pro forma provision............................ 208,141
------------------
Total........................................ $ 40,204
==================
</TABLE>
The pro forma provisions for taxes were computed using pro forma pre-tax
amounts and the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
F-20
<PAGE>
SECTION B
HFS INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
O. WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
The pro forma adjustment to weighted average shares consists of the
following (000's):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES
ISSUANCE FOR THE YEAR ENDED
PRICE PER DECEMBER 31,
SHARE 1996
----------- ------------------
<S> <C> <C>
Avis Offering (1)................................... $74.06 3,621
RCI (2) ............................................ $75.00 863
Second Quarter 1996 Offering--Coldwell Banker (3) . $59.99 5,350
Second Quarter 1996 Offering--Avis (4) ............. $59.99 2,550
Century 21 NORS (5) ................................ $49.83 310
------------------
Total.............................................. 12,694
==================
</TABLE>
(1) Date of acquisition, October 17, 1996
(2) Date of acquisition, November 12, 1996
(3) Date of acquisition, May 31, 1996
(4) Date of acquisition, October 17, 1996
(5) Date of acquisition, April 3, 1996
The unaudited Pro Forma Statement of Income of HFS for the year ended
December 31, 1996 is presented as if the acquisitions took place at the
beginning of the period thus, the stock issuances referred to above are
considered outstanding as of the beginning of the period for purposes of per
share calculations.
F-21
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING FINANCIAL STATEMENTS FOR THE MERGER
The following unaudited historical combining balance sheet at March 31,
1997 and the unaudited historical combining statements of income for the
three-month periods ended March 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1996, give effect to the proposed
Merger pursuant to which each outstanding share of HFS Common Stock will be
converted at the Effective Time into the right to receive 2.4031 shares of
CUC Common Stock as if the Merger had occurred on March 31, 1997. The pro
forma information gives effect to the Merger under the pooling of interests
method and to the adjustments described in the accompanying notes to the
unaudited historical combining financial statements. In connection with the
Merger, CUC intends to change its fiscal year end from January 31 to December
31.
The unaudited historical combining financial statements may not be
indicative of the results that would have occurred if the Merger had been
consummated as of the date indicated or the operating results which may be
obtained by the combined entity in the future. The unaudited historical
combining financial statements should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
information of CUC and HFS included elsewhere herein, or incorporated by
reference into, this Joint Proxy Statement/Prospectus.
F-22
<PAGE>
SECTION C
CUC INTERNATIONAL INC. PAGE 1 OF 2
UNAUDITED HISTORICAL COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT PRO FORMA ADJUSTMENTS
-------------------------- ----------------------
4/30/97 3/31/97
------------ ------------- HFS/PHH CUC/HFS COMBINED
CUC(1) HFS(1) MERGER MERGER COMPANIES
------------ ------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .......... $ 812,164 $ 71,707 $ 883,871
Restricted cash .................... 89,849 89,849
Marketable securities .............. 356,831 20,103 376,934
Receivables, net ................... 593,253 620,416 $ (6,800)(a) 1,206,869
Other current assets ............... 239,861 170,614 64,000 (b) 474,475
------------ ------------- ------------- ------------
Total current assets ................. 2,002,109 972,689 57,200 3,031,998
------------ ------------- ------------- ------------
Deferred membership acquisition
costs............................... 383,418 383,418
Franchise agreements, net ........... 956,012 956,012
Excess of cost over fair value of
net assets acquired, net ........... 396,168 1,820,234 (22,500)(a) 2,193,902
Other intangible assets, net ....... 31,643 596,622 628,265
Other assets ........................ 287,348 763,702 (13,800)(a) 1,037,250
------------ ------------- ------------- ------------
3,100,686 5,109,259 20,900 8,230,845
------------ ------------- ------------- ------------
Assets under management and mortgage
programs
Net investment in leases and leased
vehicles ........................... 3,484,445 3,484,445
Relocation receivables .............. 684,207 684,207
Mortgage loans held for sale ....... 1,215,422 1,215,422
Mortgage servicing rights and fees . 244,904 244,904
------------- --------
5,628,978 5,628,978
------------- ------------
Total assets ......................... $3,100,686 $10,738,237 $ 20,900 $13,859,823
============ ============= ============= ============
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-23
<PAGE>
SECTION C
CUC INTERNATIONAL INC. PAGE 2 OF 2
UNAUDITED HISTORICAL COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT PRO FORMA ADJUSTMENTS
-------------------------- ----------------------
4/30/97 3/31/97
------------ ------------- HFS/PHH CUC/HFS COMBINED
CUC(1) HFS(1) MERGER MERGER COMPANIES
------------ ------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities--accounts
payable, accrued expenses and
other current liabilities ......... $ 444,953 $ 980,538 $ 229,900 (c) $ 1,655,391
------------ ------------- -------------- ------------
Deferred income .................... 697,594 407,642 1,105,236
Long-term debt ..................... 565,979 978,749 1,544,728
Other noncurrent liabilities ...... 9,835 36,533 30,000 (c) 76,368
------------ ------------- -------------- ------------
Deferred income taxes................ -- 78,928 (12,000)(b) 66,928
1,718,361 2,482,390 247,900 4,448,651
------------ ------------- -------------- ------------
Liabilities under management and
mortgage programs
Debt ............................... 4,952,815 4,952,815
Deferred income taxes .............. 244,800 244,800
------------- ------------
5,197,615 5,197,615
------------- ------------
SHAREHOLDERS' EQUITY
Common stock ....................... 4,152 1,596 $ 2,169 (e) 7,917
Additional paid-in capital ......... 676,132 2,347,708 (192,639)(e) 2,831,201
Retained earnings .................. 799,858 915,379 (227,000)(d) 1,488,237
Treasury stock ..................... (57,436) (190,470) 190,470 (e) (57,436)
Restricted stock, deferred
compensation ...................... (28,556) (28,556)
Foreign currency translation
adjustment ........................ (11,825) (15,981) (27,806)
------------ ------------- -------------- -------------- ------------
Total shareholders' equity .......... 1,382,325 3,058,232 (227,000) 4,213,557
------------ ------------- -------------- -------------- ------------
Total liabilities and shareholders'
equity ............................. $3,100,686 $10,738,237 $ 20,900 $13,859,823
============ ============= ============== ============== ============
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-24
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------
1/31/95 12/31/94
------------ ---------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net ........ $1,363,561 $815,423 $2,178,984
Software.................................. 191,050 191,050
Fleet leasing (net of depreciation and
interest costs of $976,244) ............. 47,860 47,860
Other..................................... 28,837 28,837
---------- ------------
Net revenues.............................. 1,554,611 892,120 2,446,731
------------ ---------- ------------
EXPENSES
Operating................................. 463,370 458,462 921,832
Marketing and reservation................. 618,330 124,603 742,933
General and administrative................ 190,303 29,452 219,755
Depreciation and amortization............. 43,463 53,712 97,175
Costs related to Ideon products abandoned
and restructuring........................ 7,900 7,900
Interest, net............................. (7,937) 18,490 10,553
Other..................................... (17,749) (17,749)
------------ ---------- ------------
Total expenses............................ 1,297,680 684,719 1,982,399
------------ ---------- ------------
Income before income taxes................ 256,931 207,401 464,332
Provision for income taxes................ 94,874 84,868 179,742
------------ ---------- ------------
Net income before cumulative effect of
accounting change for income taxes ...... 162,057 122,533 284,590
Cumulative effect of accounting change
for income taxes......................... 2,000 2,000
------------ ---------- ------------
Net income ............................... $ 164,057 $122,533 $ 286,590
============ ========== ============
PER SHARE INFORMATION (F)
Net income per share
Primary ................................. $ 0.43 $ 0.95 $ 0.42
Fully diluted ........................... $ 0.43 $ 0.95 $ 0.41
Weighted average shares outstanding
Primary ................................. 379,261 129,535 181,751 690,547
Fully diluted............................ 390,856 129,563 181,790 702,209
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-25
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------
1/31/96 12/31/95
------------ ---------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net ....... $1,643,242 $ 962,954 $2,606,196
Software................................. 291,990 291,990
Fleet leasing (net of depreciation and
interest costs of $1,088,993) .......... 52,079 52,079
Other.................................... 41,857 41,857
----------- ------------
Net revenues............................. 1,935,232 1,056,890 2,992,122
------------ ----------- ------------
EXPENSES
Operating................................ 582,357 528,571 1,110,928
Marketing and reservation................ 737,440 137,715 875,155
General and administrative............... 243,043 36,457 279,500
Depreciation and amortization............ 49,736 63,178 112,914
Costs related to Ideon products
abandoned and restructuring............. 97,029 97,029
Interest, net............................ (9,685) 22,949 13,264
------------ ----------- ------------
Total expenses........................... 1,699,920 788,870 2,488,790
------------ ----------- ------------
Income before income taxes............... 235,312 268,020 503,332
Provision for income taxes............... 90,337 110,170 200,507
------------ ----------- ------------
Net income .............................. $ 144,975 $ 157,850 $ 302,825
============ =========== ============
PER SHARE INFORMATION (F)
Net income per share
Primary................................. $ 0.37 $ 1.14 $ 0.42
Fully diluted........................... $ 0.37 $ 1.12 $ 0.41
Weighted average shares outstanding
Primary................................. 392,208 142,490 199,927 734,625
Fully diluted........................... 401,483 144,489 202,733 748,705
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-26
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------
1/31/97 12/31/96
------------ ------------ PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net .............. $1,972,430 $1,340,534 $3,312,964
Software ...................................... 375,225 375,225
Fleet leasing (net of depreciation and
interest costs of $1,132,408) ................ 56,660 56,660
Other ......................................... 42,978 42,978
------------ ------------ ------------
Net revenues .................................. 2,347,655 1,440,172 3,787,827
------------ ------------ ------------
EXPENSES
Operating ..................................... 688,280 660,079 1,348,359
Marketing and reservation ..................... 887,852 157,347 1,045,199
General and administrative .................... 266,228 73,373 339,601
Depreciation and amortization ................. 58,658 97,811 156,469
Merger and restructuring costs ................ 179,945 179,945
Interest, net ................................. (9,549) 19,695 10,146
------------ ------------ ------------
Total expenses ................................ 2,071,414 1,008,305 3,079,719
------------ ------------ ------------
Income before income taxes .................... 276,241 431,867 708,108
Provision for income taxes .................... 112,142 174,626 286,768
------------ ------------ ------------
Net income .................................... $ 164,099 $ 257,241 $ 421,340
============ ============ ============
PER SHARE INFORMATION (F)
Net income per share
Primary ...................................... $ 0.41 $ 1.59 $ 0.53
Fully diluted ................................ $ 0.40 $ 1.58 $ 0.53
Weighted average shares outstanding
Primary ...................................... 405,073 164,378 230,639 800,090
Fully diluted ................................ 409,521 165,146 231,716 806,383
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-27
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------
4/30/96 3/31/96
---------- ---------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net .... $455,006 $250,187 $705,193
Software.............................. 60,473 60,473
Fleet leasing (net of depreciation
and interest costs of $283,123) .... 21,314 21,314
Other................................. 7,455 7,455
---------- ---------- -----------
Net revenues ......................... 515,479 278,956 794,435
---------- ---------- -----------
EXPENSES
Operating............................. 154,804 142,481 297,285
Marketing and reservation............. 205,202 27,234 232,436
General and administrative............ 60,980 13,656 74,636
Depreciation and amortization ....... 12,609 16,136 28,745
Interest, net......................... (2,240) 5,626 3,386
---------- ---------- -----------
Total expenses........................ 431,355 205,133 636,488
---------- ---------- -----------
Income before income taxes............ 84,124 73,823 157,947
Provision for income taxes............ 32,003 30,145 62,148
---------- ---------- -----------
Net income ........................... $ 52,121 $ 43,678 $ 95,799
========== ========== ===========
PER SHARE INFORMATION (F)
Net income per share
Primary.............................. $ 0.13 $ 0.30 $ 0.13
Fully diluted........................ $ 0.13 $ 0.30 $ 0.13
Weighted average shares outstanding
Primary.............................. 396,665 149,535 209,812 756,012
Fully diluted........................ 403,892 150,089 210,590 764,571
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-28
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
UNAUDITED HISTORICAL COMBINING STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------
4/30/96 3/31/96
---------- ---------- PRO FORMA COMBINED
CUC(1) HFS(1) ADJUSTMENT COMPANIES
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net .... $544,037 $491,931 $1,035,968
Software.............................. 80,634 80,634
Fleet leasing (net of depreciation
and interest costs of $286,075) .... 15,319 15,319
Other................................. 18,635 18,635
---------- ---------- ------------
Net revenues ......................... 624,671 525,885 1,150,556
---------- ---------- ------------
EXPENSES
Operating............................. 204,105 221,799 425,904
Marketing and reservation............. 219,793 60,798 280,591
General and administrative............ 76,092 31,905 107,997
Depreciation and amortization ....... 15,702 36,451 52,153
Interest, net......................... (5,055) 20,342 15,287
---------- ---------- ------------
Total expenses........................ 510,637 371,295 881,932
---------- ---------- ------------
Income before income taxes............ 114,034 154,590 268,624
Provision for income taxes............ 43,561 63,486 107,047
---------- ---------- ------------
Net income ........................... $ 70,473 $ 91,104 $ 161,577
========== ========== ============
PER SHARE INFORMATION (F)
Net income per share
Primary and fully diluted............ $ 0.17 $ 0.52 $ 0.19
Weighted average shares outstanding
Primary.............................. 434,006 177,193 248,619 859,818
Fully diluted........................ 437,091 177,225 248,664 862,980
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical CUC and
historical HFS financial statements to conform to the presentation
expected to be used by the combined companies.
See notes to unaudited historical combining financial statements.
F-29
<PAGE>
SECTION C
CUC INTERNATIONAL INC.
NOTES TO UNAUDITED HISTORICAL COMBINING
FINANCIAL STATEMENTS
(a) HFS/PHH MERGER COSTS AND RESTRUCTURING -- ASSET ADJUSTMENTS
The pro forma adjustment reflects the write-down of $43.1 million of
assets principally as a result of exiting certain activities in
connection with the merger of HFS with PHH.
(b) HFS/PHH MERGER COSTS AND RESTRUCTURING -- DEFERRED INCOME TAXES
The pro forma adjustment reflects the recording of deferred income taxes
associated with the charge reflecting estimated restructuring and
transaction costs to be incurred in connection with the merger of HFS and
PHH.
(c) HFS/PHH MERGER COSTS AND RESTRUCTURING -- ACCRUED LIABILITIES
The pro forma adjustment reflects estimated restructuring and transaction
costs to be incurred in connection with the merger of HFS and PHH
including the planned involuntary terminations of employees, facility and
system consolidations and terminations, costs associated with exiting
certain activities and merger related professional fees.
(d) HFS/PHH MERGER COSTS AND RESTRUCTURING -- STOCKHOLDERS' EQUITY
The pro forma adjustment reflects a one-time charge of $303 million ($227
million after-tax) for estimated restructuring and transaction costs to
be incurred in connection with the merger of HFS with PHH.
(e) EQUITY
In connection with the Merger, each outstanding share of HFS Common Stock
will be converted into the right to receive 2.4031 shares of CUC Common
Stock. In addition, each share of HFS Common Stock that is owned by HFS
or CUC will be cancelled and retired. The pro forma adjustment assumes
that all 156.7 million shares of HFS Common Stock outstanding at March
31, 1997 (inclusive of 30.3 million shares of HFS Common Stock issued in
connection with the merger of HFS with PHH and exclusive of 2.9 million
shares of HFS Common Stock in treasury which will be cancelled and
retired in connection with the Merger) will be converted into
approximately 376.5 million shares of CUC Common Stock in accordance with
the Exchange Ratio.
(f) PER SHARE INFORMATION
Net income per share has been computed based upon the combined weighted
average outstanding shares of CUC Common Stock and HFS Common Stock for
each period. The historical weighted average number of outstanding shares
of HFS stock for each period has been adjusted to reflect the Exchange
Ratio of 2.4031 shares of CUC Common Stock for each share of HFS Common
Stock.
CUC/HFS MERGER COSTS
It is expected that CUC will incur pre-tax transaction costs associated
with the Merger which are expected to range from $600 million to $650
million, of which approximately $125 million will be lump sum payments.
These costs associated with the Merger are being established by the
combined management. In determining the amount of the reserve for these
costs, management is considering the costs relating to facility and
systems consolidations, the costs associated with exiting certain
activities and the costs associated with implementing the combined
business strategy.
F-30
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
CUC INTERNATIONAL INC.
AND
HFS INCORPORATED
DATED AS OF MAY 27, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.1. The Merger.................................................... A-1
SECTION 1.2. Closing....................................................... A-1
SECTION 1.3. Effective Time................................................ A-1
SECTION 1.4. Effects of the Merger......................................... A-1
SECTION 1.5. Certificate of Incorporation and By-laws...................... A-1
SECTION 1.6. Boards, Committees and Officers............................... A-2
SECTION 1.7. Name of the Surviving Corporation............................. A-2
SECTION 1.8. Reservation of Right to Revise Transaction.................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Effect on Capital Stock....................................... A-2
SECTION 2.2. Exchange of Certificates...................................... A-3
SECTION 2.3. Certain Adjustments........................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of HFS......................... A-6
(a) Organization, Standing and Corporate Power................ A-6
(b) Subsidiaries.............................................. A-6
(c) Capital Structure......................................... A-6
(d) Authority; Noncontravention............................... A-7
(e) SEC Documents; Undisclosed Liabilities.................... A-8
(f) Information Supplied...................................... A-8
(g) Absence of Certain Changes or Events...................... A-8
(h) Compliance with Applicable Laws; Litigation............... A-9
(i) Absence of Changes in Benefit Plans....................... A-9
(j) ERISA Compliance.......................................... A-10
(k) Taxes..................................................... A-11
(l) Voting Requirements....................................... A-11
(m) State Takeover Statutes................................... A-11
(n) Accounting Matters........................................ A-12
(o) Brokers................................................... A-12
(p) Opinion of Financial Advisor.............................. A-12
(q) Ownership of CUC Common Stock............................. A-12
(r) Intellectual Property..................................... A-12
(s) Certain Contracts......................................... A-12
SECTION 3.2. Representations and Warranties of CUC......................... A-13
(a) Organization, Standing and Corporate Power................ A-13
(b) Subsidiaries.............................................. A-13
A-ii
<PAGE>
PAGE
--------
(c) Capital Structure......................................... A-13
(d) Authority; Noncontravention............................... A-14
(e) SEC Documents; Undisclosed Liabilities.................... A-15
(f) Information Supplied...................................... A-15
(g) Absence of Certain Changes or Events...................... A-15
(h) Compliance with Applicable Laws; Litigation............... A-16
(i) Absence of Changes in Benefit Plans....................... A-16
(j) ERISA Compliance.......................................... A-17
(k) Taxes..................................................... A-18
(l) Voting Requirements....................................... A-18
(m) State Takeover Statutes................................... A-18
(n) Accounting Matters........................................ A-19
(o) Brokers................................................... A-19
(p) Opinion of Financial Advisor.............................. A-19
(q) Ownership of HFS Common Stock............................. A-19
(r) Intellectual Property..................................... A-19
(s) Certain Contracts......................................... A-19
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business........................................... A-20
SECTION 4.2. No Solicitation by HFS........................................ A-23
SECTION 4.3. No Solicitation by CUC........................................ A-24
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings........................................ A-26
SECTION 5.2. Letters of HFS's Accountants.................................. A-27
SECTION 5.3. Letters of CUC's Accountants.................................. A-27
SECTION 5.4. Access to Information; Confidentiality........................ A-27
SECTION 5.5. Best Efforts.................................................. A-27
SECTION 5.6. Stock Options................................................. A-28
SECTION 5.7. HFS Stock Plans and Certain Employee Matters.................. A-29
SECTION 5.8. Indemnification, Exculpation and Insurance.................... A-29
SECTION 5.9. Fees and Expenses............................................. A-29
SECTION 5.10. Public Announcements.......................................... A-30
SECTION 5.11. Affiliates.................................................... A-30
SECTION 5.12. NYSE Listing.................................................. A-31
SECTION 5.13. Stockholder Litigation........................................ A-31
SECTION 5.14. Tax Treatment................................................. A-31
SECTION 5.15. Pooling of Interests.......................................... A-31
SECTION 5.16. Standstill Agreements; Confidentiality Agreement.............. A-31
SECTION 5.17. Company Officers; Employment Contracts; Equity Awards. ....... A-31
SECTION 5.18. Post-Merger Operations........................................ A-32
SECTION 5.19. Conveyance Taxes.............................................. A-32
SECTION 5.20. HFS Convertible Notes......................................... A-32
A-iii
<PAGE>
PAGE
--------
SECTION 5.21. Transition Planning........................................... A-32
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger ... A-33
SECTION 6.2. Conditions to Obligations of CUC.............................. A-34
SECTION 6.3. Conditions to Obligations of HFS.............................. A-34
SECTION 6.4. Frustration of Closing Conditions............................. A-35
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination................................................... A-35
SECTION 7.2. Effect of Termination......................................... A-36
SECTION 7.3. Amendment..................................................... A-36
SECTION 7.4. Extension; Waiver............................................. A-36
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver .... A-36
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties................. A-36
SECTION 8.2. Notices....................................................... A-36
SECTION 8.3. Definitions................................................... A-37
SECTION 8.4. Interpretation................................................ A-38
SECTION 8.5. Counterparts.................................................. A-38
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries................ A-38
SECTION 8.7. Governing Law................................................. A-38
SECTION 8.8. Assignment.................................................... A-38
SECTION 8.9. Consent to Jurisdiction....................................... A-38
SECTION 8.10. Headings...................................................... A-39
SECTION 8.11. Severability.................................................. A-39
</TABLE>
A-iv
<PAGE>
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 representations, 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 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
A-1
<PAGE>
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
Amendment" 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.
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 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
A-2
<PAGE>
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 Exchange 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.
(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
A-3
<PAGE>
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 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,
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.
A-4
<PAGE>
(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 Composite Transaction Tape (as reported in The Wall Street Journal,
or, if not reported therein, any other authoritative source) during the
ten trading days preceding the fifth trading day prior to the Closing Date
(such average, the "Average CUC Price"), and, in such case, all references
herein to the cash proceeds of the sale of the Excess Shares and similar
references shall be deemed to mean and refer to the payments calculated as
set forth in this Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Certificates formerly representing HFS
Common Stock with respect to any fractional share interests, the Exchange
Agent shall make available such amounts to such holders of Certificates
formerly representing HFS Common Stock subject 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 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.
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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
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
(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
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 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 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
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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 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 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
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report form by HFS under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (2) the filing with the SEC of (A) a proxy
statement relating to the HFS Stockholders Meeting (as defined in Section
5.1(b)) (such proxy statement, together with the proxy statement relating to
the CUC Stockholders Meeting (as defined in Section 5.1(c)), in each case as
amended or supplemented from time to time, the "Joint Proxy Statement"), and
(B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement; (3) the filing of the Certificate of Merger with the Secretary of
State of Delaware and appropriate documents with the relevant authorities of
other states in which HFS is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; and (4) such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or in
the aggregate would not (x) have a material adverse effect on HFS or (y)
reasonably be expected to impair the ability of HFS to perform its
obligations under this Agreement.
(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 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
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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 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, 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 defined 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
subsidiaries of any collective bargaining agreement, employment agreement,
consulting agreement, severance agreement or any material bonus, pension,
profit sharing, deferred
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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.
(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 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 benefits 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
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subsidiaries. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage 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 National 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.
(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 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
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contemplated hereby by the HFS Board of Directors under the provisions of
Section 203 of the DGCL such that Section 203 of the DGCL does not apply to
this Agreement and the transactions contemplated hereby. To the knowledge of
HFS, no other state takeover statute is applicable to the Merger or the other
transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither HFS nor any of its
affiliates (as such term is used in Section 5.11) has taken or agreed to take
any action that would prevent the business combination to be effected by the
Merger from being accounted for as a pooling of interests and HFS has no
reason to believe that the Merger will not qualify for "pooling of interests"
accounting.
(o) Brokers. No broker, investment banker, financial advisor or other
person other than Bear Stearns & Co. Inc. ("Bear Stearns"), the fees and
expenses of which will be paid by HFS, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of HFS. HFS has furnished to CUC true and complete copies of all
agreements under which any such fees or expenses are payable and all
indemnification and other agreements related to the engagement of the persons
to whom such fees are payable.
(p) Opinion of Financial Advisor. HFS has received the opinion of Bear
Stearns dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio for the conversion of HFS Common Stock into CUC
Common Stock is fair from a financial point of view to holders of shares of
HFS Common Stock (other than CUC and its affiliates), a signed copy of which
opinion has been delivered to CUC, it being understood and agreed by CUC that
such opinion is for the benefit of the Board of Directors of HFS and may not
be relied upon by CUC, its affiliates or any of their respective
stockholders.
(q) Ownership of CUC Common Stock. As of the date hereof, neither HFS nor,
to its knowledge without 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 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 "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 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.
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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.
(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 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
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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 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 agreement, 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
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<PAGE>
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 authorizations 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 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 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
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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 reclassification 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 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 Documents, 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
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
subsidiaries 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
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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 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 "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 writing.
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(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
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 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
contained 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 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.
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(n) Accounting Matters. To its knowledge, neither CUC nor any of its
affiliates (as such term is used in Section 5.11) has taken or agreed to take
any action that would prevent the business combination to be effected by the
Merger from being accounted for as a pooling of interests and CUC has no
reason to believe that the Merger will not qualify for "pooling of interest"
accounting.
(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Goldman, Sachs & Co. ("Goldman Sachs"), the fees and
expenses of which will be paid by CUC, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of CUC. CUC has furnished to HFS true and complete copies of all
agreements under which any such fees or expenses are payable and all
indemnification and other agreements related to the engagement of the persons
to whom such fees are payable.
(p) Opinion of Financial Advisor. CUC has received the opinion of Goldman
Sachs, dated the date of this Agreement, to the effect that, as of such date,
the Exchange Ratio for the conversion of HFS Common Stock into CUC Common
Stock is fair to CUC, a signed copy of which opinion has been delivered to
HFS, it being understood and agreed by HFS that such opinion is for the
benefit of the Board of Directors of CUC and may not be relied upon by HFS,
its affiliates or any of their respective stockholders.
(q) Ownership of HFS Common Stock. As of the date hereof, neither CUC nor,
to its knowledge without independent investigation, any of its affiliates,
(i) beneficially owns (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of HFS.
(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 aggregate,
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 both would result in such
a violation or default under) any CUC Material Contract.
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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 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;
(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
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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 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 HFS's rated debt securities by Standard & Poor's Ratings
Services and by Moody's Investor Service, Inc. from those in effect as of
the date hereof; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(a) (other than
clause (iii)) shall not apply to any transaction between HFS and any wholly
owned subsidiary or between any wholly owned subsidiaries of HFS.
(b) Conduct of Business by CUC. Except as set forth in Section 4.1(b) of
the CUC Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or as consented to by HFS in writing, such consent not to be
unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, CUC shall, and shall cause its subsidiaries
to, carry on their respective businesses in the ordinary course consistent
with past practice and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, use
all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships
with those persons having business dealings with them to the end that their
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement to the
Effective Time, CUC shall not, and shall not permit any of its subsidiaries
to:
(i) other than dividends and distributions by a direct or indirect wholly
owned subsidiary of CUC to its parent, or by a subsidiary that 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,
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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 holders
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 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);
(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
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any person for borrowed money, except for indebtedness which does not
cause a change in the ratings of CUC's rated debt securities by Standard &
Poor's Ratings Services and by Moody's Investor Service, Inc. from those
in effect as of the date hereof; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(b) (other than
clause (iii)) shall not apply to any transaction between CUC and any wholly
owned subsidiary or between any wholly owned subsidiaries of CUC.
(c) Other Actions. Except as required by law, HFS and CUC shall not, and
shall not permit any of their respective subsidiaries to, voluntarily take
any action that would, or that could reasonably be expected to, result in (i)
any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue at the
Effective Time, except as provided in the proviso in Section 6.2(a) or
Section 6.3(a), (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect at the Effective Time,
except as provided in the proviso in Section 6.2(a) or Section 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 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.
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(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 Proposal, 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 following 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 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
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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 securities of CUC, 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 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 stockholders 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 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 information 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
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.
(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.
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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 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 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
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(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 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.
(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.
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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 effective (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.
(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 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).
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(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 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 obligations 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
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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.
SECTION 5.13. Stockholder Litigation. Each of HFS and CUC shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against HFS or CUC, as applicable, and its directors
relating to the transactions contemplated by this Agreement.
SECTION 5.14. Tax Treatment. Each of CUC and HFS shall use best efforts to
cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.2(c) and 6.3(c).
SECTION 5.15. Pooling of Interests. Each of HFS and CUC shall use best
efforts to cause the transactions contemplated by this Agreement, including
the Merger, to be accounted for as a pooling of interests under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations, and
such accounting treatment to be accepted by the SEC, and each of HFS and CUC
agrees that it shall take no action that would cause such accounting
treatment not to be obtained.
SECTION 5.16. Standstill Agreements; Confidentiality Agreements. During
the period from the date of this Agreement through the Effective Time,
neither HFS nor CUC shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it or any of its
respective subsidiaries is a party. During such period, HFS or CUC, as the
case may be, shall enforce, to the fullest extent permitted under applicable
law, the provisions of any such agreement, including by obtaining injunctions
to prevent any breaches of such agreements and to enforce specifically the
terms and provisions thereof in any court of the United States of America or
of any state having jurisdiction.
SECTION 5.17. Company Officers; Employment Contracts; Equity Awards. (a)
Pursuant to and in accordance with the terms hereof and of the amended and/or
restated employment agreements referred to in Section 5.17(b) (i) at the
Effective Time and until January 1, 2000, Mr. Forbes shall serve as Chairman
of the Board of Directors and Chairman of the Executive Committee of CUC, and
from and after January 1, 2000, Mr. Forbes shall be President and Chief
Executive Officer of CUC but shall not be Chairman of the Board or Chairman
of the Executive Committee of CUC, and (ii) at the Effective Time and until
January 1, 2000, Mr. Silverman shall serve as President and Chief Executive
Officer of CUC, and from and after January 1, 2000, Mr. Silverman shall be
Chairman of the Board of Directors and Chairman of the Executive Committee of
CUC but not President and Chief Executive Officer of CUC. If either of such
persons is unable or unwilling to hold such offices for the period set forth
in his employment agreement, his successor shall be selected by the Board of
Directors of CUC in the manner set forth in the Restated By-laws.
(b) At or prior to the Effective Time, CUC agrees to enter into the
amended and restated employment agreements substantially in the forms set
forth in Exhibit 5.17 attached hereto with the CUC officers identified in
Exhibit 5.17, and HFS agrees to enter into amendments to and/or restatements
of the employment agreements substantially in the forms set forth in Exhibit
5.17 attached hereto with the HFS officers identified in Exhibit 5.17.
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(c) At the Effective Time, the officers and key employees of the
Surviving Corporation, identified in Exhibit 5.17, will be granted (i) shares
of restricted CUC Common Stock with an aggregate value of $30 million (based
on the Average CUC Price), the terms and conditions with respect to which
shall be no less favorable than the terms and conditions applicable to
restricted stock held by executive officers of CUC as of the date hereof and
(ii) options to acquire an aggregate of 19,800,000 shares of CUC Common Stock
at an exercise price per share equal to the market value of a share of CUC
Common Stock on the date of grant. All terms and conditions applicable to
such options shall be as provided in the New CUC Stock Plan, except that the
terms and conditions applicable to the options granted to Mr. Silverman
pursuant to his amended employment agreement under Section 5.17(b) shall be
no less favorable to the terms and conditions of outstanding options held by
Mr. Silverman as of the date hereof. Stock awards granted pursuant to this
Section 5.17(c) shall be made in such amounts as identified in Exhibit 5.17
for each individual. The aggregate amount of options to be granted pursuant
to this Section 5.17(c) is in addition to the amount of options to acquire
shares of CUC Common Stock granted to Mr. Silverman pursuant to his amended
employment agreement under Section 5.17(b).
(d) Prior to the Effective Time, each of CUC and HFS agree to adopt a
stock option and restricted stock plan (the "New CUC Stock Plan"), the terms
of which shall be mutually agreed upon by CUC and HFS, pursuant to which the
option and restricted share grants described in paragraph (c) of this Section
5.17 and in the amended and/or restated employment agreements referred to in
this 5.17 will be made.
SECTION 5.18. Post-Merger Operations. Following the Effective Time, the
combined company shall maintain a corporate office in New York City, CUC
shall maintain its principal corporate offices in Stamford, Connecticut and
HFS shall maintain its principal corporate offices in Parsippany, New Jersey.
SECTION 5.19. Conveyance Taxes. CUC and HFS shall cooperate in the
preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees or any similar taxes which
become payable in connection with the transactions contemplated by this
Agreement that are required or permitted to be filed on or before the
Effective Time. CUC shall pay, and HFS shall pay, without deduction or
withholding from any amount payable to the holders of HFS Common Stock, any
such taxes or fees imposed by any Governmental Entity (and any penalties and
interest with respect to such taxes and fees), which become payable in
connection with the transactions contemplated by this Agreement, on behalf of
their respective stockholders.
SECTION 5.20. HFS Convertible Notes. From and after the date hereof and
prior to the Effective Time, each of CUC or HFS, as applicable, shall take
such actions (including entering into supplemental indentures) with respect
to the notes of HFS issued under (i) the Indenture between HFS and Bank of
America Illinois, dated October 1, 1994, relating to HFS's 4-1/2% Convertible
Senior Notes due 1999 and (ii) the Indenture between HFS and First Trust of
Illinois, National Association, dated February 28, 1996, relating to HFS's
4-3/4% Convertible Senior Notes due 2003, to implement the provisions of such
Indentures which provide that such notes shall be convertible into shares of
CUC Common Stock and not HFS Common Stock from and after the Effective Time.
SECTION 5.21. Transition Planning. Mr. Silverman and Mr. Forbes, as
Chairmen of HFS and CUC, respectively, jointly shall be responsible for
coordinating all aspects of transition planning and implementation relating
to the Merger and the other transactions contemplated hereby. If either such
person ceases to be Chairman of his respective company for any reason, such
person's successor as Chairman shall assume his predecessor's
responsibilities under this Section 5.21.
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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 obtained, 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) 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).
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SECTION 6.2. Conditions to Obligations of CUC. The obligation of CUC to
effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
HFS set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely
to have, individually or in the aggregate, a material adverse effect on HFS;
provided, that the representations and warranties of HFS set forth in
Sections 3.1(i), (j)(iii), (j)(iv) and (j)(v) and (s) shall nonetheless be
deemed true and correct at and as of the Closing Date regardless of changes
therein caused by an acquisition permitted by 4.1(a)(iv) or by the incurrence
of indebtedness permitted by 4.1(a)(vii), except to the extent that such
changes have, or could reasonably be expected to have, a material adverse
effect on HFS.
(b) Performance of Obligations of HFS. HFS shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) Tax Opinions. CUC shall have received from Wachtell, Lipton, Rosen &
Katz, counsel to CUC, on a date immediately prior to the mailing of the Joint
Proxy Statement and on the Closing Date, opinions, in each case dated as of
such respective dates, to the effect that: (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 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.
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(c) Tax Opinions. HFS shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to HFS, on a date immediately prior to the
mailing of the Joint Proxy Statement and on the Closing Date, opinions, in
each case dated as of such respective dates, to the effect that: (i) the
Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and CUC and HFS will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by CUC or HFS as a result of the Merger; (iii) no
gain or loss will be recognized by the stockholders of HFS upon the exchange
of their shares of HFS Common Stock solely for shares of CUC Common Stock
pursuant to the Merger, except with respect to cash, if any, received in lieu
of fractional shares of CUC Common Stock; (iv) the aggregate tax basis of the
shares of CUC Common Stock received solely in exchange for shares of HFS
Common Stock pursuant to the Merger (including fractional shares or CUC
Common Stock for which cash is received) will be the same as the aggregate
tax basis of the shares of HFS Common Stock exchanged therefor; and (v) the
holding period for shares of CUC Common Stock received in exchange for shares
of HFS Common Stock pursuant to the Merger will include the holding period of
the shares of HFS Common Stock exchanged therefor, provided such shares of
HFS Common Stock were held as capital assets by the stockholder at the
Effective Time. In rendering such opinions, counsel for HFS shall be entitled
to rely upon representations of officers of CUC, HFS and stockholders of HFS
substantially in the form of Exhibits D and E hereto.
(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 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
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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 effective, 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 termination 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
Agreement 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
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is confirmed) or sent by overnight courier (providing proof of delivery) to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to CUC, to
CUC International Inc.
707 Summer Street
P.O. Box 10049
Stamford, Connecticut 06901
Telecopy No: (203) 348-4528
Attention: General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52 Street
New York, New York 10019
Telecopy No.: (212) 403-1000
Attention: Patricia Vlahakis
(b) if to HFS, to
HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054
Telecopy No. (201) 428-2280
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: David Fox
SECTION 8.3. Definitions. For purposes of this Agreement:
(a) except for purposes of Section 5.11, an "affiliate" of any person
means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract, as trustee or executor, or otherwise;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with HFS or CUC, any change, effect, event, occurrence or
state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of such
party and its subsidiaries taken as a whole; and the terms "material" and
"materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other 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
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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 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) 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.
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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.
IN WITNESS WHEREOF, CUC and HFS have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all as of the date first
written above.
CUC INTERNATIONAL INC.
By /s/ E. Kirk Shelton
--------------------------------
E. Kirk Shelton
President and Chief Operating
Officer
HFS INCORPORATED
By /s/ Henry R. Silverman
--------------------------------
Henry R. Silverman
Chairman and Chief Executive
Officer
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APPENDIX B
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FIRST: The name of the Corporation is CUC International Inc.
SECOND: The name under which the Corporation was originally incorporated
was "Comp-U-Card of America, Inc.," and the original Certificate of
Incorporation of Comp-U-Card of America, Inc. was filed with the Secretary of
State of the State of Delaware on August 1, 1974.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware.
FOURTH: The text of the Certificate of Incorporation of the Corporation as
amended hereby is restated to read in its entirety, as follows:
1. The name of the Corporation is Cendant Corporation.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 2,010,000,000 shares, of which
10,000,000 shall be Preferred Stock, par value $.01 per share, and
2,000,000,000 shall be Common Stock, par value $.01 per share. No stockholder
shall have any preemptive right to subscribe to or purchase any additional
shares of stock of the Corporation or any securities convertible into any
such shares or representing a right or option to purchase any such shares.
The Board of Directors is expressly authorized to adopt, from time to
time, a resolution or resolutions providing for the issuance of Preferred
Stock in one or more series, to fix the number of shares in each such series
(subject to the aggregate limitations thereon in this Article) and to fix the
designations and the powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions, of each such series. The authority of the Board of Directors
with respect to each such series shall include determination of the following
(which may vary as between the different series of Preferred Stock):
(a) The number of shares constituting the shares and the distinctive
designation of the series;
(b) The dividend rate on the shares of the series and the extent, if any,
to which dividends thereon shall be cumulative;
(c) Whether shares of the series shall be redeemable and, if redeemable,
the redemption price payable on redemption thereof, which price may, but
need not, vary according to the time or circumstances of such redemption;
(d) The amount or amounts payable upon the shares of the series in the
event of voluntary or involuntary liquidation, dissolution or winding up
of the Corporation prior to any payment or distribution of the assets of
the Corporation to any class or classes of stock of the Corporation
ranking junior to the Preferred Stock;
(e) Whether the shares of the series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption
of shares of the series and, if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which the
shares may be redeemed or purchased through the application of such fund;
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(f) Whether the shares of the series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation, and, if so convertible or exchangeable, the conversion price
or prices, or the rates of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of shares of the series
shall be entitled to vote on any question or in any proceedings or to be
represented at or to receive notice of any meeting of stockholders of the
Corporation;
(h) Whether, and the extent to which, any of the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of any such series may be made dependent upon facts
ascertainable outside of the Certificate of Incorporation or of any
amendment thereto, or outside the resolution or resolutions providing for
the issuance of such series adopted by the Board of Directors, provided
that the manner in which such facts shall operate upon the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of such series is clearly and expressly set forth in the
resolution or resolutions providing for the issuance of such series
adopted by the Board of Directors; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may
deem advisable, which shall not affect adversely any other class or series
of Preferred Stock at the time outstanding and which shall not be
inconsistent with the provisions of this Certificate of Incorporation.
Shares of Common Stock and of Preferred Stock may be issued from time to
time as the Board of Directors shall determine and on such terms and for such
consideration, not less than par value, as shall be fixed by the Board of
Directors. No consent by any series of Preferred Stock shall be required for
the issuance of any other series of Preferred Stock unless the Board of
Directors in the resolution providing for the issuance of any series of
Preferred Stock expressly provides that such consent shall be required.
Subject to the rights, if any, of holders of shares of Preferred Stock
from time to time outstanding, dividends may be paid upon the Common Stock as
and when declared by the Board of Directors out of any funds legally
available therefor.
Except as otherwise provided by law or as otherwise expressly provided in
the resolution or resolutions providing for the issuance of shares of any
series of the Preferred Stock, the holders of shares of the Common Stock
shall have the exclusive right to vote for the election of directors and for
all other purposes. Each holder of shares of Common Stock of the Corporation
entitled at any time to vote shall have one vote for each share thereof held.
Except as otherwise provided with respect to shares of Preferred Stock
authorized from time to time by the Board of Directors, the exclusive voting
power for all purposes shall be vested in the holders of shares of Common
Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To make, alter, or repeal the By-Laws of the Corporation.
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(c) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
(d) Subject to the provisions of the By-Laws, to designate one or more
committees, each committee to consist of one or more of the directors of
the Corporation. Subject to the provisions of the By-Laws, the Board of
Directors may designate one or more directors as alternate members of
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any committee, who shall replace any absent or disqualified member at any
meeting of the committee in the manner specified in such designation. Any
such committee, to the extent provided in the resolution of the Board of
Directors adopted in accordance with the By-Laws of the Corporation, shall
have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation;
and, unless the resolution or By-Laws expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
(e) When and as authorized by the stockholders in accordance with
statute, to sell, lease, or exchange all or substantially all of the
property and assets of the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property,
including shares of stock in, and/or other securities of, any other
corporation or corporations, as its Board of Directors shall deem
expedient and for the best interests of the Corporation.
7. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for this
Corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279
of Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement to any reorganization of this Corporation as consequence of
such compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders of this
Corporation, as the case may be, and also on this Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statues) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation. Elections of
directors need not be by written ballot unless the By-Laws of the Corporation
shall so provide.
9. For the management of the business and for the conduct of the affairs
of the Corporation, and in further creation, definition, limitation and
regulation of the power of the Corporation and of its directors and of its
stockholders, it is further provided:
(a) Election of Directors. Elections of Directors need not be by written
ballot unless the By-Laws of the Corporation shall so provide.
(b) Number, Election and Terms of Directors. The number of Directors of
the Corporation shall be fixed from time to time by or pursuant to the
By-Laws. The Directors shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the
By-Laws, one class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1986, another class to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1987, and another class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1988, with
the members of each class to hold office until their successors are
elected and
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qualified. At each annual meeting of the stockholders of the Corporation,
the successors to the class of Directors whose term expires at that
meeting shall be elected to the office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
(c) Stockholder Nomination of Director Candidates. Advance notice of
nominations for the election of Directors, other than by the Board of
Directors or a Committee thereof, shall be given in the manner provided in
the By-Laws.
(d) Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the number of Directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. Any Director
elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of Directors for which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have become elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
(e) Removal of Directors. Any Director may be removed from office without
cause only by the affirmative vote of the holders of 80% of the combined
voting power of the then outstanding shares of stock entitled to vote
generally in the election of Directors voting together as a single class.
(f) Stockholder Action. Any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law,
special meetings of stockholders of the Corporation may be called only by
the Chairman of the Board, the President or the Board of Directors
pursuant to a resolution approved by a majority of the entire Board or
Directors.
(g) By-Law Amendments. The Board of Directors shall have power to make,
alter, amend and repeal the By-Laws (except so far as the By-Laws adopted
by the stockholders shall otherwise provide). Any By-Laws made by the
Directors under the powers conferred hereby may be altered, amended or
repealed by the Directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation to
the contrary, Sections 1, 2 and 3 of Article II, and Sections 1, 2 and 3
of Article III of the By-Laws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 80% of the voting power of all
the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class.
(h) Amendment, Repeal. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the
Corporation entitled to vote generally in the election of Directors,
voting together as a single class, shall be required to alter, amend,
adopt any provision inconsistent with, or repeal, this Article 9 or any
provision hereof.
10. (a) Vote Required for Certain Business Combinations.
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or this Certificate of Incorporation, and
except as otherwise expressly provided herein:
(i) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value of $10 million or more; or
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(iii) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or series of transactions) of any securities of
the Corporation or any subsidiary to any Interested Stockholder or to
any Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value of $10 million or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of Equity Security (as hereinafter defined) of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class (it being understood
that for the purposes of Article 10, each share of the Voting Stock
shall have one vote). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any
national securities exchange or otherwise.
B. Definition of "Business Combination". The term "Business Combination"
used in this Article 10 shall mean any transaction which is referred to in
any one or more of clauses (i) through (v) of Paragraph A hereof.
(b) When Higher Vote is Not Required. The provisions of Article 10(a)
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is
required by law and any other provision of this Certificate of
Incorporation, if all of the conditions specified in either of the
following Paragraphs A and B are met:
A. Approval by Disinterested Directors. The Business Combination shall
have been approved by majority of the Disinterested Directors (as
hereinafter defined).
B. Price and Procedure Requirements. All of the following conditions
shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of Common
Stock acquired by it (1) within the two-year period immediately
prior to the first public announcement of the terms of the
proposed Business Combination (the "Announcement Date") or (2) in
the transaction in which it became an Interested Stockholder,
whichever is higher; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Paragraph 10 as the "Determination Date"),
whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock shall be at
least equal to the higher of the following:
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(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of Common
Stock acquired by it (1) within the two-year period immediately
prior to the Announcement Date or (2) in the transaction in which
it became an Interested Stockholder, whichever is higher; and
(b) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date, whichever
is higher.
(iii) The consideration to be received by holders of Voting Stock
shall be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for any Voting Stock with varying
forms of consideration, the form of consideration for such Voting
Stock shall be either cash or the form used to acquire the largest
number of shares of such Voting Stock previously acquired by it. The
price determined in accordance with paragraphs B(i) and B(ii) of this
Article 10(b) shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of shares or similar
event.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combinations: (a) there shall have been (1) no reduction in the annual
rate of dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors, and (2) an increase in such
annual rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization
or any similar transaction which has the effect of reducing the number
of outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Disinterested Directors; and (b) such Interested Stockholder shall
have not become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(c) Certain Definitions. For the purpose of this Article 10:
A. A "person" shall mean any individual, firm, corporation or other
entity.
B. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of 5% or more of
the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 5% or more of the voting
power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the
right to vote pursuant to any agreement, arrangement or understanding;
or
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(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
D. For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Article 10(c), the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of paragraph C of the Article 10(c) but
shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise
of conversion rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1985.
F. "Subsidiary" means any corporation of which a majority of any class of
Equity Security is owned, directly or indirectly, by the Corporation,
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph B of this Article 10(c), the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of Equity Security is owned, directly or indirectly, by the
Corporation.
G. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member of
the Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor of a Disinterested
Director who is unaffiliated with the Interested Stockholder and is
recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
H. "Fair Market Value" means: (i) in the case of stock, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association
of Securities Dealers, Inc. Automated Quotation System or any system then
in use, or, if such stock is then listed on an exchange, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composition Tape for New York
Stock Exchange -- Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such exchange
or quoted as aforesaid, the fair market value on the date in question of a
share of such stock as determined by the Board of Directors in good faith;
and (ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board
of Directors, in good faith.
I. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in paragraphs B(i) and (ii) of Article 10(b) shall include the shares
of Common Stock retained by the holders of such shares.
J. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
January 1, 1985.
(d) Powers of the Board of Directors. A majority of the Directors shall
have the power and duty to determine for the purposes of this Article 10
on the basis of information known to them after reasonable inquiry, (A)
whether a person is an Interested Stockholder, (B) the number of shares of
Common Stock beneficially owned by any person, (C) whether a person is an
Affiliate or Associate of another (D) whether the assets which are the
subject of any Business Combination have, or the consideration to be
received for an issuance of transfer of securities by the Corporation or
any Subsidiary in any Business Combination has, or an issuance or transfer
of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $10 million or more. A
majority of the Directors shall have the further power to interpret all of
the terms and provisions of this Article 10.
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(e) No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article 10 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed
by law.
(f) Amendment, Repeal, etc. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws) the affirmative vote of the holders of 80%
or more of the outstanding Voting Stock, voting together as a single
class, shall be required to amend or repeal, or adopt any provisions
inconsistent with this Article 10.
11. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article 11
shall not eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this
Article 11 shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts
or omissions of such director occurring prior to such amendment or repeal.
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APPENDIX C
FORM OF AMENDED AND RESTATED BY-LAWS
ARTICLE I
OFFICES
SECTION 1.
The registered office of the Corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
The Corporation shall have offices at such other places as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting.
The annual meeting of the stockholders for the election of Directors and
for the transaction of such other business as may properly come before the
meeting shall be held at such place, within or without the State of Delaware,
and hour as shall be determined by the Board of Directors. The day, place and
hour of each annual meeting shall be specified in the notice of annual
meeting.
The meeting may be adjourned from time to time and place to place until
its business is completed.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation,
not less than sixty days nor more than ninety days prior to the meeting;
provided, however, that in the event that less than seventy days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the date on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual
meeting: (a) a brief description of the business desired to be brought before
the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Section 1. The presiding officer of an
annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SECTION 2. Special Meeting.
Except as otherwise required by law, special meetings of the stockholders
may be called only by the Chairman of the Board, the President, or the Board
of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors.
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SECTION 3. Stockholder Action; How Taken.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
holders.
SECTION 4. Notice of Meeting.
Notice of every meeting of the stockholders shall be given in the manner
prescribed by law.
SECTION 5. Quorum.
Except as otherwise required by law, the Certificate of Incorporation or
these By-Laws, the holders of not less than one-third of the shares entitled
to vote at any meeting of the stockholders, present in person or by proxy,
shall constitute a quorum and the act of the majority of such quorum shall be
deemed the act of the stockholders.
If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then, except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum and
all matters shall be determined by a majority of votes cast at such meeting.
SECTION 6. Qualification of Voters.
The Board of Directors (hereinafter sometimes referred to as the "Board")
may fix a day and hour not more than sixty nor less than ten days prior to
the day of holding any meeting of the stockholders as the time which the
stockholders entitled to notice of and to vote at such meeting shall be
determined. Only those persons who were holders of record of voting stock at
such time shall be entitled to notice of and to vote at such meeting.
SECTION 7. Procedure.
The order of business and all other matters of procedure at every meeting
of the stockholders may be determined by the presiding officer.
The Board shall appoint two or more Inspectors of Election to serve at
every meeting of the stockholders at which Directors are to be elected.
ARTICLE III
DIRECTORS
SECTION 1. Number, Election and Terms.
The number of Directors shall be fixed from time to time by the Board of
Directors but shall not be less than three. The Directors shall be
classified, with respect to the time for which they severally hold office,
into three classes, as nearly equal in number as possible, as determined by
the Board of Directors, one class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1986, another
class to hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1987, and another class to hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1988,
with the members of each class to hold office until their successors are
elected and qualified. At each annual meeting of stockholders, the successors
of the class of Directors whose term expires at that meeting shall be elected
to hold office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election.
The term "entire Board" as used in these By-Laws means the total number of
Directors which the Corporation would have if there were no vacancies.
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Nominations for the election of Directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. However,
any stockholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of stockholders,
ninety days prior to the anniversary date of the immediately preceding annual
meeting, and (ii) with respect to an election to be held at a special meeting
of stockholders for the election of Directors, the close of business on the
tenth day following the date on which notice of such meeting is first given
to stockholders. Each such notice shall set forth: (a) the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (d) such
other information regarding each nominee proposed by such stockholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission; and (e) the consent of
each nominee to serve as a Director of the Corporation of so elected. The
presiding officer of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
SECTION 2. Newly Created Directorships and Vacancies.
Newly created directorships resulting from any increase in the number of
Directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in
office, even though less than a quorum of the Board of Directors. Any
Directors elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have been elected and qualified. No decrease in the number of
Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
SECTION 3. Removal.
Any Director may be removed from office, without cause, only by the
affirmative vote of the holders of 80% of the combined voting power of the
then outstanding shares of stock entitled to vote generally in the election
of Directors, voting together as a single class.
SECTION 4. Regular Meetings.
Regular meetings of the Board shall be held at such times and places as
the Board may from time to time determine.
SECTION 5. Special Meetings.
Special meetings of the Board may be called at any time, at any place and
for any purpose by the Chairman of the Executive Committee, the Chairman of
the Board, or the President, or by any officer of the Corporation upon the
request of a majority of the entire Board.
SECTION 6. Notice of Meeting.
Notice of regular meetings of the Board need not be given.
Notice of every special meeting of the Board shall be given to each
Director at his usual place of business, or at such other address as shall
have been furnished by him for the purpose. Such notice shall be given at
least twenty-four hours before the meeting by telephone or by being
personally delivered, mailed, or telegraphed. Such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting.
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SECTION 7. Quorum.
Except as may be otherwise provided by law or in these By-Laws, the
presence of a majority of the entire Board shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board, and the act of a majority of such quorum shall be deemed the act of
the Board, except as otherwise provided in the By-Laws and except that, until
the third anniversary of the effective time of the merger (the "Effective
Time") contemplated in the Agreement and Plan of Merger, dated as of May 27,
1997 (the "Merger Agreement"), between the Corporation and HFS, a Delaware
corporation, the affirmative vote of 80% of the entire Board shall be
required to change the size of the Board of Directors or for the Board to
amend or modify, or adopt any provision inconsistent with, or repeal this
Section 7.
Less than a quorum may adjourn any meeting of the Board from time to time
without notice.
SECTION 8. Participation In Meetings By Conference Telephone.
Members of the Board, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other and such participation shall constitute
presence in person at such meeting.
SECTION 9. Powers.
The business, property and affairs of the Corporation shall be managed by
or under the direction of its Board of Directors, which shall have and may
exercise all the powers of the Corporation to do all such lawful acts and
things as are not by law, or by the Certificate of Incorporation, or by these
By-Laws, directed or required to be exercised or done by the stockholders.
SECTION 10. Compensation of Directors.
Directors shall receive such compensation for their services as shall be
determined by a majority of the entire Board provided that Directors who are
serving the Corporation as officers or employees and who receive compensation
for their services as such officers or employers shall not receive any salary
or other compensation for their services as Directors.
ARTICLE IV
OFFICERS
SECTION 1. Number.
(a) General. The officers of the Corporation shall be appointed or elected
(i) in the manner set forth in this Article IV and (ii) to the extent not so
set forth, by the Board of Directors. The officers shall be a Chairman of the
Board, a President and Chief Executive Officer, one or more Vice Chairmen of
the Board, a Chief Financial Officer, a General Counsel, such number of vice
presidents as the Board may from time to time determine and a Secretary. The
Chairman of the Board or, in his absence or if such office be vacant, the
President, shall preside at all meetings of the stockholders and of the
Board. In the absence of the Chairman of the Board and the President, a Vice
Chairman of the Board shall preside at all meetings of the stockholders and
of the Board. Any person may hold two or more offices, other than the offices
of Chairman of the Board and Vice Chairman of the Board, at the same time.
Subject to this Section 1, the Chairman of the Board and the Vice Chairmen of
the Board shall be chosen from among the Board of Directors, but the other
officers need not be members of the Board.
(b) Chairman of the Board. The Chairman of the Board shall be a member of
the Board of Directors and shall be an officer of the Corporation. Mr. Forbes
will be Chairman of the Board from and after the Effective Time and until
January 1, 2000, at which time Mr. Silverman will be Chairman of the Board.
If, for any reason Mr. Forbes ceases to serve as Chairman of the Board prior
to January 1, 2000 and at such time Mr. Silverman is President and Chief
Executive Officer, Mr. Silverman shall become Chairman of the Board.
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(c) President and Chief Executive Officer. The President and Chief
Executive Officer shall be a member of the Board of Directors and an officer
of the Corporation. The President and Chief Executive Officer shall be the
chief executive officer of the Corporation and shall supervise, coordinate
and manage the Corporation's business and activities and supervise,
coordinate and manage its operating expenses and capital allocation, shall
have general authority to exercise all the powers necessary for the President
and Chief Executive Officer of the Corporation and shall perform such other
duties and have such other powers as may be prescribed by the Board or these
By-laws, all in accordance with basic policies as established by and subject
to the oversight of the Board. In the absence or disability of the Chairman
of the Board, the duties of the Chairman of the Board shall be performed and
the Chairman of the Board's authority may be exercised by the President and
Chief Executive Officer. Mr. Silverman will be President and Chief Executive
Officer from and after the Effective Time and until January 1, 2000, at which
time Mr. Forbes will be President and Chief Executive Officer. If, for any
reason Mr. Silverman ceases to serve as President and Chief Executive Officer
prior to January 1, 2000 and at such time Mr. Forbes is Chairman of the
Board, Mr. Forbes shall become President and Chief Executive Officer.
(d) Chief Financial Officer. The Chief Financial Officer shall have
responsibility for the financial affairs of the Corporation and shall
exercise supervisory responsibility for the performance of the duties of the
Treasurer and the Controller. The Chief Financial Officer shall perform such
other duties and have such other powers as may be prescribed by the Board or
these By-laws, all in accordance with basic policies as established by and
subject to the oversight of the Board, the Chairman of the Board and the
President and Chief Executive Officer.
(e) General Counsel. The General Counsel shall have responsibility for the
legal affairs of the Corporation and for the performance of the duties of the
Secretary. The General Counsel shall perform such other duties and have such
other powers as may be prescribed by the Board or these By-laws, all in
accordance with basic policies as established by and subject to the oversight
of the Board, the Chairman of the Board and the President and Chief Executive
Officer.
(f) Until January 1, 2002, any amendment to or modification or repeal of,
or adoption of any provision inconsistent with, this Section 1, by the Board
shall require the affirmative vote of 80% of the entire Board.
SECTION 2. Additional Officers.
The Board may appoint such other officers, agents and employees as it
shall deem appropriate. All references in these By-laws to a particular
officer shall be deemed to refer to the person holding such office regardless
of whether such person holds additional offices.
SECTION 3. Terms of Office.
(a) Subject to Section 1 of this Article IV and this Section 3, all
officers, agents and employees of the Corporation shall hold their respective
offices or positions at the pleasure of the Board of Directors and may be
removed at any time by the Board of Directors with or without cause.
(b) Until January 1, 2002, the removal of Mr. Forbes or Mr. Silverman from
the positions specifically provided for in the employment agreements between
the Corporation and Mr. Forbes and HFS and Mr. Silverman, which are expressly
contemplated by Section 5.17(b) of the Merger Agreement (including by means
of a breach of such employment agreements) shall require the affirmative vote
of 80% of the entire Board.
(c) Until January 1, 2002, any amendment to or modification or repeal of,
or the adoption of any provision inconsistent with, this Section 3 of this
Article IV by the Board or any modification to either of the respective
roles, duties or authority of Messrs. Forbes and Silverman shall require the
affirmative vote of 80% of the entire Board.
SECTION 4. Duties.
Except as provided in Sections 1 or 3 of this Article IV, the officers,
agents and employees shall perform the duties and exercise the powers usually
incident to the offices or positions held by them respectively, and/or such
other duties and powers as may be assigned to them from time to time by the
Board of Directors or the Chief Executive Officer.
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ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Designation.
The Board of Directors of the Corporation shall have the following
committees:
(a) An Executive Committee (which will also act as the nominating
committee) which will consist of eight Directors. Until the third anniversary
of the Effective Time, the Executive Committee shall have the full and
exclusive power and authority, subject to Section 3(b) of this Article V, to
evaluate director candidates for election to the Board and committees of the
Board, to nominate directors for election to the Board at any annual or
special meeting of stockholders and to elect directors to fill vacancies (x)
on the Board in between stockholder meetings or (y) on any committee of the
Board (to the extent an alternate member has not been previously designated
by the Board), in each case pursuant to Section 9(d) of the Certificate of
Incorporation. By establishing the Executive Committee, the Board shall have
delegated exclusively to the Executive Committee its authority with respect
to such matters until the third anniversary of the Effective Time and the
Board shall have no authority to nominate or elect Directors unless this
Section 1 is amended in accordance with Section 1(d) of this Article V.
Subject to the preceding two sentences, the Executive Committee shall have
and may exercise all of the powers of the Board of Directors when the Board
is not in session, including the power to authorize the issuance of stock,
except that the Executive Committee shall have no power to (i) alter, amend
or repeal these By-Laws or any resolution or resolutions of the Board of
Directors; (ii) declare any dividend or make any other distribution to the
stockholders of the Corporation; (iii) appoint any member of the Executive
Committee; or (iv) take any other action which legally may be taken only by
the Board. The Chairman of the Board will also serve as Chairman of the
Executive Committee. Six of the members of the Executive Committee will, to
the extent practicable, be officers of the Corporation and the remaining
members will be independent Directors. Each resolution of the Executive
Committee will require approval by at least five members of such Committee,
provided, that, until the third anniversary of the Effective Time, any
resolution regarding the filling of a Board vacancy in between stockholder
meetings, the filling of a vacancy on any committee of the Board or the
nomination of a director for election at any annual or special meetings of
stockholders in a manner that (l) is consistent with Section 3(b) of this
Article V will require the approval by only three members of the Executive
Committee (or only two members if there are then two vacancies on the
Executive Committee) or (2) is inconsistent with Section 3(b) of this Article
V will require approval by at least seven members of the Executive Committee.
(b) A Compensation Committee which will consist of four Directors. The
Compensation Committee will have the following powers and authority: (i)
determining and fixing the compensation for all senior officers of the
Corporation and those of its subsidiaries that the Compensation Committee
shall from time to time consider appropriate, as well as all employees of the
Corporation and its subsidiaries compensated at a rate in excess of such
amount per annum as may be fixed or determined from time to time by the
Board; (ii) performing the duties of the committees of the Board provided for
in any present or future stock option, incentive compensation or employee
benefit plan of the Corporation or, if the Compensation Committee shall so
determine, any such plan of any subsidiary; and (iii) reviewing the
operations of and policies pertaining to any present or future stock option,
incentive compensation or employee benefit plan of the Corporation or any
subsidiary that the Compensation Committee shall from time to time consider
appropriate. Each resolution of the Compensation Committee will require
approval by at least three members of such committee.
(c) An Audit Committee will consist of four Directors. The Audit Committee
will have the following powers and authority: (i) employing independent
public accountants to audit the books of account, accounting procedures, and
financial statements of the Corporation and to perform such other duties from
time to time as the Audit Committee may prescribe; (ii) receiving the reports
and comments of the Corporation's internal auditors and of the independent
public accountants employed by the Audit Committee and to take such action
with respect thereto as may seem appropriate; (iii) requesting the
Corporation's consolidated subsidiaries and affiliated companies to employ
independent public accountants to audit their respective books of account,
accounting procedures, and financial statements;
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(iv) requesting the independent public accountants to furnish to the
Compensation Committee the certifications required under any present or
future stock option, incentive compensation or employee benefit plan of the
Corporation; (v) reviewing the adequacy of internal financial controls; (vi)
approving the accounting principles employed in financial reporting; (vii)
approving the appointment or removal of the Corporation's general auditor;
and (viii) reviewing the accounting principles employed in financial
reporting. Each resolution of the Audit Committee will require approval by at
least three members of such committee.
(d) Until the third anniversary of the Effective Time, any amendment to or
modification or repeal of, and the adoption of any provision inconsistent
with, this Section 1 by the Board or the designation by the Board of any
additional committees, shall require the affirmative vote of 80% of the
entire Board.
SECTION 2. Meetings; Notice.
Regular meetings of committees shall be held at such times and places as
the Board or the committee in question may from time to time determine.
Special meetings of any committee may be called at any time, at any place and
for any purpose by the Chairman of such committee, the Chairman of the Board,
or the President, or by any officer of the Corporation upon the request of a
majority of the members of such committee. Notice of regular meetings of the
committees need not be given. Notice of every special meeting of any
committee shall be given to each member at his usual place of business, or at
such other address as shall have been furnished by him for the purpose. Such
notice shall be given at least twenty-four hours before the meeting by
telephone or by being personally delivered, mailed, or telegraphed. Such
notice need not include a statement of the business to be transacted at, or
the purpose of, any such meeting.
SECTION 3. Committee Members; Board of Director Nominations.
(a) Subject to the terms of Section 3(b) of this Article V:
(i) Each member of any committee of the Board shall hold office until
such member's successor is elected and has qualified, unless such member
sooner dies, resigns or is removed.
(ii) Until the third anniversary of the Effective Time, the Board may
remove a director from a committee or change the chairmanship of a
committee only by resolution adopted by the affirmative vote of 80% of the
entire Board.
(iii) The Board may designate one or more Directors as alternate members
of any committee to fill any vacancy on a committee and to fill a vacant
chairmanship of a committee, occurring as a result of a member or chairman
leaving the committee, whether through death, resignation, removal or
otherwise. Any such designation may only be made or amended by the
affirmative vote of 80% of the entire Board.
(b) Until the third anniversary of the Effective Time:
(i) The members of the Executive Committee will consist of four CUC
Directors (as defined below) and four HFS Directors (as defined below);
the members of the Compensation Committee will consist of two CUC
Directors and two HFS Directors; and the members of the Audit Committee
will consist of two CUC Directors and two HFS Directors.
(ii) If the number of CUC Directors and HFS Directors serving, or that
would be serving following the next stockholders' meeting at which
Directors are to be elected, as Directors of the Corporation or as members
of any committee of the Board would not be equal, then, the Executive
Committee shall promptly nominate Directors for election to the Board at
the next stockholders' meeting at which Directors are to be elected to the
Board, elect Directors to fill vacancies on the Board in between
stockholders' meetings or elect Directors to fill vacancies on any
committee of the Board (to the extent an alternate member has not
previously been designated by the Board), as the case may be, by
resolution adopted in accordance with Section 1(a) of Article V and as
provided in clause (iv) of this Section 3(b).
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(iii) The CUC Directors shall designate the Chairman of the Audit
Committee and the HFS Directors shall designate the Chairman of the
Compensation Committee.
(iv) Nominations of Directors for election to the Board at any annual or
special meeting of stockholders, the election of Directors to fill
vacancies on the Board in between stockholders' meetings or the election
of Directors to fill vacancies on any committee of the Board (to the
extent an alternate member has not been previously designated by the
Board) shall be undertaken by the Executive Committee such that the number
of HFS Directors and CUC Directors on the Board or any committee of the
Board shall be equal. The term "HFS Director" means (A) any person serving
as a Director of HFS on May 27, 1997 (or any person appointed by the Board
of Directors of HFS after May 27, 1997 to fill a vacancy on the HFS Board
created other than due to an increase in the size of the Board of
Directors of HFS) who continues as a Director of CUC at the Effective Time
and (B) any person who becomes a Director of CUC and who was designated as
such by the remaining HFS Directors prior to his or her election; and the
term "CUC Director" means (A) any person serving as a Director of CUC on
May 27, 1997 (or any person appointed by the Board of Directors of CUC
after May 27, 1997 to fill a vacancy on the CUC Board created other than
due to an increase in the size of the Board of Directors of CUC) who
continues as a Director of CUC at the Effective Time, (B) any of the four
persons designated by the CUC Directors to become a Director of CUC at the
Effective Time and (C) any person who becomes Director of CUC and who was
designated as such by the remaining CUC Directors prior to his or her
election.
SECTION 4. Amendments.
Notwithstanding anything contained in these By-Laws or the Certificate of
Incorporation to the contrary and in addition to any other requirement set
forth herein and therein, until the third anniversary of the Effective Time,
the affirmative vote of at least 80% of the entire Board shall be required
for the Board to amend, modify or repeal, or adopt any provision inconsistent
with, the provisions of this Article V.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings other than
Those by or in the Right of the Corporation.
Subject to Section 3 of this Article VI, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was a director or officer of
the Corporation serving at the request of the Corporation as a director or
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's
conduct was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation.
Subject to Section 3 of this Article VI, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that
such person
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is or was a director or officer of the Corporation, or is or was a director
or officer of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to
the Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper.
SECTION 3. Authorization of Indemnification.
Any indemnification under this Article VI (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon
a determination that indemnification of the director or officer is proper in
the circumstances because such person has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VI, as the case
may be. Such determination shall be made (i) by a majority vote of the
Directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such Directors, or if such
Directors so direct, by independent legal counsel in a written opinion or
(iii) by the stockholders. To the extent, however, that a director or officer
of the Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith, without the necessity of authorization in the
specific case.
SECTION 4. Good Faith Defined.
For purposes of any determination under Section 3 of this Article VI, a
person shall be deemed to have acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe such person's conduct was unlawful,
if such person's action is based on the records or books of account of the
Corporation or another enterprise, or on information supplied to such person
by the officers of the Corporation or another enterprise in the course of
their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care
by the Corporation or another enterprise. The term "another enterprise" as
used in this Section 4 shall mean any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise of which such
person is or was serving at the request of the Corporation as a director,
officer, employee or agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
in Section 1 or 2 of this Article VI, as the case may be.
SECTION 5. Indemnification by a Court.
Notwithstanding any contrary determination in the specific case under
Section 3 of this Article VI, and notwithstanding the absence of any
determination thereunder, any director or officer may apply to the Court of
Chancery in the State of Delaware for indemnification to the extent otherwise
permissible under Sections 1 and 2 of this Article VI. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Section 1 or 2 of this Article VI, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VI nor the
absence of any determination thereunder shall be a defense to such
application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to
the Corporation promptly upon the filing of such application. If successful,
in whole or in part, the director or officer seeking indemnification shall
also be entitled to be paid the expense of prosecuting such application.
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SECTION 6. Expenses Payable in Advance.
Expenses incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation as
authorized in this Article VI.
SECTION 7. Nonexclusivity of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by or granted
pursuant to this Article VI shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote
of stockholders or disinterested Directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that
indemnification of the persons specified in Sections 1 and 2 of this Article
VI shall be made to the fullest extent permitted by law. The provisions of
this Article VI shall not be deemed to preclude the indemnification of any
person who is not specified in Section 1 or 2 of this Article VI but whom the
Corporation has the power or obligation to indemnify under the provisions of
the General Corporation Law of the State of Delaware, or otherwise.
SECTION 8. Insurance.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VI.
SECTION 9. Certain Definitions.
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its Directors or officers, so that
any person who is or was a director or officer of such constituent
corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to
the resulting or surviving corporation as such person would have with respect
to such constituent corporation if its separate existence had continued. For
purposes of this Article VI, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed
to the best interests of the Corporation" as referred to in this Article VI.
SECTION 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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SECTION 11. Limitation on Indemnification.
Notwithstanding anything contained in this Article VI to the contrary,
except for proceedings to enforce rights to indemnification (which shall be
governed by Section 5 hereof), the Corporation shall not be obligated to
indemnify any director or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the Corporation.
SECTION 12. Indemnification of Employees and Agents.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement
of expenses to employees and agents of the Corporation similar to those
conferred in this Article VI to Directors and officers of the Corporation.
ARTICLE VII
SEAL
SECTION 1.
The Corporate seal shall bear the name of the Corporation and the words
"Corporate Seal, Delaware."
ARTICLE VIII
AMENDMENTS
SECTION 1. Amendments of By-Laws.
Subject to the provisions of the Certificate of Incorporation, these
By-Laws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duly called for that purpose)
by the vote of a majority of the shares outstanding and entitled to vote at
such meeting; provided that in the notice of such special meeting notice of
such purpose shall be given. Subject to the laws of the State of Delaware,
the provisions of Certificate of Incorporation and the provisions of these
By-Laws (including, without limitation, the greater vote requirement set
forth in Section 7 of Article III, Sections 1 and 3 of Article IV and
Sections 1 and 4 of Article V hereof), the Board of Directors may by majority
vote of those present at any meeting at which a quorum is present amend these
By-Laws, or enact such other bylaws as in their judgment may be advisable for
the regulation of the conduct of the affairs of the Corporation.
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APPENDIX D
PLAN FOR CORPORATE GOVERNANCE OF CUC INTERNATIONAL INC.
FOLLOWING THE EFFECTIVE TIME
BOARD OF DIRECTORS; COMMITTEES OF THE BOARD
At and from the Effective Time, the total number of persons serving on the
Board of Directors of CUC shall be 30 (unless otherwise agreed in writing
between CUC and HFS prior to the Effective Time), half of whom shall be CUC
Directors and half of whom shall be HFS Directors (as such terms are defined
in the Amended and Restated By-Laws attached as Exhibit A-2 to the Merger
Agreement (the "Restated By-Laws")). The Board of Directors of CUC will adopt
a resolution, effective as of the Effective Time, fixing the size of the CUC
Board at 30.
The persons to serve initially on the Board of Directors of CUC at the
Effective Time who are HFS Directors shall be selected solely by and at the
absolute discretion of the Board of Directors of HFS prior to the Effective
Time; and the persons to serve on the Board of Directors of CUC at the
Effective Time who are CUC Directors shall be selected solely by and at the
absolute discretion of the Board of Directors of CUC prior to the Effective
Time. Initially, five HFS Directors and five CUC Directors designated prior
to the Effective Time by the HFS Board of Directors and the CUC Board of
Directors, respectively, shall be assigned to each of the three classes of
the Board of Directors of CUC from and after the Effective Time. In the event
that, prior to the Effective Time, any person so selected to serve on the
Board of Directors of CUC after the Effective Time is unable or unwilling to
serve in such position, the Board of Directors which is entitled to select
such person shall designate another person to serve in such person's stead in
accordance with the provisions of the immediately preceding two sentences.
Until the third anniversary of the Effective Time, the Executive Committee of
the Board of CUC shall have the exclusive power and authority to nominate
directors for election to the Board at the next stockholders' meeting at
which Directors are to be elected, to elect directors to fill vacancies on
the Board in between stockholders' meetings and to fill vacancies on any
committee of the Board to the extent an alternate member has not been
previously designated by the Board of Directors of CUC and shall promptly
nominate Directors for election to the Board at the next stockholders'
meeting at which Directors are to be elected to the Board, elect Directors to
fill vacancies on the Board in between stockholders' meetings or elect
Directors to fill vacancies on any committee of the Board (to the extent an
alternate member has not previously been designated by the Board), as the
case may be, by resolution adopted in accordance with the Restated By-Laws
and as provided in the next sentence. Nominations of Directors for election
to the Board at any annual or special meeting of stockholders, the election
of Directors to fill vacancies on the Board in between stockholders' meetings
or the election of Directors to fill vacancies on any committee of the Board
(to the extent an alternate member has not been previously designated by the
Board) shall be undertaken by the Executive Committee such that (1) the
number of HFS Directors and CUC Directors on the Board or any committee of
the Board shall be equal and (2) the remaining HFS Directors (if the number
of HFS Directors is less than the number of CUC Directors) or the remaining
CUC Directors (if the number of CUC Directors is less than the number of HFS
Directors) shall designate the person to be nominated or elected.
From and after the Effective Time, as provided in the Restated By-Laws,
the Board of Directors of CUC shall have three committees:
(i) The Executive Committee (which will also act as the nominating
committee) will consist of four CUC Directors (including the Chairman of the
Board of CUC) and four HFS Directors (including the Chief Executive Officer
of HFS). The Board of Directors of CUC will adopt a resolution, effective as
of the Effective Time, establishing the Executive Committee in accordance
with the Restated By-Laws, delegating to the Executive Committee those powers
and authorities as provided in the Restated By-Laws, appointing its members
and naming specific alternate members (who shall be HFS Directors) for
members of the Executive Committee who are HFS Directors and naming specific
alternate members (who shall be CUC Directors) for the members of the
Executive Committee who are CUC Directors. The Chairman of the Board will
also serve as Chairman of the Executive Committee. The Executive
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Committee will include three CUC Directors and three of the HFS Directors
who, to the extent practicable, are officers of CUC at and after the
Effective Time and the remaining directors will be independent directors.
(ii) The Compensation Committee will consist of two CUC Directors and two
HFS Directors. The Chairman of the Compensation Committee will be designated
by the HFS Directors. The Board of Directors of CUC will adopt a resolution,
effective as of the Effective Time, establishing the Compensation Committee
in accordance with the Restated By-Laws, delegating to the Compensation
Committee those powers and authorities as provided in the Restated By-Laws,
appointing its members and naming specific alternate members (who shall be
HFS Directors) for members of the Compensation Committee who are HFS
Directors and naming specific alternate members (who shall be CUC Directors)
for members of the Compensation Committee who are CUC Directors.
(iii) The Audit Committee will consist of two CUC Directors and two HFS
Directors. The Chairman of the Audit Committee will be designated by the CUC
Directors. The Board of Directors of CUC will adopt a resolution, effective
as of the Effective Time, establishing the Audit Committee in accordance with
the Restated By-Laws, delegating to the Audit Committee those powers and
authorities as provided in the Restated By-Laws, appointing its members and
naming specific alternate members (who shall be HFS Directors) for members of
the Audit Committee who are HFS Directors and naming specific alternate
members (who shall be CUC Directors) for members of the Audit Committee who
are CUC Directors.
At and after the Effective Time and until January 1, 2002, the removal of
Mr. Forbes or Mr. Silverman from their executive positions or any breach of
their respective employment agreements shall require the approval of at least
80% of the entire Board of Directors of CUC. Until the third anniversary of
the Effective Time, any change in the size of the Board of Directors of CUC,
any change in the composition or power and authority of the Committees of the
CUC Board or the chairmanship of such Committees or any change or amendment
to the Restated By-Laws implementing any of the foregoing shall require the
approval by at least 80% of the entire Board of Directors of CUC.
Each of the resolutions of the CUC Board adopted in order to effect the
provisions of this Exhibit B shall state that, until the third anniversary of
the Effective Time, such resolution may be amended or superseded only by a
new resolution of the CUC Board which is adopted by 80% of the entire Board
(as defined in the Restated By-Laws).
OFFICERS
From and after the Effective Time, the Executive Officers of CUC shall be
the following:
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
Walter A. Forbes........ Chairman of the Board
Henry R. Silverman .... President and Chief Executive Officer
Michael P. Monaco ...... Chief Financial Officer
James E. Buckman ....... General Counsel
</TABLE>
From and after January 1, 2000, Mr. Silverman shall be the Chairman of the
Board and Mr. Forbes shall be the President and Chief Executive Officer. If,
for any reason Mr. Silverman ceases to serve as President and Chief Executive
Officer prior to January 1, 2000 and at such time Mr. Forbes is Chairman of
the Board, Mr. Forbes shall become President and Chief Executive Officer. If,
for any reason Mr. Forbes ceases to serve as Chairman of the Board prior to
January 1, 2000 and at such time Mr. Silverman is President and Chief
Executive Officer, Mr. Silverman shall become Chairman of the Board.
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APPENDIX E
CUC INTERNATIONAL INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive advantage
in attracting, retaining and motivating officers and employees and to provide
the Corporation and its Affiliates with a stock plan providing incentives
directly linked to the profitability of the Corporation's businesses and
increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Corporation.
b. "Award" means the grant of a Stock Appreciation Right, Stock Option or
Restricted Stock pursuant to the Plan.
c. "Board" means the Board of Directors of the Corporation.
d. "Cause" means (except as otherwise provided by the Committee in the
agreement relating to any Award) (1) conviction of a participant for
committing a felony under federal law or the law of the state in which such
action occurred, (2) dishonesty in the course of fulfilling a participant's
employment duties or (3) willful and deliberate failure on the part of a
participant to perform his employment duties in any material respect.
Notwithstanding the foregoing, if a participant is a party to an employment
agreement with the Corporation or any Affiliate that contains a definition of
"Cause," such definition shall apply to such participant for purposes of the
Plan except to the extent otherwise provided by the Committee in the
agreement relating to any Award.
e. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
f. "Commission" means the Securities and Exchange Commission or any
successor agency.
g. "Committee" means the Committee referred to in Section 2.
h. "Common Stock" means common stock, par value $0.01 per share, of the
Corporation.
i. "Corporation" means CUC International Inc., a Delaware corporation.
j. "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock by the Committee who is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which Restricted Stock is expected to be taxable to such participant.
k. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange, on any
other national securities exchange on which the Common Stock is listed or on
NASDAQ. If there is no regular public trading market for such Common Stock,
the Fair Market Value of the Common Stock shall be determined by the
Committee in good faith.
n. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422
of the Code.
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o. "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
p. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
q. "Qualified Performance-Based Award" means an Award of Restricted Stock
designated as such by the Committee at the time of grant, based upon a
determination that (i) the recipient is or may be a "covered employee" within
the meaning of Section 162(m)(3) of the Code in the year in which the
Corporation would expect to be able to claim a tax deduction with respect to
such Restricted Stock and (ii) the Committee wishes such Award to qualify for
the Section 162(m) Exemption.
r. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock. In the case of
Qualified Performance-Based Awards, (i) such goals shall be based on the
attainment of specified levels of one or more of the following measures:
earnings per share, sales, net profit after tax, gross profit, operating
profit, cash generation, return on equity, change in working capital, return
on capital or shareholder return, and (ii) such Performance Goals shall be
set by the Committee within the time period prescribed by Section 162(m) of
the Code and related regulations.
s. "Plan" means the CUC International Inc. 1997 Stock Incentive Plan, as
set forth herein and as hereinafter amended from time to time.
t. "Restricted Stock" means an Award granted under Section 7.
u. "Retirement" means retirement from active employment with the
Corporation or an Affiliate at or after age 65.
v. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
w. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
x. "Stock Appreciation Right" means an Award granted under Section 6.
y. "Stock Option" means an Award granted under Section 5.
z. "Termination of Employment" means the termination of the participant's
employment with the Corporation and its Affiliates. A participant employed by
an Affiliate shall also be deemed to incur a Termination of Employment if
such Affiliate ceases to be an Affiliate and the participant does not
immediately thereafter become an employee of the Corporation or another
Affiliate. Temporary absences from employment because of illness, vacation or
leave of absence and transfers among the Corporation and its Affiliates shall
not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of
Section 162(m)(4) of the Code, and who shall be appointed by and serve at the
pleasure of the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to directors, officers and employees of the Corporation and
its Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the directors, officers and employees to whom Awards may
from time to time be granted;
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(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)
hereof), any vesting condition, restriction or limitation (which may be
related to the performance of the participant, the Corporation or any
Affiliate) and any vesting acceleration or forfeiture waiver regarding any
Award and the shares of Common Stock relating thereto), based on such factors
as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not adjust upwards the
amount payable with respect to a Qualified Performance-Based Award or waive
or alter the Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash
or Common Stock under Sections 5(j) and 6(b)(ii).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of
the Plan and any Award issued under the Plan (and any agreement relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number
or any officer of the Corporation to execute and deliver documents on behalf
of the Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be
made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall
be final and binding on all persons, including the Corporation and Plan
participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an
exemption under) the short-swing profit recovery provisions of Section 16 of
the Exchange Act or cause an award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. To the extent that any permitted action taken by
the Board conflicts with action taken by the Committee, the Board action
shall control.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be twenty-five million (25,000,000). No
participant may be granted Awards under the Plan covering in excess of ten
million (10,000,000) shares of Common Stock over any consecutive five (5)
year period; provided, that with respect to the five (5) year period
beginning as of the date of the consummation of the merger of HFS
Incorporated ("HFS") into the Corporation pursuant to the Agreement and Plan
of Merger dated as of May 27, 1997, between the Corporation and HFS, no
participant may be granted Awards in excess of the sum of (i) ten million
(10,000,000) shares of Common Stock, plus (ii) the number of shares of Common
Stock covering the Awards specified on Schedule I hereto. Shares subject to
an Award under the Plan may be authorized and unissued shares or may be
treasury shares.
If any shares of Restricted Stock are forfeited, or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is
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exercised for cash, shares of Common Stock subject to such Awards shall again
be available for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, or any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes
within the definition of such term in Section 368 of the Code) or any partial
or complete liquidation of the Corporation, the Committee or Board may make
such substitution or adjustments in the aggregate number and kind of shares
reserved for issuance under the Plan, in the number, kind and option price of
shares subject to outstanding Stock Options and Stock Appreciation Rights, in
the number and kind of shares subject to other outstanding Awards granted
under the Plan and/or such other equitable substitution or adjustments as it
may determine to be appropriate in its sole discretion; provided, however,
that the number of shares subject to any Award shall always be a whole
number. Such adjusted option price shall also be used to determine the amount
payable by the Corporation upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
SECTION 4. ELIGIBILITY
Directors, officers and employees of the Corporation and its Affiliates
who are responsible for or contribute to the management, growth and
profitability of the business of the Corporation and its Affiliates are
eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and
NonQualified Stock Options. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted
only to employees of the Corporation and its subsidiaries (within the meaning
of Section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a NonQualified
Stock Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its
face whether it is intended to be an agreement for an Incentive Stock Option
or a NonQualified Stock Option. The grant of a Stock Option shall occur on
the date the Committee by resolution selects an individual to be a
participant in any grant of a Stock Option, determines the number of shares
of Common Stock to be subject to such Stock Option to be granted to such
individual and specifies the terms and provisions of the Stock Option. The
Corporation shall notify a participant of any grant of a Stock Option, and a
written option agreement or agreements shall be duly executed and delivered
by the Corporation to the participant. Such agreement or agreements shall
become effective upon execution by the Corporation.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered
nor shall any discretion or authority granted under the Plan be exercised so
as to disqualify the Plan under Section 422 of the Code or, without the
consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions
as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in
the option agreement, and shall not be less than the Fair Market Value of the
Common Stock subject to the Stock Option on the date of grant.
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(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
(10) years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may
at any time waive such installment exercise provisions, in whole or in part,
based on such factors as the Committee may determine. In addition, the
Committee may at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Corporation specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Corporation may
accept. If approved by the Committee, payment, in full or in part, may also
be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock
Option is exercised); provided, however, that, in the case of an Incentive
Stock Option, the right to make a payment in the form of already owned shares
of Common Stock of the same class as the Common Stock subject to the Stock
Option may be authorized only at the time the Stock Option is granted and
provided, further, that such already owned shares have been held by the
optionee for at least six (6) months at the time of exercise.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise
notice to the Corporation, together with a copy of irrevocable instructions
to a broker to deliver promptly to the Corporation the amount of sale or loan
proceeds necessary to pay the purchase price, and, if requested, by the
amount of any federal, state, local or foreign withholding taxes. To
facilitate the foregoing, the Corporation may enter into agreements for
coordinated procedures with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in Section 5(k) below, an optionee
shall have all of the rights of a shareholder of the Corporation holding the
class or series of Common Stock that is subject to such Stock Option
(including, if applicable, the right to vote the shares and the right to
receive dividends), when the optionee has given written notice of exercise,
has paid in full for such shares and, if requested, has given the
representation described in Section 11(a).
(e) Transferability of Stock Options. Stock Options shall be transferable
by the optionee only pursuant to the following methods, and, with respect to
Incentive Stock Options, only to the extent permitted under the Code for
options to qualify as Incentive Stock Options: (i) by will or the laws of
descent and distribution; (ii) pursuant to a domestic relations order, as
defined in the Code or Title 1 of the Employee Retirement Income Security
Act, as amended, or the regulations thereunder; or (iii) as a gift to family
members of the optionee, trusts for the benefit of family members of the
optionee or charities or other not-for-profit organizations. Except to the
extent provided in this Section 5(e) or in Sections 5(f), (g) and (h) below,
Stock Options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise), shall not
be subject to execution, attachment or similar process, and may be exercised
during the lifetime of the holder thereof only by such holder.
(f) Termination by Death or Disability. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of death or
Disability, any Stock Option held by such
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optionee may thereafter be exercised, whether or not it was exercisable at
the time of such termination, for a period of twelve (12) months (or such
other period as the Committee may specify in the option agreement) from the
date of such termination or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(g) Termination by Reason of Retirement. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
such Retirement, or on such accelerated basis as the Committee may determine,
for a period of five (5) years (or such other period as the Committee may
specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such period any unexercised Stock Option held by such optionee shall,
notwithstanding the expiration of such period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a period of
twelve (12) months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Unless otherwise determined by the Committee, if an
optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee, to the
extent then exercisable, or on such accelerated basis as the Committee may
determine, may be exercised for the lesser of three (3) months from the date
of such Termination of Employment or the balance of such Stock Option's term;
provided, however, that if the optionee dies within such three (3) month
period, any unexercised Stock Option held by such optionee shall,
notwithstanding the expiration of such three (3) month period, continue to be
exercisable to the extent to which it was exercisable at the time of death
for a period of twelve (12) months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(i) Post-Employment Exercise of Incentive Stock Option. In the event of
any Termination of Employment, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
NonQualified Stock Option.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of the shares
of Common Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Common Stock, as determined by the Committee,
equal to the excess of the Fair Market Value of the Common Stock over the
option price times the number of shares of Common Stock for which the Option
is being exercised on the effective date of such cash-out.
(k) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until
a time or times later than the exercise of an Option, receipt of all or a
portion of the shares subject to such Option and/or to receive cash at such
later time or times in lieu of such deferred shares, all on such terms and
conditions as the Committee shall determine. If any such deferrals are
permitted, then notwithstanding Section 5(d) above, an optionee who elects
such deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until certificates representing such shares are
actually delivered to the optionee with respect thereto, except to the extent
otherwise determined by the Committee.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In
the case of a NonQualified Stock Option, such rights may be granted either at
or after the time of grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of grant of such
Stock Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures
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established by the Committee. Upon such exercise and surrender, the optionee
shall be entitled to receive an amount determined in the manner prescribed in
Section 6(b). Stock Options which have been so surrendered shall no longer be
exercisable to the extent the related Stock Appreciation Rights have been
exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this
Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive an amount in cash, shares of Common Stock or both,
in value equal to the excess of the Fair Market Value of one share of
Common Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section
5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 on the number of shares of Common Stock to be issued under
the Plan, but only to the extent of the number of shares covered by the
Stock Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
SECTION 7. RESTRICTED STOCK
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee shall
determine the directors, officers and employees to whom and the time or times
at which grants of Restricted Stock will be awarded, the number of shares of
Restricted Stock to be awarded to any participant (subject to the aggregate
limit on grants to individual participants set forth in Section 3), the
conditions for vesting, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the
name of such participant and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the CUC International Inc. 1997 Stock
Incentive Plan and a Restricted Stock Agreement. Copies of such
Plan and Agreement are on file at the offices of CUC International
Inc., 707 Summer Street, Stamford, Connecticut 06901."
"This security has not been registered under the Securities Act of
1933, as amended. Neither this security nor any interest or
participation herein may be reoffered, sold, assigned,
transferred, pledged, encumbered or otherwise disposed of in the
absence of such registration unless an exemption from such
registration is available."
The Committee may require that the certificates evidencing such shares of
Restricted Stock be held in custody by the Corporation until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
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(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an
Award of Restricted Stock as a Qualified Performance-Based Award, in which
event it shall condition the grant or vesting, as applicable, of such
Restricted Stock upon the attainment of Performance Goals. If the
Committee does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting
thereof upon the attainment of Performance Goals. Regardless of whether an
Award of Restricted Stock is a Qualified Performance-Based Award, the
Committee may also condition the grant or vesting thereof upon the
continued service of the participant. The conditions for grant or vesting
and the other provisions of Restricted Stock Awards (including, without
limitation, any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that
is a Qualified Performance-Based Award, the applicable Performance Goals
shall have been satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vii), during the period, if any, set
by the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"),
and until the later of (i) the expiration of the Restriction Period and
(ii) the date the applicable Performance Goals (if any) are satisfied, the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock received pursuant to such
Award; provided that the foregoing shall not prevent a participant from
pledging Restricted Stock received pursuant to such Award as security for
a loan, the sole purpose of which is to provide funds to pay the option
price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i) and
7(c)(ii) and the Restricted Stock Agreement, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Corporation holding the class or series of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends. If
so determined by the Committee in the applicable Restricted Stock
Agreement and subject to Section 11(e) of the Plan, (A) cash dividends on
the class or series of Common Stock that is the subject of the Restricted
Stock Award shall be automatically deferred and reinvested in additional
Restricted Stock, held subject to the vesting of the underlying Restricted
Stock, or held subject to meeting Performance Goals applicable only to
dividends, and (B) dividends payable in Common Stock shall be paid in the
form of Restricted Stock of the same class as the Common Stock with which
such dividend was paid, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals applicable
only to dividends.
(iv) Except to the extent otherwise provided in the applicable Restricted
Stock Agreement and Sections 7(c)(i), 7(c)(ii), and 7(c)(v), upon a
participant's Termination of Employment for any reason during the
Restriction Period or before the applicable Performance Goals are
satisfied, all shares of Restricted Stock still subject to restriction
shall be forfeited by the participant.
(v) In the event of a participant's Retirement, or if such participant's
employment is involuntarily terminated (other than for Cause), the
Committee shall have the discretion to waive, in whole or in part, any or
all remaining restrictions (other than, in the case of Restricted Stock
with respect to which a participant is a Covered Employee, satisfaction of
the applicable Performance Goals unless the participant's employment is
terminated by reason of death or Disability) with respect to any or all of
such participant's shares of Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted
Stock, unlegended certificates for shares of Common Stock that are the
subject of the Restricted Stock Award shall be delivered to the
participant upon surrender of the legended certificates.
(vii) Each Award of Restricted Stock shall be confirmed by, and be
subject to, the terms of a Restricted Stock Agreement executed by the
Corporation.
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SECTION 8. TAX OFFSET BONUSES
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the participant receiving such Award the right to
receive a cash payment in an amount specified by the Committee, to be paid at
such time or times (if ever) as the Award results in compensation income to
the participant, for the purpose of assisting the participant to pay the
resulting taxes, all as determined by the Committee and on such other terms
and conditions as the Committee shall determine.
SECTION 9. TERM, AMENDMENT AND TERMINATION
The Plan will terminate ten (10) years after the effective date of the
Plan. Under the Plan, Awards outstanding as of such date shall not be
affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of
an optionee under a Stock Option or a recipient of a Stock Appreciation Right
or Restricted Stock Award theretofore granted without the optionee's or
recipient's consent, except such an amendment made to cause the Plan to
qualify for any exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Corporation's
stockholders to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment
shall cause a Qualified Performance-Based Award to cease to qualify for the
Section 162(m) Exemption or impair the rights of any holder without the
holder's consent except such an amendment made to cause the Plan or Award to
qualify for any exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 10. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the
Plan to deliver Common Stock or make payments; provided, however, that unless
the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 11. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Corporation in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on
transfer.
Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver
any certificate or certificates for shares of Common Stock under the Plan
prior to fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the
maintaining in effect of any such registration or other qualification
which the Committee shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be
necessary or advisable.
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(b) Nothing contained in the Plan shall prevent the Corporation or any
Affiliate from adopting other or additional compensation arrangements for its
employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any Affiliate to terminate the employment of any employee at
any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Corporation, or make arrangements satisfactory to the Corporation regarding
the payment of, any federal, state, local or foreign taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Corporation, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement. The obligations of the Corporation under
the Plan shall be conditional on such payment or arrangements, and the
Corporation and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to the
participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time
of any dividend payment shall only be permissible if sufficient shares of
Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in
the event of the participant's death are to be paid or by whom any rights of
the participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of an Affiliate of
the Corporation, the Corporation may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
Affiliate, for such lawful consideration as the Committee may specify, upon
the condition or understanding that the Affiliate will transfer the shares of
Common Stock to the employee in accordance with the terms of the Award
specified by the Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.
(i) Anything in this Plan to the contrary notwithstanding, the Board may,
without further approval by the stockholders, substitute new options for, or
assume, prior options of any corporation which engages with the Corporation
or any of its Affiliates in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an
incentive stock option), or any parent or any subsidiary of such corporation.
(j) With respect to optionees subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
SECTION 12. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is approved by at least a
majority of the shares of Common Stock of the Corporation voted with respect
to such approval.
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SCHEDULE I
Awards shall be made pursuant to the Plan upon consummation of the
merger of HFS into the Corporation pursuant to the Agreement and Plan of Merger
dated as of May 27, 1997, between the Corporation and HFS, as required by
employment agreements with the following individuals, which awards will not
exceed the amounts described below:
Options on 4 million shares to Walter A. Forbes;
Options on 14,418,600 shares to Henry R. Silverman;
Options on 1.8 million shares to E. Kirk Shelton;
Options on 1.8 million shares to Christopher K. McLeod;
Options on 600,000 shares to Cosmo Corigliano;
Options on 600,000 shares to Amy Lipton;
Options on 360,000 shares and shares of restricted stock having a
value of $1.1 million to Michael P. Monaco;
Options on 360,000 shares and shares of restricted stock having a
value of $1.1 million to Stephen P. Holmes; and
Options on 360,000 shares and shares of restricted stock having a
value of $1.4 million to James E. Buckman.
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[GOLDMAN, SACHS & CO. LETTERHEAD]
85 Broad Street
New York, New York 10004
Tel: 212-902-1000
PERSONAL AND CONFIDENTIAL
- -------------------------
May 27, 1997
Board of Directors
CUC International Inc.
707 Summer Street
Stamford, CT 06904-2049
Ladies and Gentlemen:
You have requested our opinion as to the fairness to CUC International Inc.
(the "Company") of the exchange ratio of 2.4031 shares of Common Stock, par
value $.01 per share (the "Shares"), of the Company (the "Exchange Ratio") to
be exchanged for each outstanding share of Common Stock, par value $.01 per
share (the "HFS Common Stock"), of HFS Incorporated ("HFS") pursuant to the
Agreement and Plan of Merger dated as of May 27, 1997 between the Company and
HFS (the "Agreement").
Goldman, Sachs & Co. ("Goldman Sachs" or the "Firm"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company, having provided certain
investment banking services to it from time to time, including having acted as
its financial advisor in connection with various acquisitions in 1996; having
acted as lead managing underwriter in the public offerings of Shares in 1992
and 1996; as private placement agent in the private placement of convertible
subordinated notes in 1997; and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement. We also have provided certain investment banking services
to HFS from time to time, including having acted as co-managing underwriter in
the public offerings of HFS Common Stock in 1995 and 1996 and of convertible
senior notes in 1996. In addition, we acted as the financial advisor to PHH
Corporation ("PHH") in connection with the acquisition of PHH by HFS in 1997.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, the Firm has
accumulated a short position of 242,211 Shares, a long position of $911,000 of
the Company's 3% Convertible Subordinated Notes due 2002, a long position of
24,821 shares of HFS Common Stock and a short position of $120,000 of HFS's
4 3/4% Convertible Senior Notes due 2003.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Joint Proxy Statement/Prospectus of HFS dated March 27, 1997
with respect to the PHH acquisition; Annual Reports to Stockholders and Annual
Reports on Form 10-K of the Company and HFS for the five years ended
January 31, 1997 and December 31, 1996, respectively; certain interim reports
of the Company and HFS to their respective stockholders and Quarterly Reports
on Form 10-Q of the
F-F-1
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CUC International Inc.
May 27, 1997
Page Two
Company and HFS; certain other communications from the Company and HFS to their
respective stockholders; and certain internal financial analyses and forecasts
for the Company and HFS prepared by their respective managements. We also have
held discussions with members of the senior management of the Company and HFS
regarding the strategic rationale for, and potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies and of the combined operations of the Company and HFS. In addition,
we have reviewed the reported price and trading activity for the Shares and the
HFS Common Stock, compared certain financial and stock market information for
the Company and HFS with similar information for certain other companies the
securities of which are publicly traded and performed such other studies and
analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with the Company's consent that the financial forecasts provided by the
respective managements of the Company and HFS, including the synergies expected
to be derived from the business combination, have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
managements of the Company and HFS. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or HFS or any of their subsidiaries and we have not been furnished with
any such evaluation or appraisal. We also have assumed that the transaction
contemplated by the Agreement will be accounted for as a pooling of interests
under generally accepted accounting principles. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute
a recommendation as to how any holder of Shares should vote on the proposed
transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion as of the date hereof that the Exchange
Ratio pursuant to the Agreement is fair to the Company.
Very truly yours,
/s/ Goldman Sachs & Co.
- -----------------------
(GOLDMAN, SACHS & CO.)
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APPENDIX G
[BEAR STEARNS LETTERHEAD]
May 27, 1997
Board of Directors
HFS Incorporated
Six Sylvan Way
Parsippany, NJ 07054
Ladies and Gentlemen:
We understand that HFS Incorporated ("HFS") and CUC International Inc.
("CUC") have entered into a "merger of equals" transaction by means of an
Agreement and Plan of Merger, dated as of May 27, 1997 (the "Merger
Agreement"), pursuant to which HFS will be merged with and into CUC (the
"Merger") and CUC will be the surviving corporation ("New CUC"). We further
understand that in the Merger (i) each outstanding share of common stock, par
value $0.01 per share, of HFS ("HFS Common Stock"), other than treasury
shares and shares held by CUC, and all rights in respect thereof, will be
converted into the right to receive 2.4031 shares (the "Exchange Ratio") of
common stock, par value $0.01 per share (after giving effect to the Restated
Certificate of Incorporation of CUC which will become effective no later than
the effective time of the Merger), of CUC (prior to the Merger, "CUC Common
Stock" and, following the Merger, "New CUC Common Stock") and (ii) each
outstanding HFS employee stock option or other right to purchase or receive
HFS Common stock will be converted into a similar security or right to
purchase or receive New CUC Common Stock, adjusted to reflect the Exchange
Ratio. Based on the Exchange Ratio, current holders of HFS Common Stock would
hold approximately 49.7% and current holders of CUC Common Stock would hold
approximately 50.3% of the outstanding shares of New CUC Common Stock on a
fully-diluted basis after consummation of the Merger (assuming for analytical
purposes that proceeds from the hypothetical exercise of stock options or
warrants are used to repurchase shares).
You have asked us to render our opinion as to the fairness of the Exchange
Ratio, from a financial point of view, to the holders of HFS Common Stock.
In the course of performing our review and analyses for rendering this
opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed each of HFS's and CUC's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the year ended December 31, 1996
and January 31, 1997, respectively, and HFS's Quarterly Report on
Form 10-Q for the period ended March 31, 1997;
3. reviewed certain operating and financial information provided to us
by the senior managements of HFS and CUC relating to HFS's and
CUC's respective businesses and prospects, including income
statement projections of each company for the fiscal years ended
December 31, 1997 and 1998 for HFS and for the fiscal years ended
January 31, 1998 and 1999 for CUC (collectively, the "Two-Year
Projections") and certain other forward-looking information;
4. reviewed certain estimates of cost savings, revenue synergies and
other combination benefits (collectively, the "Projected Benefits")
expected to result from the Merger, jointly prepared and provided
to us by the senior managements of HFS and CUC;
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5. met separately and/or jointly with certain members of the senior
managements of HFS and CUC to discuss (i) each company's
operations, historical financial statements, future prospects and
financial condition, (ii) their views of the strategic, business,
operational and financial rationale for, and expected strategic
benefits and other implications of, the Merger, and (iii) the
Two-Year Projections and the Projected Benefits.
6. reviewed the historical stock prices, trading activity and
valuation parameters of HFS Common Stock and CUC Common Stock;
7. reviewed and analyzed the pro forma financial impact of the Merger
on HFS and CUC;
8. reviewed the terms, to the extent publicly available, of recent
"mergers-of-equals" transactions which we deemed generally
comparable to the Merger or otherwise relevant to our inquiry; and
9. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to or discussed with us by HFS and CUC. In that
regard and with respect to financial and operating forecasts, including
without limitation the Two-Year Projections and Projected Benefits, we have
assumed with your consent that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective senior managements of HFS and CUC as to the anticipated future
performance of their respective companies and as to the anticipated savings
achievable within the time frames forecast therein and that such financial
and operating forecasts, including without limitation the Two-Year
Projections and the Projected Benefits, will be realized in the amounts and
at the time periods contemplated thereby. We express no view as to such
financial information and forecasts, the Two-Year Projections or the
Projected Benefits or the assumptions on which they were based. We have also
assumed with your consent that the Merger will (i) qualify as a tax-free
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and (ii) be accounted for as a pooling of interests
under generally accepted accounting principles.
For purposes of rendering this opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each
party in the Merger Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and correct, that
each party to the Documents will perform all of the covenants and agreements
required to be performed by such party under such Documents, and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. We have assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions, including any divestiture requirements or amendments
or modifications, will be imposed that will have a material adverse effect on
the contemplated benefits of the Merger.
In arriving at our opinion, we have not performed any independent
evaluations or appraisals of the assets or liabilities of HFS or CUC or their
respective subsidiaries, nor have we been furnished with any such evaluations
or appraisals. In rendering our opinion herein, we have analyzed the Merger
as a strategic business combination not involving a sale of control of HFS,
and we have not solicited, and have not been requested to solicit by HFS or
the Board of Directors of HFS, any third party acquisition interest in HFS.
In addition, we are not expressing any opinion as to the price or range of
prices at which New CUC Common Stock may trade subsequent to the consummation
of the Merger. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
We are acting as financial advisor to HFS in connection with the Merger
and will receive a fee for such services, payment of a significant portion of
which is contingent upon the consummation of the Merger. In addition, HFS has
agreed to indemnify us for certain liabilities arising out of our engagement.
We have previously rendered and in the future may continue to render certain
investment banking and financial advisory services to both HFS and CUC for
which we received customary compensation. In addition, the Vice Chairman of
The Bear Stearns Company Inc., which is our parent company, is a member of
the Board of Directors of HFS and the Vice Chairman of Bear Stearns
Investment Banking and a Senior Managing Director in Investment Banking,
serve as trustees for National Realty Trust, a trust that was created by HFS
and is a significant real estate brokerage franchisee of HFS. In the ordinary
course of our business, we may actively trade the securities of HFS and/or
CUC for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
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It is understood that this letter is intended for the benefit and use of
the Board of Directors of HFS, does not address the merits of the underlying
decision by HFS to engage in the Merger and does not constitute a
recommendation to any holder of HFS Common Stock as to how such holder should
vote on the proposed Merger. This letter is not to be used for any other
purpose, or reproduced, disseminated, quoted or referred to at any time, in
whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of HFS Common Stock in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of HFS Common Stock.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Randall E. Paulson
------------------------------
Randall E. Paulson
Managing Director
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