As filed with the Securities and Exchange Commission on October 18, 2013.
Registration No. 333-191110
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hilton Worldwide Holdings Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 7011 | 27-4384691 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
7930 Jones Branch Drive, Suite 1100
McLean, VA 22102
Telephone: (703) 883-1000
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Christopher J. Nassetta
President and Chief Executive Officer
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, VA 22102
Telephone: (703) 883-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Joshua Ford Bonnie Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 Telephone: (212) 455-2000 Facsimile: (212) 455-2502 |
Kristin A. Campbell Executive Vice President and General Counsel Hilton Worldwide Holdings Inc. 7930 Jones Branch Drive, Suite 1100 McLean, VA 22102 Telephone: (703) 883-1000 |
Kevin J. Jacobs Executive Vice President and Chief Financial Officer Hilton Worldwide Holdings Inc. 7930 Jones Branch Drive, Suite 1100 McLean, VA 22102 Telephone: (703) 883-1000 |
Michael P. Kaplan
John B. Meade Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 Telephone: (212) 450-4111 Facsimile: (212) 701-5111 |
Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||||
Non-accelerated filer | x | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
CALCULATION OF REGISTRATION FEE
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Title Of Each Class Of
Securities To Be Registered |
Proposed Maximum Aggregate Offering Price (1)(2) |
Amount of
Registration Fee (3) |
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Common Stock, par value $0.01 per share |
$ 1,250,000,000 | $ 170,500 | ||
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(1) | Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. |
(2) | Includes shares of common stock subject to the underwriters option to purchase additional shares of common stock. |
(3) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated October 18, 2013.
Shares
Hilton Worldwide Holdings Inc.
Common Stock
This is an initial public offering of shares of common stock of Hilton Worldwide Holdings Inc. All of the shares of common stock are being sold by us.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We intend to apply to list our shares of common stock on under the symbol .
After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of shares eligible to vote in the election of our directors. As a result, we will be a controlled company. See ManagementControlled Company Exception.
See Risk Factors beginning on page 15 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds, before expenses, to us (1) |
$ | $ |
(1) | See Underwriting. |
To the extent that the underwriters sell more than shares of our common stock, the underwriters have the option to purchase up to an additional shares of our common stock from us at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on or about , .
Deutsche Bank Securities | Goldman, Sachs & Co. | BofA Merrill Lynch | Morgan Stanley |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Security Ownership of Certain Beneficial Owners and Management |
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F-1 |
Neither we nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. Neither we nor the underwriters take any responsibility for, or can provide any assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by us or on our behalf. We and the underwriters are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.
Unless indicated otherwise, the information included in this prospectus (1) assumes no exercise by the underwriters of the option to purchase up to an additional shares of common stock from us, (2) assumes that the shares of common stock to be sold in this offering are sold at $ per share of common stock, which is the midpoint of the price range indicated on the front cover of this prospectus, and (3) reflects the stock split that we intend to effectuate prior to this offering, whereby each issued and outstanding share of our common stock will be converted into shares.
Except where the context requires otherwise, references in this prospectus to Hilton, Hilton Worldwide, the Company, we, us, and our refer to Hilton Worldwide Holdings Inc., together with its consolidated subsidiaries. We refer to the estimated over 300,000 individuals working at our owned, leased, managed, franchised, timeshare and corporate locations worldwide as of June 30, 2013 as our team members. Of these team members, approximately 147,000 were directly employed or supervised by us and the remaining team members were employed or supervised by third-parties. Except where the context requires otherwise, references to our properties, hotels and rooms refer to the hotels, resorts and timeshare properties managed, franchised, owned or leased by us. Of these hotels or resorts and rooms, a portion are directly owned or leased by us or joint ventures in which we have an interest and the remaining hotels or resorts and rooms were owned by our third-party owners.
Investment funds associated with or designated by The Blackstone Group L.P., our current majority owners, are referred to herein as Blackstone or our Sponsor and Blackstone, together with the other owners of Hilton Worldwide Holdings Inc. prior to this offering, are collectively referred to as our existing owners.
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Reference to ADR or Average Daily Rate means hotel room revenue divided by total number of rooms sold in a given period and RevPAR or Revenue per Available Room represents hotel room revenue divided by room nights available to guests for a given period. References to RevPAR index measure a hotels relative share of its segments Revenue per Available Room. For example, if a subject hotels RevPAR is $50 and the RevPAR of its competitive set is $50, the subject hotel would have no RevPAR index premium. If the subject hotels RevPAR totaled $60, its RevPAR index premium would be 20%, which indicates that the subject hotel has outperformed other hotels in its competitive set. References to global RevPAR index premium means the average RevPAR index premium of our comparable hotels (as defined in Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Business and Financial Metrics used by ManagementComparable Hotels on page 64, but excluding hotels that do not receive competitive set information from Smith Travel Research, or STR, or do not participate with STR). The owner or manager of each Hilton comparable hotel exercises its discretion in identifying the competitive set of properties for such hotel, considering factors such as physical proximity, competition for similar customers, product features, services and amenities, quality and average daily rate, as well as STR rules regarding competitive set makeup. Accordingly, while the hotel brands included in the competitive set for any given Hilton comparable hotel depend heavily on market-specific conditions, the competitive sets for Hilton comparable hotels frequently include properties branded with the competing brands identified for the relevant Hilton comparable hotel listed under Selected Competitors on page 111. STR provides us with the relevant data for competitive sets that we submit for each of our comparable hotels, which we utilize to compute the RevPAR index for our comparable hotels.
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This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in shares of our common stock. You should read this entire prospectus carefully, including the section entitled Risk Factors and the financial statements and the related notes included elsewhere in this prospectus, before you decide to invest in shares of our common stock.
Hilton Worldwide
Hilton Worldwide is one of the largest and fastest growing hospitality companies in the world, with 4,041 hotels, resorts and timeshare properties comprising 665,667 rooms in 90 countries and territories. In the nearly 100 years since our founding, we have defined the hospitality industry and established a portfolio of 10 world-class brands. Our flagship full-service Hilton Hotels & Resorts brand is the most recognized hotel brand in the world. Our premier brand portfolio also includes our luxury hotel brands, Waldorf Astoria Hotels & Resorts and Conrad Hotels & Resorts, our full-service hotel brands, DoubleTree by Hilton and Embassy Suites Hotels, our focused-service hotel brands, Hilton Garden Inn, Hampton Inn, Homewood Suites by Hilton and Home2 Suites by Hilton and our timeshare brand, Hilton Grand Vacations (HGV). We own or lease interests in 157 hotels, many of which are located in global gateway cities, including iconic properties such as The Waldorf=Astoria New York, the Hilton Hawaiian Village, and the London Hilton on Park Lane. More than 300,000 team members proudly serve in our properties and corporate offices around the world, and we have approximately 38 million members in our award-winning customer loyalty program, Hilton HHonors.
We operate our business through three segments: (1) management and franchise; (2) ownership; and (3) timeshare. These complementary business segments enable us to capitalize on our strong brands, global market presence and significant operational scale. Through our management and franchise segment, which consists of 3,843 hotels with 596,765 rooms, we manage hotels, resorts and timeshare properties owned by third parties and we license our brands to franchisees. Our management and franchise segment generates high margins and long-term recurring cash flow, and has grown by 39% in terms of number of rooms since June 30, 2007, representing 98% of our overall room growth, with virtually no capital investment by us. Our ownership segment consists of 157 hotels with 62,498 rooms that we own or lease. Through our timeshare segment, which consists of 41 properties comprising 6,404 units, we market and sell timeshare intervals, operate timeshare resorts and a timeshare membership club and provide consumer financing.
In October 2007 we were acquired by affiliates of The Blackstone Group L.P. and assembled a new management team led by Christopher J. Nassetta, our President and Chief Executive Officer. Under our new leadership, we have transformed our business, creating a globally aligned organization and establishing a performance-driven culture. As part of our transformation, we focused on both top- and bottom-line operating performance, strengthening and expanding our brands and commercial services platform, and enhancing our growth rate, particularly in markets outside the U.S. where our brands historically had been underrepresented.
As a result of the transformation of our business, despite the sharp downturn in our industry, between June 30, 2007 and June 30, 2013, we have:
| increased the number of open rooms in our system by 34%, or 170,000 rooms, which represents the highest growth rate of any major lodging company; |
| grown the number of rooms in our development pipeline by 52% to an industry-leading 176,000 rooms, over 99% of which are within our higher-margin, capital light management and franchise segment; |
| increased our total number of rooms under construction by 121%, to an industry-leading 92,000 rooms, over 99% of which are within our management and franchise segment; |
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| increased the geographic diversity of our pipeline, with rooms in the development pipeline outside the U.S. increasing from less than 20% to more than 60%, and rooms under construction outside the U.S. increasing from less than 15% to nearly 80%; |
| significantly enhanced our presence in key segments, brands and geographies, including significant growth in the luxury segment, in our DoubleTree by Hilton and Home2 Suites by Hilton brands and in the number of hotels in Europe and Greater China; |
| increased our management and franchise segments Adjusted EBITDA by 25% from the year ended December 31, 2007 to the year ended December 31, 2012 and grown the proportion of our aggregate segment Adjusted EBITDA contributed by our management and franchise segment from 47% to 53%; |
| increased the average global revenue per available room, or RevPAR, premium for all brands globally by approximately two percentage points to 15% on a trailing twelve month basis; |
| expanded membership in our Hilton HHonors program by 83% since December 31, 2007; |
| significantly outperformed our competitors in the timeshare segment, with annual interval sales increasing over 40% since the year ended December 31, 2007 and segment Adjusted EBITDA as a percentage of timeshare revenue increasing 400 basis points since the year ended December 31, 2010, while beginning a transformation of the business to a more capital-efficient model; for the twelve months ended June 30, 2013, 43% of our sales of timeshare intervals were developed by third parties versus 0% for the year ended December 31, 2009; and |
| significantly improved profitability, increasing our Adjusted EBITDA by an annual average of 12% from the year ended December 31, 2010 through the year ended December 31, 2012, and for the six months ended June 30, 2013, increasing our Adjusted EBITDA by 17% compared to the six months ended June 30, 2012. Net income attributable to Hilton stockholder increased by 68% on average from the year ended December 31, 2010 through the year ended December 31, 2012, and for the six months ended June 30, 2013 net income attributable to Hilton stockholder increased 66% as compared to the six months ended June 30, 2012. |
See Summary Historical Financial Data for the definition of Adjusted EBITDA and a reconciliation of net income attributable to Hilton stockholder to Adjusted EBITDA.
We believe this transformation positions us to continue to increase our share of the expanding global lodging industry, which continues to exhibit strong fundamentals and significant long-term growth prospects supported by increasing global travel and tourism. Our business has grown during times of economic expansion as well as during global economic downturns. For example, during the period between January 1, 2000 and June 30, 2013, we increased the total number of hotel rooms in our system every year, achieving total growth of 120% and a compound annual growth rate, or CAGR, of 6%. Our industry leading percentage of global rooms under construction of 17.9% significantly exceeds our industry leading percentage of the existing global hotel supply of 4.5%, according to data provided by Smith Travel Research, Inc., or STR. We expect that our #1 share of worldwide rooms under construction will allow us to continue to expand our share of worldwide rooms supply and build on our leading market position.
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The transformation of our business since 2007 has enabled us to increase the number of hotels and timeshare units in our system at a more rapid rate than any other major lodging company. The following table illustrates our global room supply by business segment.
Our Competitive Strengths
We believe the following competitive strengths provide the foundation for our position as a leading global hospitality company.
| World-Class Hospitality Brands. Our globally recognized, world-class brands have defined the hospitality industry. Our flagship Hilton Hotels & Resorts brand often serves as an introduction to our wider range of brands that are designed to accommodate any customers needs anywhere in the world. Our brands have achieved an average global RevPAR index premium of 15% for the twelve months ended June 30, 2013, based on STR data. This means that our brands achieve on average 15% more revenue per room than competitive properties in similar markets. The demonstrated strength of our brands makes us a preferred partner for hotel owners, who have invested tens of billions of dollars since December 31, 2007 in the development and improvement of our branded hotels. |
| Leading Global Presence and Scale. We are one of the largest hospitality companies in the world with 4,041 properties and 665,667 rooms in 90 countries and territories. We have hotels in key gateway cities such as New York, London, Dubai, Johannesburg, Tokyo, Shanghai and Sydney and 347 hotels located at or near airports around the world. Our global presence allows us to serve our loyal customers throughout the world and to introduce our award-winning brands to customers in new markets. These world-class brands facilitate system growth by providing hotel owners with a variety of options to address each markets specific needs. In addition, the diversity of our operations reduces our exposure to business cycles, individual market disruptions and other risks. Our robust commercial services platform allows us to take advantage of our scale to more effectively deliver products and services that drive customer preference and enhance commercial performance on a global basis. |
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Large and Growing Loyal Customer Base. Serving our customers is our first priority. By continually adapting to customer preferences and providing our customers with superior experiences, we have improved our overall customer satisfaction ratings four of the last five years. We earned 32 first place awards in the J.D. Power North America Guest Satisfaction rankings since 1999, more than any multi- |
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brand lodging company. Our hotels accommodated more than 125 million customer visits during the twelve months ended June 30, 2013, with members of our Hilton HHonors loyalty program contributing approximately 50% of the more than 170 million resulting room nights. Hilton HHonors unites all our brands, encourages customer loyalty and allows us to provide tailored promotions, messaging and customer experiences. We have grown the membership in our Hilton HHonors program by approximately 83% from approximately 21 million as of December 31, 2007 to nearly 38 million as of June 30, 2013. |
| Significant Embedded Growth. All of our segments are expected to grow through improvement in same-store performance driven by strong anticipated industry fundamentals. PKF Hospitality Research, LLC, or PKF-HR, predicts that lodging industry RevPAR in the U.S., where 78% of our system rooms are located, will grow 7.2% in 2014 and 8.1% in 2015. Our management and franchise segment also is expected to grow through new room additions, as upon completion, our industry-leading development pipeline would result in a 27% increase in our room count with minimal capital investment from us. In addition, our franchise revenues should grow over time as franchise agreements renew at our published license rates, which are higher than our current effective rates. For the twelve months ended June 30, 2013, our weighted average effective license rate across our brands was 4.5% of room revenue, an increase of over 12% since 2007, and our weighted average published license rate was 5.4% as of June 30, 2013. We also expect our incentive management fees, which are linked to hotel profitability measures, to increase as a result of the expected improvements in industry fundamentals. In our ownership segment, we believe we will benefit from strong growth in bottom-line earnings as industry fundamentals continue to improve as a result of this segments operating leverage, and our large hotels with significant meeting space should benefit from recent improvements in group demand, which we expect will exhibit strong growth as the current stage of the lodging cycle advances. Finally, our timeshare business has over five years of projected interval supply at our current sales pace in the form of existing owned inventory and executed capital light projects, which should enable us to continue to grow our earnings from the segment with lower levels of capital investment from us. |
| Strong Cash Flow Generation . We generate significant cash flow from operating activities with an increasing percentage from our growing capital light management and franchise and timeshare segments. During the five-year period ended December 31, 2012, we generated an aggregate of $3.6 billion in cash flow from operating activities. We increased our cash flow from operating activities from $219 million for the year ended December 31, 2008 to $1.1 billion for the year ended December 31, 2012. We believe that our focus on cash flow generation, the relatively low investment required to grow our management and franchise and timeshare segments, and our disciplined approach to capital allocation position us to maximize opportunities for profitability and growth while continuing to reduce our indebtedness over time. |
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Iconic Hotels with Significant Underlying Real Estate Value. Our diverse global portfolio of owned and leased hotels includes a number of iconic properties in major gateway cities such as New York City, London, San Francisco, Chicago, São Paolo, Sydney and Tokyo. The portfolio also includes iconic hotels with significant embedded asset value, including: The Waldorf=Astoria New York, a landmark luxury hotel with 1,413 rooms encompassing an entire city block in the heart of midtown Manhattan near Grand Central Terminal; the Hilton Hawaiian Village, a full-service beach resort with 2,860 rooms that sits on approximately 22 oceanfront acres along Waikiki Beach on the island of Oahu; and the London Hilton on Park Lane, a 453-room hotel overlooking Hyde Park in the exclusive Mayfair district of London. Our ten owned hotels with the highest Adjusted EBITDA contributed 54% of our ownership segments Adjusted EBITDA during the year ended December 31, 2012, which highlights the quality of our key flagship properties. In addition, we believe the iconic nature of many of these properties creates significant value for our entire system of properties by reinforcing the world-class nature of our brands. We continually focus on increasing the value and enhancing the market position of our owned and leased hotels and have invested $1.8 billion in these properties |
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between December 31, 2007 and June 30, 2013. Over time, we believe we can unlock significant incremental value through opportunistically exiting assets or executing on adaptive reuse plans for all or a portion of certain hotels as retail, residential or timeshare uses. |
| Market-Leading and Innovative Timeshare Platform. Our timeshare business complements our other segments and provides an alternative hospitality product that serves an attractive customer base. Our timeshare customers are among our most loyal hotel customers, with estimated spend in our hotel system increasing approximately 40% after the purchase of their timeshare interests. Historically, we have concentrated our timeshare efforts in four key markets: Florida, Hawaii, New York City and Las Vegas, which has helped us to increase annual sales of timeshare intervals by more than 40% since 2007 while yielding strong profit margins during a time when our competitors generally experienced declines in both sales and profit margins. As a result of this strong operating performance and the returns we were able to drive on our own timeshare developments, in 2010 we began a transformation of our timeshare business to a capital light model in which third-party timeshare owners and developers provide capital for development while we act as sales and marketing agent and property manager. Through these transactions, we receive a sales and marketing commission and branding fees on sales of timeshare intervals, recurring fees to operate the homeowners associations and revenues from resort operations. We also earn recurring fees in connection with the points-based membership programs we operate that provide for exclusive exchange, leisure travel and reservation services, and through fees related to the servicing of consumer loans. We have increased the sales of intervals developed by third parties from zero in 2009 to 43% for the twelve months ended June 30, 2013, which has dramatically reduced the capital requirements of our timeshare segment while continuing to drive strong earnings and cash flows. For the year ended December 31, 2012 and the six months ended June 30, 2013, we incurred $46 million and $35 million, respectively, of inventory costs in the timeshare segment, compared to an average of $405 million annually during 2007 and 2008. |
| Performance-Driven Culture. We are an organization of people serving people, thus it is imperative that we attract and retain best-in-class talent to serve our various stakeholders. We have a performance-driven culture that begins with an intense alignment around our mission, vision, values and key strategic priorities. Our President and Chief Executive Officer, Christopher J. Nassetta, has nearly 30 years of experience in the hotel industry, previously serving as President and Chief Executive Officer of Host Hotels & Resorts, Inc., where he was named Institutional Investor s 2007 REIT CEO of the Year. He and the balance of our executive management team have been instrumental in transforming our organization and installing a culture that develops leaders at all levels of the organization who are focused on delivering exceptional service to our customers every day. We rely on our over 300,000 team members to execute our strategy and continue to enhance our products and services to ensure that we remain at the forefront of performance and innovation in the lodging industry. |
Our Business and Growth Strategy
The following are key elements of our strategy to become the preeminent global hospitality companythe first choice of guests, team members and owners alike:
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Expand our Global Footprint . We intend to build on our leading position in the U.S. and expand our global footprint. In February 2006, we reacquired Hilton International Co., which had operated as a separate company since 1964, and in so doing, reacquired the international Hilton branding rights. Reuniting Hiltons U.S. and international operations has provided us with the platform to grow our business and brands globally. As a result of the reacquisition and focus on global expansion, we currently rank number one or number two in every major region of the world by rooms under construction, based on STR data. We aim to increase the relative contribution of our international operations, which accounted for only 27% of our revenues during the year ended December 31, 2012. |
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Of our new rooms under construction, 79% are located outside of the U.S. We plan to continue to expand our global footprint by introducing the right brands with the right product positioning in targeted markets and allocating business development resources effectively to drive new unit growth in every region of the world. |
| Grow our Fee-Based Businesses. We intend to grow our higher margin, fee-based businesses. We expect to increase the contribution of our management and franchise segment, which already accounts for more than half of our aggregate segment Adjusted EBITDA, through new third-party hotel development and the conversion of existing hotels to our brands. The number of rooms in our management and franchise segment grew by 39% from June 30, 2007 to June 30, 2013 and substantially all of our current development pipeline of 176,449 rooms consists of hotels in this segment. Upon completion, this pipeline of new, third-party owned hotels would result in a 30% increase in our management and franchise room count with minimal capital investment from us. In addition, we aim to increase the average effective franchise fees we receive over time by renewing and entering into new franchise agreements at our current published franchise fee rates. |
| Continue to Increase the Capital Efficiency of our Timeshare Business. Traditionally, timeshare operators have funded 100% of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing timeshare intervals through sales and marketing agreements with third-party developers. These agreements enable us to generate fees from the sales and marketing of the timeshare intervals and club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. Our supply of third-party developed timeshare intervals has increased to 69,000 as of June 2013, compared to no supply in 2009, and the percentage of sales of timeshare intervals developed by third parties has already increased to 43% for the twelve months ended June 30, 2013. We will continue to seek opportunities to grow our timeshare business through this capital light model. |
| Optimize the Performance of our Owned and Leased Hotels. In addition to utilizing our commercial services platform to enhance the revenue performance of our owned and leased assets, we have focused on maximizing the cost efficiency of the portfolio by implementing labor management practices and systems and reducing fixed costs to drive profitability. Through our disciplined approach to asset management, we have developed and executed on strategic plans for each of our hotels and have invested $1.8 billion in our portfolio since December 31, 2007 to enhance the market position of each property. We expect to continue to enhance the performance of our hotels by improving operating efficiencies, and believe there is an opportunity to drive further improvements in operating margins and Adjusted EBITDA. The Adjusted EBITDA of our owned and leased portfolio for 2012 was still below 2008 levels. Further, at certain of our hotels, we are developing plans for the adaptive reuse of all or a portion of the property to residential, retail or timeshare uses. Finally, we expect to create value over time by opportunistically selling assets and restructuring or exiting leases. |
| Strengthen our Brands and Commercial Services Platform. We intend to enhance our world-class brands through superior brand management by continuing to develop products and services that drive increased RevPAR premiums. We will continue to refine our luxury brands to deliver modern products and service standards that are relevant to todays luxury traveler. We will continue to position our full-service operating model and product standards to meet evolving customer needs and drive financial results that support incremental owner investment in our hotels. In our focused-service brands, we will continue to position for growth in the U.S., and tailor our products as appropriate to meet the needs of customers and developers outside the U.S. We will continue to innovate and enhance our commercial services platform to ensure we have the most formidable sales, pricing, marketing and distribution platform in the industry to drive premium commercial performance to our entire system of hotels. We also will continue to invest in our Hilton HHonors customer loyalty program to ensure it remains relevant to our customers and drives customer loyalty and value to our hotel owners. |
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Our Industry
We believe that the fundamentals of the global hotel industry, as projected by analysts, particularly in the U.S., where 78% of our system-wide rooms are located, will yield strong industry performance and support the growth of our business in coming years. According to STR data, U.S. lodging demand, as measured by number of booked hotel rooms, has improved with the economic recovery in recent years, experiencing a CAGR of 4.9% over the last three years, significantly exceeding the 25-year CAGR of 1.8%. In contrast, over the last three years, U.S. lodging industry supply has grown at a CAGR of 0.9%, well below the 25-year CAGR of 2.0%. We believe this positive imbalance between demand growth and supply growth has contributed to a RevPAR CAGR of 6.8% over the last three years, well above the 25-year CAGR of 2.7%. According to PKF-HR, total U.S. lodging industry RevPAR is expected to increase 7.2% in 2014 and 8.1% in 2015. According to STR data, global lodging demand, as measured by number of booked hotel rooms, has grown at a CAGR of 5.3% over the last three years and hotel supply growth increased at a CAGR of 1.6%. We believe these attractive supply/demand fundamentals provide the potential for continued global RevPAR growth in the coming years.
In addition, we believe that broader positive global macroeconomic and travel and tourism trends will continue to drive longer-term growth in the lodging sector. In particular, we believe that a growing middle class (which the Organization for Economic Co-operation and Development, or OECD, expects will grow from approximately two to five billion people by 2030) with the desire and resources to travel both within their home regions and elsewhere will support growth in global tourism (which the United Nations World Tourism Organization projects will grow on average between 3% and 4% annually through 2030) and will be an important factor in driving the growth of the global lodging industry. We believe that these trends will provide a strong basis for our growth over the long term.
Our Sponsor
Blackstone (NYSE: BX) is one of the worlds leading investment and advisory firms. Blackstones alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different businesses, Blackstone had total assets under management of approximately $230 billion as of June 30, 2013. Blackstones global real estate group is the largest private equity real estate manager in the world with $64 billion of investor capital under management as of June 30, 2013.
Refinancing Transactions
Prior to consummating this offering, we expect to close the following transactions, which we refer to collectively as our Refinancing Transactions:
| our entry into new senior secured credit facilities consisting of a $7.6 billion term loan facility and a $1.0 billion revolving credit facility; |
| the release from escrow of the proceeds of our recent private placement of $1.5 billion of 5.625% senior notes due 2021, or senior notes; |
| the entry by certain of our domestic subsidiaries that hold U.S. owned real estate into a $3.5 billion commercial mortgage-backed securities loan; and |
| the entry by certain of our domestic subsidiaries into a $0.525 billion mortgage loan secured by our Waldorf=Astoria New York property. |
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We intend to use the net proceeds from the Refinancing Transactions, together with available cash and borrowings under our revolving non-recourse timeshare notes credit facility, to repay certain of our indebtedness. For more information, see Description of Certain Indebtedness.
Investment Risks
An investment in shares of our common stock involves substantial risks and uncertainties that may adversely affect our business, financial condition and results of operations and cash flows. Some of the more significant challenges and risks relating to an investment in our company include those associated with:
| We are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could reduce our revenues and limit opportunities for growth. |
| Macroeconomic and other factors beyond our control can adversely affect and reduce demand for our products and services. |
| Contraction in the global economy or low levels of economic growth could adversely affect our revenues and profitability as well as limit or slow our future growth. |
| The hospitality industry is subject to seasonal and cyclical volatility, which may contribute to fluctuations in our results of operations and financial condition. |
| Because we operate in a highly competitive industry, our revenues or profits could be harmed if we are unable to compete effectively. |
| Any deterioration in the quality or reputation of our brands could have an adverse impact on our reputation, business, financial condition or results of operations. |
| If we are unable to maintain good relationships with third-party hotel owners and renew or enter into new management and franchise agreements, we may be unable to expand our presence and our business, financial condition and results of operations may suffer. |
| We are exposed to the risks resulting from significant investments in owned and leased real estate, which could increase our costs, reduce our profits and limit our ability to respond to market conditions. |
| Our efforts to develop, redevelop or renovate our owned and leased properties could be delayed or become more expensive, which could reduce revenues or impair our ability to compete effectively. |
| We share control in joint venture projects, which limits our ability to manage third-party risks associated with these projects. |
| The timeshare business is subject to extensive regulation and failure to comply with such regulation may have an adverse impact on our business. |
| A decline in timeshare interval inventory or our failure to enter into and maintain timeshare management agreements may have an adverse effect on our business or results of operations. |
| Some of our existing development pipeline may not be developed into new hotels, which could materially adversely affect our growth prospects. |
| Failures in, material damage to, or interruptions in our information technology systems, software or websites and difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations. |
| We may be exposed to risks and costs associated with protecting the integrity and security of our guests personal information. |
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| Failure to comply with marketing and advertising laws, including with regard to direct marketing, could result in fines or place restrictions on our business. |
| Because we derive a portion of our revenues from operations outside the United States, the risks of doing business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business. |
| The loss of senior executives or key field personnel, such as general managers, could significantly harm our business. |
| Any failure to protect our trademarks and other intellectual property could reduce the value of the Hilton brands and harm our business. |
| Our substantial indebtedness and other contractual obligations could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and pay our debts and could divert our cash flow from operations for debt payments. |
| Affiliates of our Sponsor control us and their interests may conflict with ours or yours in the future. |
Please see Risk Factors for a discussion of these and other factors you should consider before making an investment in shares of our common stock.
Hilton Worldwide Holdings Inc. was incorporated in Delaware in March 2010. In 1919, our founder Conrad Hilton purchased his first hotel in Cisco, Texas. Through our predecessors, we commenced operations in 1946 when our subsidiary Hilton Hotels Corporation, later renamed Hilton Worldwide, Inc., was incorporated in Delaware. Our principal executive offices are located at 7930 Jones Branch Drive, Suite 1100, McLean, Virginia 22102 and our telephone number is (703) 883-1000.
9
The Offering
Common stock offered by us |
shares. |
Option to purchase additional shares |
The underwriters have an option to purchase up to additional shares of our common stock from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus. |
Common stock outstanding after giving
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shares ( shares if the underwriters exercise their option to purchase additional shares in full). |
Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and offering expenses, will be approximately $ , based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. |
We intend to use the net proceeds from this offering to repay certain of our indebtedness, with any remaining balance to be used for general corporate purposes. See Use of Proceeds. |
Dividend policy |
We have no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. |
Risk factors |
See Risk Factors for a discussion of risks you should carefully consider before deciding to invest in our common stock. |
Proposed trading symbol |
. |
In this prospectus, unless otherwise indicated, the number of shares of common stock outstanding and the information based thereon does not reflect:
| shares of common stock issuable upon exercise of the underwriters option to purchase additional shares of common stock from us; or |
| shares of common stock that may be granted under our Omnibus Incentive Plan. See ManagementOmnibus Incentive Plan. |
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Summary Historical Financial Data
We derived the summary statement of operations data and the summary statement of cash flows data for the years ended December 31, 2012, 2011 and 2010 and the summary balance sheet data as of December 31, 2012 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary balance sheet data as of June 30, 2012 and December 31, 2010 from our unaudited consolidated financial statements that are not included in this prospectus. We derived the summary statement of operations data and the summary statement of cash flows data for the six months ended June 30, 2013 and 2012 and the summary balance sheet data as of June 30, 2013 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We have prepared our unaudited consolidated financial statements on the same basis as our audited consolidated financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period.
The unaudited summary pro forma financial information has been prepared to reflect the issuance of shares of our common stock in this offering at an assumed initial public offering price of $ , which is the midpoint of the range set forth on the cover of this prospectus, the Refinancing Transactions, the issuance of our 2.28% notes backed by timeshare financing receivables, additional borrowings under our revolving non-recourse timeshare notes credit facility, our sale of Hilton HHonors points and the use of proceeds from each of the foregoing. The following unaudited summary pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the date indicated, nor is it indicative of future operating results.
You should read the summary historical financial data below, together with the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus, as well as Unaudited Pro Forma Condensed Consolidated Financial Information, Selected Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Certain Indebtedness, and the other financial information included elsewhere in this prospectus.
Pro Forma
Six Months Ended June 30, 2013 |
Pro Forma
Year Ended December 31, 2012 |
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||
2013 | 2012 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||
(dollars in millions, except Hotel RevPAR and ADR) |
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Summary Statement of Operations Data: |
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Revenues |
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Owned and leased hotels |
$ | $ | $ | 1,984 | $ | 1,925 | $ | 3,979 | $ | 3,898 | $ | 3,667 | ||||||||||||||||
Management and franchise fees and other |
561 | 521 | 1,088 | 1,014 | 901 | |||||||||||||||||||||||
Timeshare |
507 | 515 | 1,085 | 944 | 863 | |||||||||||||||||||||||
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3,052 | 2,961 | 6,152 | 5,856 | 5,431 | ||||||||||||||||||||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | 3,124 | 2,927 | 2,637 | |||||||||||||||||||||||
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Total revenues |
4,643 | 4,521 | 9,276 | 8,783 | 8,068 | |||||||||||||||||||||||
Expenses |
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Owned and leased hotels |
1,547 | 1,595 | 3,230 | 3,213 | 3,009 | |||||||||||||||||||||||
Timeshare |
351 | 363 | 758 | 668 | 634 |
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Pro Forma
Six Months Ended June 30, 2013 |
Pro Forma
Year Ended December 31, 2012 |
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||
2013 | 2012 | 2012 | 2011 | 2010 | ||||||||||||||||||||
(dollars in millions, except Hotel RevPAR and ADR) |
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Depreciation and amortization |
309 | 259 | 550 | 564 | 574 | |||||||||||||||||||
Impairment losses |
| 16 | 54 | 20 | 24 | |||||||||||||||||||
General, administrative and other |
189 | 236 | 460 | 416 | 637 | |||||||||||||||||||
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2,396 | 2,469 | 5,052 | 4,881 | 4,878 | ||||||||||||||||||||
Other expenses from managed and franchised properties |
1,591 | 1,560 | 3,124 | 2,927 | 2,637 | |||||||||||||||||||
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Total expenses |
3,987 | 4,029 | 8,176 | 7,808 | 7,515 | |||||||||||||||||||
Operating income |
656 | 492 | 1,100 | 975 | 553 | |||||||||||||||||||
Net income attributable to Hilton stockholder |
189 | 114 | 352 | 253 | 128 |
As of
and for Pro Forma Six Months Ended June 30, 2013 |
As of and for
Pro Forma Year Ended December 31, 2012 |
As of and for the
Six Months Ended June 30, |
As of and for the
Year Ended December 31, |
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2013 | 2012 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||
(dollars in millions, except Hotel RevPAR and ADR) |
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Summary Balance Sheet Data: |
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Cash and cash equivalents |
$ | $ | $ | 661 | $ | 739 | $ | 755 | $ | 781 | $ | 796 | ||||||||||||||||
Restricted cash and cash equivalents |
625 | 716 | 550 | 658 | 619 | |||||||||||||||||||||||
Total assets |
26,785 | 27,354 | 27,066 | 27,312 | 27,750 | |||||||||||||||||||||||
Long-term debt (1)(2) |
14,280 | 15,752 | 15,183 | 15,969 | 16,673 | |||||||||||||||||||||||
Revolving non-recourse timeshare notes credit facility |
400 | | | | | |||||||||||||||||||||||
Current and long-term debt and revolving non-recourse timeshare notes credit facility (1) |
15,068 | 16,142 | 15,575 | 16,311 | 16,995 | |||||||||||||||||||||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities (2) |
306 | 429 | 405 | 439 | 512 | |||||||||||||||||||||||
Total equity |
2,178 | 1,796 | 2,155 | 1,702 | 1,544 | |||||||||||||||||||||||
Summary Statement of Cash Flows Data: |
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Capital expenditures |
$ | 121 | $ | 243 | $ | 433 | $ | 389 | $ | 148 | ||||||||||||||||||
Cash flow from operating activities |
638 | 428 | 1,110 | 1,167 | 833 | |||||||||||||||||||||||
Cash flow from investing activities |
(183) | (296) | (558) | (463) | (68) | |||||||||||||||||||||||
Cash flow from financing activities |
(534) | (173) | (576) | (714) | (703) | |||||||||||||||||||||||
Operational and Other Data: |
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Number of hotels and timeshare properties |
4,041 | 3,897 | 3,966 | 3,843 | 3,709 | |||||||||||||||||||||||
Number of rooms and units |
665,667 | 642,383 | 652,957 | 633,238 | 609,634 | |||||||||||||||||||||||
Hotel RevPAR (3) |
$ | 98.69 | $ | 93.40 | $ | 93.38 | $ | 90.70 | $ | 86.16 | ||||||||||||||||||
Hotel occupancy (3) |
72.3% | 71.1% | 71.1% | 69.7% | 68.4% | |||||||||||||||||||||||
Hotel ADR (3) |
$ | 136.43 | $ | 131.28 | $ | 131.35 | $ | 130.15 | $ | 126.06 | ||||||||||||||||||
Adjusted EBITDA: |
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Management and franchise (4) |
$ | $ | $ | 608 | $ | 564 | $ | 1,180 | $ | 1,095 | $ | 968 | ||||||||||||||||
Ownership |
445 | 358 | 793 | 725 | 688 | |||||||||||||||||||||||
Timeshare (4) |
119 | 113 | 252 | 207 | 171 | |||||||||||||||||||||||
Corporate and other |
(135) | (148) | (269) | (274) | (263) | |||||||||||||||||||||||
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Adjusted EBITDA (5) |
$ | $ | $ | 1,037 | $ | 887 | $ | 1,956 | $ | 1,753 | $ | 1,564 | ||||||||||||||||
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(1) | Excludes non-recourse debt and capital lease obligations of consolidated variable interest entities. |
(2) | Excludes current portion. |
(3) | Operating statistics are for comparable hotels as of each period end. See the definition of comparable hotels in Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Business and Financial Metrics Used by ManagementComparable Hotels. |
(4) | Includes pro forma timeshare license fee for year ended December 31, 2010. Timeshare license fee agreement of 5% of certain timeshare revenues charged by our management and franchise segment to our timeshare segment was effective January 1, 2011. |
(5) | EBITDA is defined by us as net income attributable to Hilton stockholder plus interest expense, income tax expense and depreciation and amortization. We evaluate our operating performance using a metric we refer to as Adjusted EBITDA which is defined as net income attributable to Hilton stockholder before interest expense, income tax expense (benefit), depreciation and amortization, as further adjusted to exclude gains, losses and expenses in connection with (i) asset dispositions for both consolidated and unconsolidated investments, (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment charges; (v) furniture, fixtures and equipment, or FF&E replacement reserves required under certain lease arrangements; (vi) reorganization costs; (vii) share-based and certain other compensation expenses; (viii) severance, relocation and other expenses and (ix) other items. |
EBITDA and Adjusted EBITDA are not recognized terms under generally accepted accounting principles in the United States, or U.S. GAAP, and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider such measures either in isolation or as a substitute for profit (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
| EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
| EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; |
| EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; |
| EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
| EBITDA and Adjusted EBITDA do not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations; |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and |
| other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. |
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Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income attributable to Hilton stockholder, which we believe is the most closely comparable U.S. GAAP financial measure:
Pro Forma
Six Months Ended June 30, 2013 |
Pro Forma
Year Ended December 31, 2012 |
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||
2013 | 2012 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||
(in millions) |
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Net income attributable to Hilton stockholder |
$ | $ | $ | 189 | $ | 114 | $ | 352 | $ | 253 | $ | 128 | ||||||||||||||||
Interest expense |
274 | 281 | 569 | 643 | 946 | |||||||||||||||||||||||
Interest expense included in equity in earnings (losses) from unconsolidated affiliates |
6 | 6 | 13 | 12 | 16 | |||||||||||||||||||||||
Income tax expense (benefit) |
122 | 112 | 214 | (59) | 308 | |||||||||||||||||||||||
Depreciation and amortization |
309 | 259 | 550 | 564 | 574 | |||||||||||||||||||||||
Depreciation and amortization included in equity in earnings (losses) from unconsolidated affiliates |
15 | 19 | 34 | 48 | 48 | |||||||||||||||||||||||
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EBITDA |
915 | 791 | 1,732 | 1,461 | 2,020 | |||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interest |
6 | 2 | 7 | 2 | (17) | |||||||||||||||||||||||
Loss (gain) on foreign currency transactions |
82 | (1) | (23) | 21 | (18) | |||||||||||||||||||||||
Gain on debt restructuring (a) |
| | | | (789) | |||||||||||||||||||||||
FF&E replacement reserve (b) |
17 | 35 | 68 | 57 | 48 | |||||||||||||||||||||||
Share-based compensation expense |
3 | 17 | 50 | 19 | 56 | |||||||||||||||||||||||
Impairment losses |
| 16 | 54 | 20 | 24 | |||||||||||||||||||||||
Impairment loss included in equity in earnings (losses) from unconsolidated affiliates |
| 4 | 19 | 141 | 6 | |||||||||||||||||||||||
Other gain, net (c) |
(6) | (9) | (15) | (19) | (8) | |||||||||||||||||||||||
Other adjustment items (d) |
20 | 32 | 64 | 51 | 242 | |||||||||||||||||||||||
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Adjusted EBITDA |
$ | $ | $ | 1,037 | $ | 887 | $ | 1,956 | $ | 1,753 | $ | 1,564 | ||||||||||||||||
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(a) | Represents the gain recognized in our consolidated statement of operations as a result of the debt restructuring in April 2010. |
(b) | Represents FF&E replacement reserves established for the benefit of lessors for requisition of capital assets under certain lease agreements. |
(c) | Other gain, net includes gains and losses on the dispositions of certain property and equipment and investments in affiliates, as well as a gain related to the restructuring of a capital lease in 2011 and a gain related to the discounted repayment of senior unsecured debt in 2010. |
(d) | Represents adjustments for certain legal expenses, severance, and certain guarantee payments. Includes $150 million of legal settlement expense, including a cash payment of $75 million, for the year ended December 31, 2010. |
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below and the other information contained in this prospectus, including our consolidated financial statements and the related notes, before you decide whether to purchase our common stock.
Risks Relating to Our Business and Industry
We are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could reduce our revenues and limit opportunities for growth.
Our business is subject to a number of business, financial and operating risks inherent to the hospitality industry, including:
| significant competition from multiple hospitality providers in all parts of the world; |
| changes in operating costs, including energy, food, compensation, benefits and insurance; |
| increases in costs due to inflation that may not be fully offset by price and fee increases in our business; |
| changes in tax and governmental regulations that influence or set wages, prices, interest rates or construction and maintenance procedures and costs; |
| the costs and administrative burdens associated with complying with applicable laws and regulations; |
| the costs or desirability of complying with local practices and customs; |
| significant increases in cost for health care coverage for employees and potential government regulation with respect to health care coverage; |
| shortages of labor or labor disruptions; |
| the availability and cost of capital necessary for us and third-party hotel owners to fund investments, capital expenditures and service debt obligations; |
| delays in or cancellations of planned or future development or refurbishment projects, which in the case of our managed and franchised hotels and timeshare properties controlled by homeowner associations are generally not within our control; |
| the quality of services provided by franchisees; |
| the financial condition of third-party property owners, developers and joint venture partners; |
| relationships with third-party property owners, developers and joint venture partners, including the risk that owners may terminate our management, franchise or joint venture agreements; |
| changes in desirability of geographic regions of the hotels or timeshare resorts in our business, geographic concentration of our operations and customers, and shortages of desirable locations for development; |
| changes in the supply and demand for hotel services (including rooms, food and beverage, and other products and services) and vacation ownership services and products; |
| the ability of third-party internet and other travel intermediaries to attract and retain customers; and |
| decreases that may result in the frequency of business travel as a result of alternatives to in person meetings, including virtual meetings hosted on-line or over private teleconferencing networks. |
Any of these factors could increase our costs or limit or reduce the prices we are able to charge for hospitality services and timeshare products, or otherwise affect our ability to maintain existing properties or develop new properties. As a result, any of these factors can reduce our revenues and limit opportunities for growth.
15
Macroeconomic and other factors beyond our control can adversely affect and reduce demand for our products and services.
Macroeconomic and other factors beyond our control can reduce demand for hospitality products and services, including demand for rooms at properties that we manage, franchise, own, lease or develop, as well as demand for timeshare properties. These factors include, but are not limited to:
| changes in general economic conditions, including low consumer confidence, unemployment levels, depressed real estate prices resulting from the severity and duration of any downturn in the U.S. or global economy; |
| war, political conditions or civil unrest, terrorist activities or threats and heightened travel security measures instituted in response to these events; |
| decreased corporate or government travel-related budgets and spending, as well as cancellations, deferrals or renegotiations of group business such as industry conventions; |
| statements, actions, or interventions by governmental officials related to travel and corporate travel-related activities and the resulting negative public perception of such travel and activities; |
| the financial and general business condition of the airline, automotive, and other transportation-related industries and its impact on travel, including decreased airline capacity and routes; |
| conditions which negatively shape public perception of travel, including travel-related accidents and outbreaks of pandemic or contagious diseases, such as avian flu, severe acute respiratory syndrome (SARS) and H1N1 (swine flu); |
| climate change or availability of natural resources; |
| natural or man-made disasters, such as earthquakes, tsunamis, tornadoes, hurricanes, typhoons, floods, volcanic eruptions, oil spills and nuclear incidents; |
| changes in the desirability of particular locations or travel patterns of customers; |
| cyclical over-building in the hotel and timeshare industries; and |
| organized labor activities, which could cause a diversion of business from hotels involved in labor negotiations and loss of business for our hotels generally as a result of certain labor tactics. |
Any one or more of these factors could limit or reduce overall demand for our products and services or could negatively impact our revenue sources, which could adversely affect our business, financial condition and results of operations.
Contraction in the global economy or low levels of economic growth could adversely affect our revenues and profitability as well as limit or slow our future growth.
Consumer demand for our services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. Decreased global or regional demand for hospitality products and services can be especially pronounced during periods of economic contraction or low levels of economic growth, and the recovery period in our industry may lag overall economic improvement. Declines in demand for our products and services due to general economic conditions could negatively impact our business by decreasing the revenues and profitability of our owned properties, limiting the amount of fee revenues we are able to generate from our managed and franchised properties, and reducing overall demand for timeshare intervals. In addition, many of the expenses associated with our business, including personnel costs, interest, rent, property taxes, insurance and utilities, are relatively fixed. During a period of overall economic weakness, if we are unable to meaningfully decrease these costs as demand for our hotels and timeshare properties decreases, our business operations and financial performance may be adversely affected.
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The hospitality industry is subject to seasonal and cyclical volatility, which may contribute to fluctuations in our results of operations and financial condition.
The hospitality industry is seasonal in nature. The periods during which our lodging properties experience higher revenues vary from property to property, depending principally upon location and the customer base served. We generally expect our revenues to be lower in the first quarter of each year than in each of the three subsequent quarters with the fourth quarter being the highest. In addition, the hospitality industry is cyclical and demand generally follows, on a lagged basis, the general economy. The seasonality and cyclicality of our industry may contribute to fluctuations in our results of operations and financial condition.
Because we operate in a highly competitive industry, our revenues or profits could be harmed if we are unable to compete effectively.
The segments of the hospitality industry in which we operate are subject to intense competition. Our principal competitors are other operators of luxury, full-service and focused-service and timeshare properties, including other major hospitality chains with well-established and recognized brands. We also compete against smaller hotel chains, independent and local hotel owners and operators and independent timeshare operators. If we are unable to compete successfully, our revenues or profits may decline.
Competition for hotel guests
We face competition for individual guests, group reservations and conference business. We compete for these customers based primarily on brand name recognition and reputation, as well as location, room rates, property size and availability of rooms and conference space, quality of the accommodations, customer satisfaction, amenities and the ability to earn and redeem loyalty program points. Our competitors may have greater financial and marketing resources and more efficient technology platforms, which could allow them to improve their properties and expand and improve their marketing efforts in ways that could affect our ability to compete for guests effectively.
Competition for management and franchise agreements
We compete to enter into management and franchise agreements. Our ability to compete effectively is based primarily on the value and quality of our management services, brand name recognition and reputation, our ability and willingness to invest capital, availability of suitable properties in certain geographic areas, and the overall economic terms of our agreements and the economic advantages to the property owner of retaining our management services and using our brands. If the properties that we manage or franchise perform less successfully than those of our competitors, if we are unable to offer terms as favorable as those offered by our competitors, or if the availability of suitable properties is limited, our ability to compete effectively for new management or franchise agreements could be reduced.
Competition for sales of timeshare properties
We compete with other timeshare operators for sales of timeshare intervals based principally on location, quality of accommodations, price, financing terms, quality of service, terms of property use, opportunity for timeshare owners to exchange into time at other timeshare properties or other travel rewards as well as brand name recognition and reputation. Our ability to attract and retain purchasers of timeshare intervals depends on our success in distinguishing the quality and value of our timeshare offerings from those offered by others. If we are unable to do so, our ability to compete effectively for sales of timeshare intervals could be adversely affected.
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Any deterioration in the quality or reputation of our brands could have an adverse impact on our reputation, business, financial condition or results of operations.
Our brands and our reputation are among our most important assets. Our ability to attract and retain guests depends, in part, on the public recognition of our brands and their associated reputation. In addition, the success of our hotel owners businesses and their ability to make payments to us may indirectly depend on the strength and reputation of our brands. Such dependence makes our business susceptible to risks regarding brand obsolescence and to reputational damage. If our brands become obsolete or are viewed as unfashionable or lacking in consistency and quality, we may be unable to attract guests to our hotels, and further we may be unable to attract or retain our hotel owners.
In addition, there are many factors which can negatively affect the reputation of any individual brand, or the overall brand of our company. Changes in ownership or management practices, the occurrence of accidents or injuries, natural disasters, crime, individual guest notoriety, or similar events can have a substantial negative impact on our reputation, create adverse publicity and cause a loss of consumer confidence in our business. Because of the global nature of our brands and the broad expanse of our business and hotel locations, events occurring in one location could have a resulting negative impact on the reputation and operations of otherwise successful individual locations. In addition, the considerable expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by such incidents. We could also face legal claims related to these events, along with adverse publicity resulting from such litigation. If the perceived quality of our brands declines, or if our reputation is damaged, our business, financial condition or results of operations could be adversely affected.
If we are unable to maintain good relationships with third-party hotel owners and renew or enter into new management and franchise agreements, we may be unable to expand our presence and our business, financial condition and results of operations may suffer.
Our management and franchising business depends on our ability to establish and maintain long-term, positive relationships with third-party property owners and on our ability to renew existing, and enter into new, management and franchise agreements. The management and franchise contracts we enter into with third-party owners are typically long-term arrangements, but may allow the hotel owner to terminate the agreement under certain circumstances, including in certain cases, the failure to meet certain financial or performance criteria. Our ability to meet these financial and performance criteria is subject to, among other things, risks common to the overall hotel industry, including factors outside of our control. In addition, any negative management and franchise pricing trends could adversely affect our ability to negotiate with hotel owners. If we fail to maintain and renew existing management and franchise agreements, and enter into new agreements on favorable terms, we may be unable to expand our presence and our business, financial condition and results of operations may suffer.
Our management and franchise business is subject to real estate investment risks for third-party owners which could adversely affect our operational results and our prospects for growth.
The ability to grow our management and franchise business is subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management and franchise agreements for new hotels and the conversion of existing facilities to managed or franchised branded hotels is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, the availability of financing, planning, zoning and other local approvals. Other limitations that may be imposed by market factors include projected room occupancy, changes in growth in demand compared to projected supply, geographic area restrictions in management and franchise agreements, costs of construction and anticipated room rate structure. Any inability by us or our third-party owners to manage these factors effectively could adversely affect our operational results and our prospects for growth.
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If our third-party property owners are unable to repay or refinance loans secured by the mortgaged properties, or to obtain financing adequate to fund current operations or growth plans, our revenues, profits and capital resources could be reduced and our business could be harmed.
Many of the properties owned by our third-party property owners are pledged as collateral for mortgage loans entered into when such properties were purchased or refinanced by them. If our third-party property owners are unable to repay or refinance maturing indebtedness on favorable terms or at all, their lenders could declare a default, accelerate the related debt and repossess the property. Any such repossessions could result in the termination of our management and franchise agreements or eliminate revenues and cash flows from such property, which could negatively affect our business and results of operations. In addition, the owners of managed and franchised hotels depend on financing to buy, develop and improve hotels and in some cases, fund operations during down cycles. Our hotel owners inability to obtain adequate funding could materially adversely impact the maintenance and improvement plans with respect to existing hotels, as well as result in the delay or stoppage of the development of our existing pipeline.
If third-party property owners fail to make investments necessary to maintain or improve their properties, guest preference for Hilton brands and reputation and performance results could suffer.
Substantially all of our management and franchise agreements require third-party property owners to comply with standards that are essential to maintaining the quality and reputation of our branded hotel properties. This includes requirements related to the physical condition, safety standards and appearance of the properties as well as the service levels provided by employees. These standards may evolve with customer preference, or we may introduce new requirements and team members over time. If our property owners fail to make investments necessary to maintain or improve the properties in accordance with such standards, guest preference for our brands could diminish, and this could result in an adverse impact on our results of operations. In addition, if third-party property owners fail to observe standards and meet their contractual requirements, we may elect to exercise our termination rights, which would eliminate revenues from these properties and cause us to incur expenses related to terminating these relationships. We may be unable to find suitable or offsetting replacements for any terminated relationships.
Contractual and other disagreements with third-party property owners could make us liable to them or result in litigation costs or other expenses.
Our management and franchise agreements require us and our hotel owners to comply with operational and performance conditions that are subject to interpretation and could result in disagreements. At any given time, we may be in disputes with one or more of our hotel owners. Any such dispute could be very expensive for us, even if the outcome is ultimately in our favor. We cannot predict the outcome of any arbitration or litigation, the effect of any negative judgment against us or the amount of any settlement that we may enter into with any third-party. An adverse result in any of these proceedings could materially adversely affect our results of operations. Furthermore, specific to our industry, some courts have applied principles of agency law and related fiduciary standards to managers of third-party hotel properties, which means that property owners may assert the right to terminate agreements even where the agreements do not expressly provide for termination. In the event of any such termination, our fees from such properties would be eliminated, and accordingly may negatively impact our results of operations.
We are exposed to the risks resulting from significant investments in owned and leased real estate, which could increase our costs, reduce our profits and limit our ability to respond to market conditions.
We own or lease a substantial amount of real property as one of our three business segments. Real estate ownership and leasing is subject to various risks which may or may not be applicable to managed or franchised properties, including:
| governmental regulations relating to real estate ownership or operations, including tax, environmental, zoning, and eminent domain laws; |
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| changes in market conditions or the area in which real estate is located losing value; |
| differences in potential civil liability between owners and operators for accidents or other occurrences on owned or leased properties; |
| the ongoing need for owner-funded capital improvements and expenditures to maintain or upgrade properties; |
| periodic total or partial closures due to renovations and facility improvements; |
| risks associated with mortgage debt, including the possibility of default, fluctuating interest rate levels and uncertainties in the availability of replacement financing; |
| fluctuations in real estate values or potential impairments in the value of our assets; and |
| the relative illiquidity of real estate compared to some other assets. |
The negative impact on profitability and cash flow from declines in revenues is more pronounced in owned properties because we, as the owner, bear the risk of their high fixed-cost structure. Further, during times of economic distress, declining demand and declining earnings often result in declining asset values and we may not be able to sell properties on favorable terms or at all. Accordingly, we may not be able to adjust our owned property portfolio promptly in response to changes in economic or other conditions.
Our efforts to develop, redevelop or renovate our owned and leased properties could be delayed or become more expensive, which could reduce revenues or impair our ability to compete effectively.
Certain of our owned and leased properties were constructed more than a century ago. The condition of aging properties could negatively impact our ability to attract guests or result in higher operating and capital costs, either of which could reduce revenues or profits from these properties. While we have budgeted for replacements and repairs to furniture, fixtures and hotel equipment at our properties there can be no assurance that these replacements and repairs will occur, or even if completed, will result in improved performance. In addition, these efforts are subject to a number of risks, including:
| construction delays or cost overruns (including labor and materials) that may increase project costs; |
| obtaining zoning, occupancy, and other required permits or authorizations; |
| changes in economic conditions that may result in weakened or lack of demand or negative project returns; |
| governmental restrictions on the size or kind of development; |
| volatility in the debt and capital markets that may limit our ability to raise capital for projects or improvements; |
| lack of availability of rooms or meeting spaces for revenue-generating activities during construction, modernization or renovation projects; |
| force majeure events, including earthquakes, tornadoes, hurricanes, floods, or tsunamis; and |
| design defects that could increase costs. |
If our properties are not updated to meet guest preferences, if properties under development or renovation are delayed in opening as scheduled, or if renovation investments adversely affect or fail to improve performance, our operations and financial results could be negatively impacted.
Our properties may not be permitted to be rebuilt if destroyed.
Certain of our properties may qualify as legally permissible nonconforming uses and improvements, including certain of our iconic and most profitable properties. If a substantial portion of any such properties were
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to be destroyed by fire or other casualty, we might not be permitted to rebuild that property as it now exists, regardless of the availability of insurance proceeds. Any loss of this nature, whether insured or not, could materially adversely affect our results of operations and prospects.
We share control in joint venture projects, which limits our ability to manage third-party risks associated with these projects.
Joint venturers often have shared control over the operation of our joint venture assets. In most cases, we are minority participants and do not control the decisions of the ventures. Therefore, joint venture investments may involve risks such as the possibility that a co-venturer in an investment might become bankrupt, be unable to meet its capital contribution obligations, have economic or business interests or goals that are inconsistent with our business interests or goals, or take actions that are contrary to our instructions or to applicable laws and regulations. In addition, we may be unable to take action without the approval of our joint venture partners, or our joint venture partners could take actions binding on the joint venture without our consent. Consequently, actions by a co-venturer or other third-party could expose us to claims for damages, financial penalties and reputational harm, any of which could have an adverse effect on our business and operations. In addition, we may agree to guarantee indebtedness incurred by a joint venture or co-venturer or provide standard indemnifications to lenders for loss liability or damage occurring as a result of our actions or actions of the joint venture or other co-venturers. Such a guarantee or indemnity may be on a joint and several basis with a co-venturer, in which case we may be liable in the event such co-venturer defaults on its guarantee obligation. The non-performance of such obligations may cause losses to us in excess of the capital we initially may have invested or committed under such obligations.
Preparing our financial statements requires us to have access to information regarding the results of operations, financial position and cash flows of our joint ventures. Any deficiencies in our joint ventures internal controls over financial reporting may affect our ability to report our financial results accurately or prevent or detect fraud. Such deficiencies also could result in restatements of, or other adjustments to, our previously reported or announced operating results, which could diminish investor confidence and reduce the market price for our shares. Additionally, if our joint ventures are unable to provide this information for any meaningful period or fail to meet expected deadlines, we may be unable to satisfy our financial reporting obligations or timely file our periodic reports.
Although our joint ventures may generate positive cash flow, in some cases they may be unable to distribute that cash to the joint venture partners. Additionally, in some cases our joint venture partners control distributions and may choose to leave capital in the joint venture rather than distribute it. Because our ability to generate liquidity from our joint ventures depends in part on their ability to distribute capital to us, our failure to receive distributions from our joint venture partners could reduce our return on these investments.
The timeshare business is subject to extensive regulation and failure to comply with such regulation may have an adverse impact on our business.
We develop, manage, market and sell timeshare intervals. Certain of these activities are subject to extensive state regulation in both the state in which the timeshare property is located and the states in which the timeshare property is marketed and sold. Federal regulation of certain marketing practices also applies. In addition, we provide financing to some purchasers of timeshare intervals and we also service the resulting loans. This practice subjects us to various federal and state regulations, including those which require disclosure to borrowers regarding the terms of their loans as well as settlement, servicing and collection of loans. If we fail to comply with applicable federal, state, and local laws in connection with our timeshare business, we may not be able to offer timeshare intervals or associated financing in certain areas, and as a result, the timeshare business could suffer a decline in revenues.
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A decline in timeshare interval inventory or our failure to enter into and maintain timeshare management agreements may have an adverse effect on our business or results of operations.
In addition to timeshare interval inventory from our owned timeshare properties, we source inventory through sales and marketing agreements with third-party developers. If we fail to develop timeshare properties or are unsuccessful in entering into new agreements with third-party developers, we may experience a decline in timeshare interval inventory available to be sold by us, which could result in a decrease in our revenues. In addition, a decline in timeshare interval inventory could result in both a decrease of financing revenues that are generated from purchasers of timeshare intervals and fee revenues that are generated by providing management services to the timeshare properties.
If purchasers default on the loans that we provide to finance their purchases of timeshare intervals, the revenues and profits that we derive from the timeshare business could be reduced.
Providing secured financing to some purchasers of timeshare intervals subjects us to the risk of purchaser default. As of June 30, 2013, we had approximately $979 million of timeshare financing receivables outstanding. If a purchaser defaults under the financing that we provide, we could be forced to write off the loan and reclaim ownership of the timeshare interval through foreclosure or deed in lieu of foreclosure. If the timeshare interval has declined in value, we may incur impairment losses that reduce our profits. In addition, we may be unable to resell the property in a timely manner or at the same price, or at all. Also, if a purchaser of a timeshare interval defaults on the related loan during the early part of the amortization period, we may not have recovered the marketing, selling and general and administrative costs associated with the sale of that timeshare interval. If we are unable to recover any of the principal amount of the loan from a defaulting purchaser, or if the allowances for losses from such defaults are inadequate, the revenues and profits that we derive from the timeshare business could be reduced.
Some of our existing development pipeline may not be developed into new hotels, which could materially adversely affect our growth prospects.
As of June 30, 2013, we had a total of 1,007 hotels in our development pipeline, which we define as hotels under construction or approved for development under one of our brands. The commitments of owners and developers with whom we have agreements are subject to numerous conditions, and the eventual development and construction of our pipeline not currently under construction is subject to numerous risks, including, in certain cases, obtaining governmental and regulatory approvals and adequate financing. As a result, we cannot assure you that our entire development pipeline will develop into new hotels.
New brands or services that we launch in the future may not be as successful as we anticipate, which could have a material adverse effect on our business, financial condition or results of operations.
We opened our first Home2 Suites by Hilton hotel in 2011 and we launched our eforea spa concept in 2010. We may launch additional branded hotel products and services in the future. We cannot assure you that any new hotel products we launch will be accepted by hotel owners, franchisees or customers, that we will recover the costs we incurred in developing the brands, or that the brands, products or services will be successful. If new branded hotel products and services are not as successful as we anticipate, it could have a material adverse effect on our business, financial condition or results of operations.
We may seek to expand through acquisitions of and investments in other businesses and properties, or through alliances, and we may also seek to divest some of our properties and other assets. These acquisition and disposition activities may be unsuccessful or divert managements attention.
We may consider strategic and complementary acquisitions of and investments in other hotel or hospitality brands, businesses, properties or other assets. Furthermore, we may pursue these opportunities in alliance with existing or prospective owners of managed or franchised properties. In many cases, we will be competing for
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these opportunities with third parties that may have substantially greater financial resources than us. Acquisitions or investments in brands, businesses, properties or assets as well as these alliances are subject to risks that could affect our business, including risks related to:
| issuing shares of stock that could dilute the interests of our existing stockholders; |
| spending cash and incurring debt; |
| assuming contingent liabilities; or |
| creating additional expenses. |
We cannot assure you that we will be able to identify opportunities or complete transactions on commercially reasonable terms or at all or that we will actually realize any anticipated benefits from such acquisitions, investments or alliances. Similarly, we cannot assure you that we will be able to obtain financing for acquisitions or investments on attractive terms or at all or that the ability to obtain financing will not be restricted by the terms of our indebtedness. In addition, the success of any acquisitions or investments also will depend, in part, on our ability to integrate the acquisition or investment with our existing operations.
We may also divest certain properties or assets, and any such divestments may yield lower than expected returns. In some circumstances, sales of properties or other assets may result in losses. Upon a sale of properties or assets, we may become subject to contractual indemnity obligations, incur material tax liabilities or, as a result of required debt repayment, face a shortage of liquidity. Finally, any acquisitions, investments or dispositions could demand significant attention from management that would otherwise be available for business operations, which could harm our business.
Failure to keep pace with developments in technology could adversely affect our operations or competitive position.
The hospitality industry demands the use of sophisticated technology and systems for property management, brand assurance and compliance, procurement, reservation systems, operation of our customer loyalty programs, distribution of hotel resources to current and future customers, and guest amenities. These technologies may require refinements and upgrades. The development and maintenance of these technologies may require significant investment by us. We cannot assure you that as various systems and technologies become outdated or new technology is required, we will be able to replace or introduce them as quickly as needed or in a cost-effective and timely manner. We also cannot assure you that we will achieve the benefits we may have been anticipating from any new technology or system.
Failures in, material damage to, or interruptions in our information technology systems, software or websites, including as a result of cyber-attacks, and difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations.
We depend heavily upon our information technology systems in the conduct of our business. We own and license or otherwise contract for sophisticated technology and systems for property management, procurement, reservations and the operation of the Hilton HHonors customer loyalty program. Such systems are subject to, among other things, damage or interruption from power outages, computer and telecommunications failures, computer viruses, and natural and man-made disasters. In particular, from time to time we and third parties who serve us experience cyber-attacks, attempted breaches of our or their information technology systems and networks or similar events, which could result in a loss of sensitive business or customer information, systems interruption or the disruption of our operations. For example, in 2011 we were notified by Epsilon, our database marketing vendor, that we were among a group of companies served by Epsilon that were affected by a data breach that resulted in an unauthorized third party gaining access to Epsilons files that included names and e-mails of certain of our customers. In addition, substantially all of our data center operations are currently located in a single facility, and any loss or damage to the facility could result in operational disruption and data loss.
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Damage or interruption to our information systems may require a significant investment to update, remediate or replace with alternate systems, and we may suffer interruptions in our operations as a result. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our systems, including those that may result from our failure to adequately develop, implement and maintain a robust disaster recovery plan and backup systems could severely affect our ability to conduct normal business operations and, as a result, have a material adverse effect on our business operations and financial performance.
We rely on third parties for the performance of a significant portion of our information technology functions worldwide and the provision of information technology and business process services. In particular, our reservation system relies on data communications networks operated by unaffiliated third parties. The success of our business depends in part on maintaining our relationships with these third parties and their continuing ability to perform these functions and services in a timely and satisfactory manner. If we experience a loss or disruption in the provision of any of these functions or services, or they are not performed in a satisfactory manner, we may have difficulty in finding alternate providers on terms favorable to us, in a timely manner or at all, and our business could be adversely affected.
We rely on certain software vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient and timely manner.
We are vulnerable to various risks and uncertainties associated with our websites and mobile applications, including changes in required technology interfaces, website and mobile application downtime and other technical failures, costs and issues as we upgrade our website software and mobile applications. Additional risks include computer viruses, changes in applicable federal and state regulation, security breaches, legal claims related to our website operations and e-commerce fulfillment and other consumer privacy concerns. Our failure to successfully respond to these risks and uncertainties could reduce website and mobile application sales and have a material adverse effect on our business or results of operations.
We may be exposed to risks and costs associated with protecting the integrity and security of our guests personal information.
We are subject to various risks associated with the collection, handling, storage and transmission of sensitive information, including risks related to compliance with U.S. and foreign data collection and privacy laws and other contractual obligations, as well as the risk that our systems collecting such information could be compromised. In the course of doing business, we collect large volumes of internal and customer data, including credit card numbers and other personally identifiable information for various business purposes, including managing our workforce, providing requested products and services, and maintaining guest preferences to enhance customer service and for marketing and promotion purposes. Our various information technology systems enter, process, summarize and report such data. If we fail to maintain compliance with the various U.S. and foreign data collection and privacy laws or with credit card industry standards or other applicable data security standards, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.
In addition, even if we are fully compliant with legal standards and contractual requirements, we still may not be able to prevent security breaches involving sensitive data. The sophistication of efforts by hackers to gain unauthorized access to information systems has increased in recent years. Any breach, theft, loss, or fraudulent use of customer, employee or company data could cause consumers to lose confidence in the security of our
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websites, mobile applications and other information technology systems and choose not to purchase from us. Any such security breach could expose us to risks of data loss, business disruption, litigation and other liability, any of which could adversely affect our business.
In addition, states and the federal government have recently enacted additional laws and regulations to protect consumers against identity theft. These laws and similar laws in other jurisdictions have increased the costs of doing business and, if we fail to implement appropriate safeguards or we fail to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other remedies. If we were required to pay any significant amounts in satisfaction of claims under these laws, or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, operating results and financial condition could be adversely affected.
Failure to comply with marketing and advertising laws, including with regard to direct marketing, could result in fines or place restrictions on our business.
We rely on a variety of direct marketing techniques, including telemarketing, email marketing and postal mailings, and we are subject to various laws and regulations in the U.S. and internationally which govern marketing and advertising practices. Any further restrictions in laws, such as the Telephone Consumer Protection Act of 1991, the Telemarketing Sales Rule, CAN-SPAM Act of 2003, and various U.S. state laws, new laws, or international data protection laws, such as the EU member states implementation of proposed privacy regulation, that govern these activities could adversely affect current or planned marketing activities and cause us to change our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact our ability to maintain relationships with our customers and acquire new customers. We also obtain access to names of potential customers from travel service providers or other companies and we market to some individuals on these lists directly or through other companies marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to products could be impaired.
The growth of internet reservation channels could adversely affect our business and profitability.
A significant percentage of hotel rooms for individual guests is booked through internet travel intermediaries. We contract with such intermediaries and pay them various commissions and transaction fees for sales of our rooms through their systems. If such bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant concessions from us or our franchisees. Although we have established agreements with many of these intermediaries that limit transaction fees for hotels, there can be no assurance that we will be able to renegotiate these agreements upon their expiration with terms as favorable as the provisions that existed before the expiration, replacement or renegotiation. Moreover, hospitality intermediaries generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries offered brands, websites and reservations systems rather than to the Hilton brands and systems. If this happens, our business and profitability may be significantly impacted as shifting customer loyalties divert bookings away from our websites.
In addition, in general, internet travel intermediaries have traditionally competed to attract individual consumers or transient business rather than group and convention business. However, hospitality intermediaries have recently grown their business to include marketing to large group and convention business. If that growth continues, it could both divert group and convention business away from our hotels, and it could also increase our cost of sales for group and convention business.
Recent class action litigation against several online travel intermediaries and lodging companies, including Hilton, challenges the legality under certain antitrust laws of certain provisions in contracts and alleged practices with third-party intermediaries. While we are vigorously defending the litigation, and believe the contract
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provisions are lawful, the courts will ultimately determine this issue. Our fees and expenses associated with this litigation, even if we ultimately prevail, could be material. Any adverse outcome could require us to alter our business arrangements with these intermediaries, and consequently could have a negative impact on our financial condition and results of operations.
Our reservation system is an important component of our business operations and a disruption to its functioning could have an adverse effect on our performance and results.
We manage a global reservation system that communicates reservations to our branded hotels when made by individuals directly, either online or by telephone to our call centers, or through intermediaries like travel agents, internet travel web sites and other distribution channels. The cost, speed, efficacy and efficiency of the reservation system are important aspects of our business and is an important consideration of hotel owners in choosing to affiliate with our brands. Any failure to maintain or upgrade, and any other disruption to our reservation system may adversely affect our business.
The cessation, reduction or taxation of program benefits of our Hilton HHonors loyalty program could adversely affect the Hilton brands and guest loyalty.
We manage the Hilton HHonors guest loyalty and rewards program for the Hilton brands. Program members accumulate points based on eligible stays and hotel charges and redeem the points for a range of benefits including free rooms and other items of value. The program is an important aspect of our business and of the affiliation value for hotel owners under management and franchise agreements. System hotels (including, without limitation, third-party hotels under management and franchise arrangements) contribute a percentage of the guests charges to the program for each stay of a program member. In addition to the accumulation of points for future hotels stays at our brands, Hilton HHonors arranges with third-party service providers such as airlines and rail companies to exchange monetary value represented by points for program awards. Currently, the program benefits are not taxed as income to members. If the program awards and benefits are materially altered, curtailed or taxed such that a material number of HHonors members choose to no longer participate in the program, this could adversely affect our business.
Because we derive a portion of our revenues from operations outside the United States, the risks of doing business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business.
We currently manage, franchise, own or lease hotels and resorts in 90 countries around the world. Our operations outside the United States represented approximately 27% and 26% of our revenues for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively. We expect that revenues from our international operations will continue to account for an increasing portion of our total revenues. As a result, we are subject to the risks of doing business outside the United States, including:
| rapid changes in governmental, economic and political policy, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; |
| increases in anti-American sentiment and the identification of the licensed brands as an American brand; |
| recessionary trends or economic instability in international markets; |
| changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the countries in which we operate; |
| the effect of disruptions caused by severe weather, natural disasters, outbreak of disease or other events that make travel to a particular region less attractive or more difficult; |
| the presence and acceptance of varying levels of business corruption in international markets and the impact of various anti-corruption and other laws; |
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| the imposition of restrictions on currency conversion or the transfer of funds or limitations on our ability to repatriate non-U.S. earnings in a tax efficient manner; |
| the ability to comply with or impact of complying with complex and changing laws, regulations and policies of foreign governments that may affect investments or operations, including foreign ownership restrictions, import and export controls, tariffs, embargoes, increases in taxes paid and other changes in applicable tax laws; |
| uncertainties as to local laws and enforcement of contract and intellectual property rights; |
| forced nationalization of our properties by local, state or national governments; and |
| the difficulties involved in managing an organization doing business in many different countries. |
These factors may adversely affect the revenues from and the market value of our properties located in international markets. While these factors and the impact of these factors are difficult to predict, any one or more of them could lower our revenues, increase our costs, reduce our profits or disrupt our business operations.
Failure to comply with laws and regulations applicable to our international operations may increase costs, reduce profits, limit growth or subject us to broader liability.
Our business operations in countries outside the U.S. are subject to a number of laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act, or FCPA, as well as trade sanctions administered by the Office of Foreign Assets Control, or OFAC. The FCPA is intended to prohibit bribery of foreign officials and requires companies whose securities are listed in the U.S. to keep books and records that accurately and fairly reflect those companies transactions and to devise and maintain an adequate system of internal accounting controls. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. We have policies in place designed to comply with applicable sanctions, rules and regulations. Given the nature of our business, it is possible that hotels we own or manage in the 90 countries and territories in which we operate may provide services to persons subject to sanctions. Where we have identified potential violations in the past, we have taken appropriate remedial action including filing voluntary disclosures to OFAC. In addition, some of our operations may be subject to the laws and regulations of non-U.S. jurisdictions, including the U.K.s Bribery Act 2010, which contains significant prohibitions on bribery and other corrupt business activities, and other local anti-corruption laws in the countries in which we conduct operations.
If we fail to comply with these laws and regulations, we could be exposed to claims for damages, financial penalties, reputational harm, and incarceration of employees or restrictions on our operation or ownership of hotels and other properties, including the termination of management, franchising, and ownership rights. In addition, in certain circumstances, the actions of parties affiliated with us (including our owners, joint venture partners, team members and agents) may expose us to liability under the FCPA, U.S. sanctions or other laws. These restrictions could increase costs of operations, reduce profits or cause us to forgo development opportunities that would otherwise support growth.
In August 2012, Congress enacted the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRSHRA, which expands the scope of U.S. sanctions against Iran and Syria. In particular, Section 219 of the ITRSHRA amended the Securities Exchange Act of 1934, as amended, or Exchange Act, to require companies subject to Securities and Exchange Commission, or SEC, reporting obligations under Section 13 of the Exchange Act to disclose in their periodic reports specified dealings or transactions involving Iran or other individuals and entities targeted by certain OFAC sanctions engaged in by the reporting company or any of its affiliates during the period covered by the relevant periodic report. In some cases, ITRSHRA requires companies to disclose these types of transactions even if they would otherwise be permissible under U.S. law. These companies are required to separately file with the SEC a notice that such activities have been disclosed in the relevant periodic report, and the SEC is required to post this notice of disclosure on its website and send the report to the U.S. President
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and certain U.S. Congressional committees. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation with respect to certain disclosed activities, to determine whether sanctions should be imposed.
Under ITRSHRA, we will be required to report if we or any of our affiliates knowingly engaged in certain specified activities during a period covered by one of our annual reports on Form 10-K or quarterly reports on Form 10-Q. We have engaged in, and may in the future engage in, activities that would require disclosure pursuant to Section 219 of ITRSHRA, including the activities discussed in the disclosures included on Exhibit 99.1 to the registration statement of which this prospectus forms a part, which disclosures are hereby incorporated by reference herein. In addition, because the SEC defines the term affiliate broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us. Because we may be deemed to be a controlled affiliate of Blackstone, affiliates of Blackstone may also be considered our affiliates. Other affiliates of Blackstone have in the past and may in the future be required to make disclosures pursuant to ITRSHRA. Disclosure of such activities, even if such activities are permissible under applicable law, and any sanctions imposed on us or our affiliates as a result of these activities could harm our reputation and brands and have a negative impact on our results of operations.
The loss of senior executives or key field personnel, such as general managers, could significantly harm our business.
Our ability to maintain our competitive position depends somewhat on the efforts and abilities of our senior executives. Finding suitable replacements for senior executives could be difficult. Losing the services of one or more of these senior executives could adversely affect strategic relationships, including relationships with third-party property owners, joint venture partners and vendors, and limit our ability to execute our business strategies.
We also rely on the general managers at each of our managed, owned, leased and joint venture hotels to manage daily operations and oversee the efforts of team members. These general managers are trained professionals in the hospitality industry and have extensive experience in many markets worldwide. The failure to retain, train or successfully manage general managers for our managed, owned, leased and joint venture hotels could negatively affect our operations.
Collective bargaining activity could disrupt our operations, increase our labor costs or interfere with the ability of our management to focus on executing our business strategies.
A significant number of our employees (approximately 27%) and employees of our hotel owners are covered by collective bargaining agreements and similar agreements. If relationships with our employees or employees of our hotel owners or the unions that represent them become adverse, the properties we manage, franchise or own could experience labor disruptions such as strikes, lockouts, boycotts and public demonstrations. A number of our collective bargaining agreements, representing approximately 6% of our organized employees, have expired and are in the process of being renegotiated, and we may be required to negotiate additional collective bargaining agreements in the future if more employees become unionized. Labor disputes, which may be more likely when collective bargaining agreements are being negotiated, could harm our relationship with our employees or employees of our hotel owners, result in increased regulatory inquiries and enforcement by governmental authorities and deter guests. Further, adverse publicity related to a labor dispute could harm our reputation and reduce customer demand for our services. Labor regulation and the negotiation of new or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses, legal costs, and limitations on our ability or the ability of our third-party property owners to take cost saving measures during economic downturns. We do not have the ability to control the negotiations of collective bargaining agreements covering unionized labor employed by many third-party property owners. Increased unionization of our workforce, new labor legislation or changes in regulations could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies.
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Labor shortages could restrict our ability to operate our properties or grow our business or result in increased labor costs that could adversely affect our results of operations.
Our success depends in large part on our ability to attract, retain, train, manage, and engage employees. Our managed, owned, leased and joint venture hotels are staffed by approximately 147,000 team members around the world. If we are unable to attract, retain, train, manage, and engage skilled employees, our ability to manage and staff the managed, owned, leased and joint venture hotels could be impaired, which could reduce customer satisfaction. In addition, the inability of our franchisees to attract, retain, train, manage, and engage skilled employees for the franchised hotels could adversely affect the reputation of our brands. Staffing shortages in various parts of the world also could hinder our ability to grow and expand our businesses. Because payroll costs are a major component of the operating expenses at our hotels and our franchised hotels, a shortage of skilled labor could also require higher wages that would increase labor costs, which could adversely affect our results of operations.
Any failure to protect our trademarks and other intellectual property could reduce the value of the Hilton brands and harm our business.
The recognition and reputation of our brands are important to our success. We have over 4,000 trademark registrations in jurisdictions around the world for use in connection with our services. At any given time, we also have a number of pending applications to register trademarks and other intellectual property in the U.S. and other jurisdictions. However, we cannot assure you that those trademark or other intellectual property registrations will be granted or that the steps we take to use, control or protect our trademarks or other intellectual property in the U.S. and other jurisdictions will always be adequate to prevent third parties from copying or using the trademarks or other intellectual property without authorization. We may also fail to obtain and maintain trademark protection for all of our brands in all jurisdictions. For example, in certain jurisdictions, third parties have registered or otherwise have the right to use certain trademarks that are the same as or similar to our trademarks, which could prevent us from registering trademarks and opening hotels in that jurisdiction. Third parties may also challenge our rights to certain trademarks or oppose our trademark applications. Defending against any such proceedings may be costly, and if unsuccessful, could result in the loss of important intellectual property rights. Obtaining and maintaining trademark protection for multiple brands in multiple jurisdictions is also expensive, and we may therefore elect not to apply for or to maintain certain trademarks.
Our intellectual property is also vulnerable to unauthorized copying or use in some jurisdictions outside the U.S., where local law, or lax enforcement of law, may not provide adequate protection. If our trademarks or other intellectual property are improperly used, the value and reputation of the Hilton brands could be harmed. There are times where we may need to resort to litigation to enforce our intellectual property rights. Litigation of this type could be costly, force us to divert our resources, lead to counterclaims or other claims against us or otherwise harm our business or reputation. In addition, we license certain of our trademarks to third parties. For example, we grant our franchisees a right to use certain of our trademarks in connection with their operation of the applicable property. If a franchisee or other licensee fails to maintain the quality of the goods and services used in connection with the licensed trademarks, our rights to, and the value of, our trademarks could potentially be harmed. Failure to maintain, control and protect our trademarks and other intellectual property could likely adversely affect our ability to attract guests or third-party owners, and could adversely impact our results.
In addition, we license the right to use certain intellectual property from unaffiliated third parties. Such rights include the right to grant sublicenses to franchisees. If we are unable to use such intellectual property, our ability to generate revenue from such properties may be diminished.
Third-party claims that we infringe intellectual property rights of others could subject us to damages and other costs and expenses.
Third parties may make claims against us for infringing their patent, trademark, copyright or other intellectual property rights or for misappropriating their trade secrets. We have been and are currently party to a
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number of such claims and may receive additional claims in the future. Any such claims, even those without merit, could:
| be expensive and time consuming to defend, and result in significant damages; |
| force us to stop using the intellectual property that is being challenged or to stop providing products or services that use the challenged intellectual property; |
| force us to redesign or rebrand our products or services; |
| require us to enter into royalty, licensing, co-existence or other agreements to obtain the right to use a third partys intellectual property; |
| divert managements attention and resources; and |
| limit the use or the scope of our intellectual property or other rights. |
In addition, we may be required to indemnify third-party owners of the hotels that we manage for any losses they incur as a result of any infringement claims against them. All necessary royalty, licensing or other agreements may not be available to us on acceptable terms. Any adverse results associated with third-party intellectual property claims could negatively impact our business.
Exchange rate fluctuations and foreign exchange hedging arrangements could result in significant foreign currency gains and losses and impact our business results.
Conducting business in currencies other than the U.S. dollar subjects us to fluctuations in currency exchange rates that could have a negative impact on financial results. We earn revenues and incur expenses in foreign currencies as part of our operations outside of the U.S. As a result, fluctuations in currency exchange rates may significantly increase the amount of U.S. dollars required for foreign currency expenses or significantly decrease the U.S. dollars received from foreign currency revenues. We also have exposure to currency translation risk because, generally, the results of our business outside of the U.S. are reported in local currency and then translated to U.S. dollars for inclusion in our consolidated financial statements. As a result, changes between the foreign exchange rates and the U.S. dollar will affect the recorded amounts of our foreign assets, liabilities, revenues and expenses and could have a negative impact on financial results. Our exposure to foreign currency exchange rate fluctuations will grow if the relative contribution of our operations outside the U.S. increases.
To attempt to mitigate foreign currency exposure, we may enter into foreign exchange hedging agreements with financial institutions to reduce certain of our exposures to fluctuations in currency exchange rates. However, these hedging agreements may not eliminate foreign currency risk entirely and involve costs and risks of their own in the form of transaction costs, credit requirements and counterparty risk.
If the insurance that we or our owners carry does not sufficiently cover damage or other potential losses or liabilities to third parties involving properties that we manage, franchise or own, our profits could be reduced.
We operate in certain areas where the risk of natural disaster or other catastrophic losses vary, and the occasional incidence of such an event could cause substantial damage to us, our owners or the surrounding area. We carry, and we require our owners to carry, insurance from solvent insurance carriers that we believe is adequate for foreseeable first- and third-party losses and with terms and conditions that are reasonable and customary. Nevertheless, market forces beyond our control could limit the scope of the insurance coverage that we and our owners can obtain or which may otherwise restrict our or our owners ability to buy insurance coverage at reasonable rates. In the event of a substantial loss, the insurance coverage that we and/or our owners carry may not be sufficient to pay the full value of our financial obligations, our liabilities or the replacement cost of any lost investment or property. Because certain types of losses are uncertain, they can be uninsurable or prohibitively expensive. In addition, there are other risks that may fall outside the general coverage terms and limits of our policies.
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In some cases, these factors could result in certain losses being completely uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenues, profits, management fees or franchise fees from the property.
Terrorism insurance may not be available at all or at commercially reasonable rates.
Following the September 11, 2001 terrorist attacks in New York City and the Washington, D.C. area, Congress passed the Terrorism Risk Insurance Act of 2002, which established the Terrorism Insurance Program to provide insurance capacity for terrorist acts. On December 26, 2007, the Terrorism Insurance Program was extended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 through December 31, 2014, or TRIPRA. We carry, and we require our owners and our franchisees to carry, insurance from solvent insurance carriers to respond to both first-party and third-party liability losses related to terrorism. We purchase our first-party property damage and business interruption insurance from a stand-alone market in place of and to supplement insurance from government run pools. If TRIPRA is not extended or renewed upon its expiration in 2014, premiums for terrorism insurance coverage will likely increase and/or the terms of such insurance may be materially amended to increase stated exclusions or to otherwise effectively decrease the scope of coverage available, perhaps to the point where it is effectively unavailable.
Terrorist attacks and military conflicts may adversely affect the hospitality industry.
The terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001 underscore the possibility that large public facilities or economically important assets could become the target of terrorist attacks in the future. In particular, properties that are well-known or are located in concentrated business sectors in major cities may be subject to the risk of terrorist attacks.
The occurrence or the possibility of terrorist attacks or military conflicts could:
| cause damage to one or more of our properties that may not be fully covered by insurance to the value of the damages; |
| cause all or portions of affected properties to be shut down for prolonged periods, resulting in a loss of income; |
| generally reduce travel to affected areas for tourism and business or adversely affect the willingness of customers to stay in or avail themselves of the services of the affected properties; |
| expose us to a risk of monetary claims arising out of death, injury or damage to property caused by any such attacks; and |
| result in higher costs for security and insurance premiums or diminish the availability of insurance coverage for losses related to terrorist attacks, particularly for properties in target areas, all of which could adversely affect our results. |
Certain of our buildings are also highly profitable properties to our business. In addition to the impacts noted above, the occurrence of a terrorist attack with respect to one of these properties could directly and materially adversely affect our results of operations. Furthermore, the loss of any of our well-known buildings could indirectly impact the value of our brands, which would in turn adversely impact our business prospects.
Changes in U.S. federal, state and local or foreign tax law, interpretations of existing tax law, or adverse determinations by tax authorities, could increase our tax burden or otherwise adversely affect our financial condition or results of operations.
We are subject to taxation at the federal, state or provincial and local levels in the U.S. and various other countries and jurisdictions. Our future effective tax rate could be affected by changes in the composition of
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earnings in jurisdictions with differing tax rates, changes in statutory rates and other legislative changes, changes in the valuation of our deferred tax assets and liabilities, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time, the U.S. federal, state and local and foreign governments make substantive changes to tax rules and their application, which could result in materially higher corporate taxes than would be incurred under existing tax law and could adversely affect our financial condition or results of operations.
We record tax expense based in part on our estimates of expected future tax rates, reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss carryforwards.
We are subject to ongoing and periodic tax audits and disputes in various state, local and foreign jurisdictions. In particular, our consolidated U.S. federal income tax returns for the fiscal years ended December 31, 2006 and October 24, 2007 are under audit by the Internal Revenue Service, or IRS, and the IRS has proposed adjustments to increase our taxable income based on several assertions involving intercompany loans, our Hilton HHonors guest loyalty and reward program and our foreign-currency denominated loans issued by one of our subsidiaries. In total, the proposed adjustments sought by the IRS would result in U.S. federal tax owed of approximately $695 million, excluding interest and penalties and potential state income taxes. We disagree with the IRSs position on each of the assertions and intend to vigorously contest them. See Note 18: Income Taxes in our audited consolidated financial statements included elsewhere in this prospectus for additional information. An unfavorable outcome from any tax audit could result in higher tax costs, penalties and interest, thereby adversely impacting our financial condition or results of operations.
Changes to accounting rules or regulations may adversely affect our financial condition and results of operations.
New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. A change in accounting rules or regulations may even affect our reporting of transactions completed before the change is effective, and future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our financial condition and results of operations. For example, in 2013, the Financial Accounting Standards Board, or FASB, issued a revised exposure draft outlining proposed changes to current lease accounting in FASB Accounting Standards Codification Topic 840, Leases . The proposed accounting standards update, if ultimately adopted in its current form, could result in significant changes to current accounting, including the capitalization of leases on the balance sheet that currently are recorded off balance sheet as operating leases. While this change would not impact the cash flow related to our leased hotels and other leased assets, it could adversely impact our balance sheet and could therefore impact our ability to raise financing from banks or other sources.
Changes to estimates or projections used to assess the fair value of our assets, or operating results that are lower than our current estimates at certain locations, may cause us to incur impairment charges that could adversely affect our results of operations.
Our total assets include goodwill, intangible assets with an indefinite life, other intangible assets with finite useful lives, and substantial amounts of long-lived assets, principally property and equipment, including hotel properties. We evaluate our goodwill and trademarks for impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value is below the carrying value. We evaluate intangible assets with finite useful lives and long-lived assets for impairment when circumstances indicate that the carrying amount may not be recoverable. Our evaluation of impairment requires us to make certain estimates and assumptions including projections of future results. After performing our evaluation for impairment, including an analysis to determine the recoverability of long-lived assets, we will record an impairment loss when the carrying value of the underlying asset, asset group or reporting unit exceeds its fair value. If the estimates or assumptions used in our evaluation of impairment change, we may be required to
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record additional impairment losses on certain of these assets. If these impairment losses are significant, our results of operations would be adversely affected.
Governmental regulation may adversely affect the operation of our properties.
In many jurisdictions, the hotel industry is subject to extensive foreign or U.S. federal, state and local governmental regulations, including those relating to the service of alcoholic beverages, the preparation and sale of food and those relating to building and zoning requirements. We are also subject to licensing and regulation by foreign or U.S. state and local departments relating to health, sanitation, fire and safety standards, and to laws governing their relationships with employees, including minimum wage requirements, overtime, working conditions and citizenship requirements. We or our third-party owners may be required to expend funds to meet foreign or U.S. federal, state and local regulations in connection with the continued operation or remodeling of certain of our properties. The failure to meet the requirements of applicable regulations and licensing requirements, or publicity resulting from actual or alleged failures, could have an adverse effect on our results of operations.
Foreign or U.S. environmental laws and regulations may cause us to incur substantial costs or subject us to potential liabilities.
We are subject to certain compliance costs and potential liabilities under various foreign and U.S. federal, state and local environmental, health and safety laws and regulations. These laws and regulations govern actions including air emissions, the use, storage and disposal of hazardous and toxic substances, and wastewater disposal. Our failure to comply with such laws, including any required permits or licenses, could result in substantial fines or possible revocation of our authority to conduct some of our operations. We could also be liable under such laws for the costs of investigation, removal or remediation of hazardous or toxic substances at our currently or formerly owned, leased or operated real property (including managed and franchised properties) or at third-party locations in connection with our waste disposal operations, regardless of whether or not we knew of, or caused, the presence or release of such substances. From time to time, we may be required to remediate such substances or remove, abate or manage asbestos, mold, radon gas, lead or other hazardous conditions at our properties. The presence or release of such toxic or hazardous substances could result in third-party claims for personal injury, property or natural resource damages, business interruption or other losses. Such claims and the need to investigate, remediate, or otherwise address hazardous, toxic or unsafe conditions could adversely affect our operations, the value of any affected real property, or our ability to sell, lease or assign our rights in any such property, or could otherwise harm our business or reputation. Environmental, health and safety requirements have also become increasingly stringent, and our costs may increase as a result. For example, Congress, the U.S. Environmental Protection Agency, or EPA, and some states are considering or have undertaken actions to regulate and reduce greenhouse gas emissions. New or revised laws and regulations or new interpretations of existing laws and regulations, such as those related to climate change, could affect the operation of our properties or result in significant additional expense and operating restrictions on us. The potential for changes in the frequency, duration and severity of extreme weather events that may be a result of climate change could lead to significant property damage at our hotels and other assets, impact our ability to obtain insurance coverage in areas that are most vulnerable to such events, such as the coastal resort areas where we operate, and have a negative effect on revenues.
The cost of compliance with the Americans with Disabilities Act and similar legislation outside of the U.S. may be substantial.
We are subject to the Americans with Disabilities Act, or ADA, and similar legislation in certain jurisdictions outside of the U.S. Under the ADA all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. These regulations apply to accommodations first occupied after January 26, 1993, and older structures that undergo material renovations. The regulations also mandate certain operational requirements that hotel operators must observe. The failure of a property to comply
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with the ADA could result in injunctive relief, fines, an award of damages to private litigants or mandated capital expenditures to remedy such noncompliance. Any imposition of injunctive relief, fines, damage awards or capital expenditures could adversely affect the ability of an owner or franchisee to make payments under the applicable management or franchise agreement or negatively impact the reputation of our brands. In November 2010, we entered into a settlement with the U.S. Department of Justice related to compliance with the ADA. Under the terms of the settlement, we must: ensure compliance with ADA regulations at our owned and joint venture properties built after January 26, 1993; require managed or franchised hotels that enter into a new management or franchise agreement, experience a change in ownership, or renew or extend a franchise agreement, to conduct a survey of its facilities and to certify that the hotel complies with the ADA; ensure that new hotels constructed in our system are compliant with ADA regulations; provide ADA training to our team members; improve the accessibility of our websites and reservations system for individuals with disabilities; appoint a national ADA compliance officer; and appoint an ADA contact on-site at each hotel. If we fail to comply with the requirements of the ADA and our related consent decree, we could be subject to fines, penalties, injunctive action, reputational harm, and other business impacts which could materially and negatively affect our performance and results of operations.
Casinos featured on certain of our properties are subject to gaming laws and noncompliance could result in the revocation of the gaming licenses.
Several of our properties feature casinos, most of which are operated by third-parties. Factors affecting the economic performance of a casino property include:
| location, including proximity to or easy access from major population centers; |
| appearance; |
| local, regional or national economic conditions, which may limit the amount of disposable income that potential patrons may have for gambling; |
| the existence or construction of competing casinos; |
| dependence on tourism; and |
| governmental regulation. |
Jurisdictions in which our properties containing casinos are located, including Nevada, New Jersey, Puerto Rico and Egypt have laws and regulations governing the conduct of casino gaming. These jurisdictions generally require that the operator of a casino must be found suitable and be registered. Once issued, a registration remains in force until revoked. The law defines the grounds for registration, as well as revocation or suspension of such registration. The loss of a gaming license for any reason would have a material adverse effect on the value of a casino property and could reduce fee income associated with such operations and consequently negatively impact our business results.
We are subject to risks from litigation filed by or against us.
Legal or governmental proceedings brought by or on behalf of franchisees, third-party owners of managed properties, employees or customers may adversely affect our financial results. In recent years, a number of hospitality companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal laws and regulations regarding workplace and employment matters, consumer protection claims and other commercial matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been and may be instituted against us from time to time, and we may incur substantial damages and expenses resulting from lawsuits of this type, which could have a material adverse effect on our business. At any given time, we may be engaged in lawsuits involving third-party owners of our hotels. Similarly, we may from time to time institute legal proceedings on behalf of ourselves or others, the ultimate outcome of which could cause us to incur substantial damages and expenses, which could have a material adverse effect on our business.
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Risks Relating to Our Indebtedness
Our substantial indebtedness and other contractual obligations could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry and pay our debts and could divert our cash flow from operations for debt payments.
We have a significant amount of indebtedness. As of June 30, 2013, as adjusted to give effect to this offering and the use of proceeds to repay certain of our outstanding indebtedness, our total indebtedness would have been approximately $ billion. After giving effect to the transactions described in Unaudited Pro Forma Condensed Consolidated Financial Information, our contractual debt maturities as of June 30, 2013, including maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities, for the six months ended December 31, 2013 and the years ended December 31, 2014, 2015 and 2016, respectively, would be $ million, $ million, $ million and $ million. Our substantial debt and other contractual obligations could have important consequences, including:
| requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and pursue future business opportunities; |
| increasing our vulnerability to adverse economic, industry or competitive developments; |
| exposing us to increased interest expense, as our degree of leverage may cause the interest rates of any future indebtedness (whether fixed or floating rate interest) to be higher than they would be otherwise; |
| exposing us to the risk of increased interest rates because certain of our indebtedness is at variable rates of interest; |
| making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants, could result in an event of default that accelerates our obligation to repay indebtedness; |
| restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; |
| limiting our ability to obtain additional financing for working capital, capital expenditures, product development, satisfaction of debt service requirements, acquisitions and general corporate or other purposes; and |
| limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who may be better positioned to take advantage of opportunities that our leverage prevents us from exploiting. |
We are a holding company and substantially all of our consolidated assets are owned by, and most of our business is conducted through, our subsidiaries. Revenues from these subsidiaries are our primary source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions to us, that may impair our ability to meet our debt service obligations or otherwise fund our operations. Moreover, there may be restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to stockholders only from profits. As a result, although a subsidiary of ours may have cash, we may not be able to obtain that cash to satisfy our obligation to service our outstanding debt or fund our operations.
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Certain of our debt agreements impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
The indenture that governs our senior notes, the credit agreement that will govern our new senior secured credit facilities and the agreements that will govern our new commercial mortgage-backed securities loan and the mortgage loan secured by our Waldorf=Astoria New York property, will impose significant operating and financial restrictions on us. These restrictions will limit our ability and/or the ability of our subsidiaries to, among other things:
| incur or guarantee additional debt or issue disqualified stock or preferred stock; |
| pay dividends (including to us) and make other distributions on, or redeem or repurchase, capital stock; |
| make certain investments; |
| incur certain liens; |
| enter into transactions with affiliates; |
| merge or consolidate; |
| enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the issuers; |
| designate restricted subsidiaries as unrestricted subsidiaries; and |
| transfer or sell assets. |
In addition, if, on the last day of any period of four consecutive quarters on or after the date to be specified in the new credit agreement, the aggregate principal amount of revolving credit loans, swing line loans and/or letters of credit (excluding up to $50 million of letters of credit and certain other letters of credit that have been cash collateralized or back-stopped) that are issued and/or outstanding is greater than 25% of the revolving credit facility, the new credit agreement will require us to maintain a consolidated first lien net leverage ratio not to exceed 7.9 to 1.0. Our subsidiaries mortgage-backed loans will also require them to maintain certain debt service coverage ratios and minimum net worth requirements.
As a result of these restrictions, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our failure to comply with the restrictive covenants described above as well as other terms of our other indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these borrowings, our results of operations and financial condition could be adversely affected.
Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control.
Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. To a certain extent, this is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives.
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Despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.
We may be able to incur significant additional indebtedness in the future. Although the credit agreements and indentures that govern substantially all of our indebtedness contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the preceding two risk factors would increase.
Risks Related to this Offering and Ownership of Our Common Stock
Affiliates of our Sponsor control us and their interests may conflict with ours or yours in the future.
Immediately following this offering, affiliates of our Sponsor will beneficially own approximately % of our common stock, or % if the underwriters exercise in full their option to purchase additional shares. Moreover, under our bylaws and the stockholders agreement with our Sponsor and its affiliates that will be in effect by the completion of this offering, for so long as our existing owners and their affiliates retain significant ownership of us, we will agree to nominate to our board individuals designated by our Sponsor, whom we refer to as the Sponsor Directors. Even when our Sponsor and its affiliates cease to own shares of our stock representing a majority of the total voting power, for so long as our Sponsor continues to own a significant percentage of our stock our Sponsor will still be able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval. Accordingly, for such period of time, our Sponsor will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular, for so long as our Sponsor continues to own a significant percentage of our stock, our Sponsor will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of our company and ultimately might affect the market price of our common stock.
Our Sponsor and its affiliates engage in a broad spectrum of activities, including investments in real estate generally and in the hospitality industry in particular. In the ordinary course of their business activities, our Sponsor and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. For example, our Sponsor owns interests in Extended Stay America, Inc. and La Quinta Hotels, and certain other investments in the hotel industry that compete directly or indirectly with us. In addition, affiliates of our Sponsor directly and indirectly own hotels that we manage or franchise, and they may in the future enter into other transactions with us, including hotel or timeshare development projects, that could result in their having interests that could conflict with ours. Our amended and restated certificate of incorporation will provide that none of our Sponsor, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Our Sponsor also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Blackstone may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you.
37
Upon the listing of our shares on , we will be a controlled company within the meaning of rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
After completion of this offering, affiliates of our Sponsor will continue to control a majority of the combined voting power of all classes of our stock entitled to vote generally in the election of directors. As a result, we will be a controlled company within the meaning of the corporate governance standards of . Under these rules, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements. For example, controlled companies, within one year of the date of the listing of their common stock:
| are not required to have a board that is composed of a majority of independent directors, as defined under the rules of such exchange; |
| are not required to have a compensation committee that is composed entirely of independent directors; and |
| are not required to have a nominating and corporate governance committee that is composed entirely of independent directors. |
Following this offering, we intend to utilize these exemptions. As a result, we do not expect a majority of the directors on our board will be independent upon closing this offering. In addition, although we will have a fully independent audit committee and have independent director representation on our compensation and nominating and corporate governance committees upon closing this offering, we do not expect that our compensation and nominating and corporate governance committees will consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of .
We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.
As a public company, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and related rules implemented by the SEC and . The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on
38
Form 10-K, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm is required to express an opinion as to the effectiveness of our internal control over financial reporting beginning with our second annual report on Form 10-K. The process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly, and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
There may not be an active trading market for shares of our common stock, which may cause shares of our common stock to trade at a discount from the initial offering price and make it difficult to sell the shares of common stock you purchase.
Prior to this offering, there has not been a public trading market for shares of our common stock. It is possible that after this offering an active trading market will not develop or continue or, if developed, that any market will be sustained which would make it difficult for you to sell your shares of common stock at an attractive price or at all. The initial public offering price per share of common stock will be determined by agreement among us and the representatives of the underwriters, and may not be indicative of the price at which shares of our common stock will trade in the public market after this offering.
The market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.
Even if a trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results, additions or departures of key management personnel, failure to meet analysts earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our common stock could decrease significantly. You may be unable to resell your shares of common stock at or above the initial public offering price.
In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a companys securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our managements attention and resources.
39
Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We have no current plans to pay any cash dividends. The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant. In addition, our ability to pay dividends will be limited by our new senior secured credit facility and our new senior notes and first priority senior secured notes and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.
Investors in this offering will suffer immediate and substantial dilution.
The initial public offering price per share of common stock will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share of common stock that substantially exceeds the per share book value of our tangible assets after subtracting our liabilities. In addition, you will pay more for your shares of common stock than the amounts paid by our existing owners. Assuming an offering price of $ per share of common stock, which is the midpoint of the range on the front cover of this prospectus, you will incur immediate and substantial dilution in an amount of $ per share of common stock. See Dilution.
You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise.
After this offering we will have approximately million shares of common stock authorized but unissued. Our amended and restated certificate of incorporation to become effective immediately prior to the consummation of this offering authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved shares for issuance under our Omnibus Incentive Plan, including . See ManagementOmnibus Incentive Plan. Any common stock that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who purchase common stock in this offering.
If we or our existing investors sell additional shares of our common stock after this offering, the market price of our common stock could decline.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Upon completion of this offering we will have a total of shares of our common stock outstanding (or shares if the underwriters exercise in full their option to purchase additional shares). Of the outstanding shares, the shares sold in this offering (or shares if the underwriters exercise their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described in Shares Eligible for Future Sale.
The remaining outstanding shares of common stock held by our existing owners after this offering will be subject to certain restrictions on resale. We, our officers, directors and holders of certain of our
40
outstanding shares of common stock immediately prior to this offering, including our Sponsor, will sign lock-up agreements with the underwriters that will, subject to certain customary exceptions, restrict the sale of the shares of our common stock held by them for 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. The representatives of the underwriters may, in their sole discretion and without notice, release all or any portion of the shares of common stock subject to lock-up agreements. See Underwriting for a description of these lock-up agreements.
Upon the expiration of the lock-up agreements described above, all of such shares, or shares if the underwriters exercise their over-allotment option in full, will be eligible for resale in a public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144. We expect that our Sponsor will be considered an affiliate 180 days after this offering based on their expected share ownership (consisting of shares), as well as their board nomination rights. Certain other of our stockholders may also be considered affiliates at that time. However, commencing 180 days following this offering, the holders of these shares of common stock will have the right, subject to certain exceptions and conditions, to require us to register their shares of common stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See Shares Eligible for Future Sale.
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our Omnibus Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover shares of our common stock.
As restrictions on resale end, the market price of our shares of common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws to become effective immediately prior to the consummation of this offering will contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things:
| although we do not have a stockholder rights plan, and would either submit any such plan to stockholders for ratification or cause such plan to expire within a year, these provisions would allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; |
| these provisions prohibit stockholder action by written consent from and after the date on which the parties to our stockholders agreement cease to beneficially own at least 40% of the total voting power of all then outstanding shares of our capital stock unless such action is recommended by all directors then in office; |
| these provisions provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 80% or more of all the outstanding shares of our capital stock entitled to vote; and |
41
| these provisions establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
42
This prospectus contains forward-looking statements that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as outlook, believes, expects, potential, continues, may, will, should, could, seeks, approximately, predicts, intends, plans, estimates, anticipates or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under Risk Factors. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts ® , DoubleTree by Hilton ® , Embassy Suites Hotels ® , Hilton Garden Inn ® , Hampton Inn ® , Homewood Suites by Hilton ® , Home2 Suites by Hilton ® , Hilton Grand Vacations ® , Hilton Grand Vacations Club ® , The Hilton Club ® , Hilton HHonors, eforea ® , OnQ ® , LightStay ® , the Hilton Hawaiian Village ® , Requests Upon Arrival and other trademarks, trade names, and service marks of Hilton and our brands appearing in this prospectus are the property of Hilton and our affiliates.
Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. All trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.
Within this prospectus, we reference information and statistics regarding various industries and sectors. We have obtained this information and statistics from various independent third-party sources, including independent industry publications, reports by market research firms and other independent sources. STR and PKF-HR are the primary sources for third-party market data and industry statistics and forecasts, respectively, included in this prospectus. STR does not guarantee the performance of any company about which it collects and provides data. Nothing in the STR or PKF-HR data should be construed as advice. Some data and other information are also based on our good faith estimates, which are derived from our review of internal surveys and independent sources. We believe that these external sources and estimates are reliable, but have not independently verified them.
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We estimate that the net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million (or $ million if the underwriters exercise in full their option to purchase additional shares). A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $ million (or $ million if the underwriters exercise in full their option to purchase additional shares), assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering to repay certain of our then outstanding indebtedness. Any remaining net proceeds will be used for general corporate purposes.
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We have no current plans to pay dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries.
We did not declare or pay any dividends on our common stock in 2012, 2011 or in the first six months of 2013.
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The following table sets forth our consolidated cash and cash equivalents, restricted cash and cash equivalents and capitalization as of June 30, 2013 on:
| an actual basis; and |
| an as adjusted basis to reflect: |
| the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and |
| the application of net proceeds from this offering as described under Use of Proceeds, as if this offering and the application of the net proceeds of this offering had occurred on June 30, 2013. |
The information below is illustrative only and our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Cash and cash equivalents and restricted cash and cash equivalents are not components of our total capitalization. You should read this table together with the information contained in this prospectus, including Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Certain Indebtedness and our historical financial statements and related notes included elsewhere in this prospectus.
As of June 30, 2013 | ||||||||
Actual | As Adjusted (1) | |||||||
(In millions, except share and per share data) |
||||||||
Cash and cash equivalents |
$ | 661 | $ | |||||
Restricted cash and cash equivalents (2) |
625 | |||||||
|
|
|
|
|||||
Total |
$ | 1,286 | $ | |||||
|
|
|
|
|||||
Total long-term debt and obligations under capital leases: |
||||||||
Long-term debt, including current portion |
$ | 14,668 | $ | |||||
Revolving non-recourse timeshare notes credit facility |
400 | |||||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities, including current portion |
319 | |||||||
|
|
|
|
|||||
Total debt |
15,387 | |||||||
Equity: |
||||||||
Common stock, par value $0.01 per share, 1,000 shares authorized and 100 shares issued and outstanding, actual; and shares authorized and shares issued and outstanding, as adjusted |
1 | |||||||
Additional paid-in capital |
8,452 | |||||||
Accumulated deficit |
(5,557) | |||||||
Accumulated other comprehensive loss |
(591) | |||||||
|
|
|
|
|||||
Total stockholders equity |
2,305 | |||||||
Noncontrolling interests |
(127) | |||||||
|
|
|
|
|||||
Total equity |
2,178 | |||||||
|
|
|
|
|||||
Total capitalization |
$ | 17,565 | $ | |||||
|
|
|
|
(1) | Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, total debt, additional paid-in capital and total stockholders deficit by approximately $ million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay. |
(2) | The majority of our restricted cash and cash equivalents balances relate to prefunded cash reserves and cash collateral on our self-insurance programs. The prefunded cash reserves are required under the terms of the agreements for our existing senior mortgage loans. They may be used to pay debt service and other amounts due under the existing senior mortgage loans and for general corporate purposes, including capital expenditures, but are classified in our consolidated balance sheets as restricted cash and cash equivalents in accordance with U.S. GAAP because they generally require lender consent to be used. |
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If you invest in shares of our common stock in this offering, your investment will be immediately diluted to the extent of the difference between the initial public offering price per share of common stock and the net tangible book value per share of common stock after this offering. Dilution results from the fact that the per share offering price of the shares of common stock is substantially in excess of the net tangible book value per share attributable to the shares of common stock held by existing owners.
Our net tangible book value as of June 30, 2013 was approximately $ , or $ per share of common stock. We calculate net tangible book value per share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities, and then dividing that amount by the total number of shares of common stock outstanding.
After giving effect to our sale of the shares in this offering at an assumed initial public offering price of $ per share, the midpoint range described on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our net tangible book value as of June 30, 2013 would have been $ , or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share of common stock to our existing owners and an immediate and substantial dilution in net tangible book value of $ per share of common stock to investors in this offering at the assumed initial public offering price.
The following table illustrates this dilution on a per share of common stock basis:
Assumed initial public offering price per share of common stock |
$ | |||||||
Net tangible book value per share of common stock as of June 30, 2013 |
$ | |||||||
Increase in net tangible book value per share of common stock attributable to investors in this offering |
$ | |||||||
|
|
|||||||
Net tangible book value per share of common stock after giving effect to this offering |
$ | |||||||
|
|
|||||||
Dilution per share of common stock to investors in this offering |
$ | |||||||
|
|
A $1.00 increase in the assumed initial public offering price of $ per share of our common stock would increase our net tangible book value after giving effect to this offering by $ million, or by $ per share of our common stock, assuming the number of shares offered by us remains the same and after deducting the underwriting discount and the estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price per share would result in equal changes in the opposite direction.
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The following table summarizes, as of June 30, 2013, the total number of shares of common stock purchased from us, the total cash consideration paid to us, and the average price per share paid by existing owners and by new investors. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing owners paid. The table below assumes an initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:
Shares of Common
Stock Purchased |
Total
Consideration |
Average
Price Per Share of Common Stock |
||||||||||||||||
Number |
Percent | Amount | Percent | |||||||||||||||
(Dollar amounts in millions,
except per share amounts) |
||||||||||||||||||
Existing owners |
% | $ | % | $ | ||||||||||||||
Investors in this offering |
% | $ | % | $ | ||||||||||||||
|
|
|
|
|
|
|
||||||||||||
Total |
100.0 | % | $ | 100.0 | % | $ | ||||||||||||
|
|
|
|
|
|
|
Each $1.00 increase in the assumed offering price of $ per share would increase total consideration paid by investors in this offering and total consideration paid by all stockholders by $ million, assuming the number of shares offered by us remains the same and after deducting the underwriting discount and the estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price per share would result in equal changes in the opposite direction.
The dilution information above is for illustration purposes only. Our net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our shares and other terms of this offering determined at pricing.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma financial information has been prepared to reflect (1) the issuance of shares of our common stock in this offering at an assumed initial public offering price of $ , which is the midpoint of the range set forth on the cover of this prospectus and (2) the Refinancing Transactions, the Timeshare ABS notes issuance, additional borrowings under the revolving non-recourse timeshare notes credit facility (the Timeshare Facility), the Hilton HHonors point sales and the use of proceeds from the foregoing (collectively, the Financing Transactions), in our historical consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2013 is presented on a pro forma adjusted basis to give effect to this offering and the Financing Transactions. The following unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2012 and the six months ended June 30, 2013 are presented on a pro forma adjusted basis to give effect to this offering and the Financing Transactions as if they had been completed on January 1, 2012.
The pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma statements provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma financial information. The unaudited pro forma financial information should be read in conjunction with Summary-Refinancing Transactions, Capitalization, Use of Proceeds, Selected Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
The unaudited pro forma financial information has been prepared for illustrative purposes only and is not necessarily indicative of our financial position or results of operations had the transactions actually occurred on the dates indicated, nor is such unaudited pro forma financial information necessarily indicative of the results to be expected for any future period. A number of factors may affect our results. See Risk Factors and Forward-Looking Statements.
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Hilton Worldwide Holdings Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2013
(in millions)
Pro Forma Adjustments (1) | ||||||||||||||||
Historical |
Financing
Transactions |
Common
Stock Offering |
Pro
Forma |
|||||||||||||
ASSETS |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 661 | $ | (372) | (a) | $ | $ | |||||||||
Restricted cash and cash equivalents |
625 | (248) | (a) | |||||||||||||
Accounts receivable, net of allowance for doubtful accounts |
830 | |||||||||||||||
Inventories |
395 | |||||||||||||||
Deferred income tax assets |
75 | |||||||||||||||
Current portion of financing receivables, net |
116 | |||||||||||||||
Prepaid expenses |
139 | |||||||||||||||
Other |
49 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
2,890 | (620) | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Property, Investments, and Other Assets: |
||||||||||||||||
Property and equipment, net |
9,084 | |||||||||||||||
Financing receivables, net |
817 | |||||||||||||||
Investments in affiliates |
274 | |||||||||||||||
Goodwill |
6,172 | |||||||||||||||
Brands |
4,993 | |||||||||||||||
Management and franchise contracts, net |
1,505 | |||||||||||||||
Other intangible assets, net |
710 | |||||||||||||||
Deferred income tax assets |
103 | |||||||||||||||
Other |
237 | 249 | (b) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total property, investments, and other assets |
23,895 | 249 | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL ASSETS |
$ | 26,785 | $ | (371) | $ | | $ | |||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES AND EQUITY |
||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable, accrued expenses, and other |
$ | 1,914 | $ | (22) | (b) | $ | $ | |||||||||
Current maturities of long-term debt |
388 | (276) | (b) | |||||||||||||
Current maturities of non-recourse debt |
13 | 48 | (c) | |||||||||||||
Income taxes payable |
72 | 124 | (d) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
2,387 | (126) | | |||||||||||||
Long-term debt |
14,280 | (1,036) | (b) | |||||||||||||
Non-recourse debt (2) |
706 | 252 | (c)(e) | |||||||||||||
Deferred income tax liabilities |
5,132 | (37) | (d) | |||||||||||||
Liability for guest loyalty program |
529 | |||||||||||||||
Other (3) |
1,573 | 437 | (b)(f) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
24,607 | (510) | | |||||||||||||
Equity: |
||||||||||||||||
Common stock |
1 | |||||||||||||||
Additional paid-in capital |
8,452 | |||||||||||||||
Accumulated deficit |
(5,557) | 139 | (g) | |||||||||||||
Accumulated other comprehensive loss |
(591) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Hilton stockholders equity |
2,305 | 139 | | |||||||||||||
Noncontrolling interests |
(127) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity |
2,178 | 139 | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 26,785 | $ | (371) | $ | | $ | |||||||||
|
|
|
|
|
|
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments. |
(2) | Historical balance includes the revolving non-recourse timeshare notes credit facility and non-recourse debt and capital lease obligations of our consolidated variable interest entities. |
(3) | Pro forma adjustments to other liabilities include deferred revenue of $650 million related to our Hilton HHonors point sales. See Note 4: Pro Forma Adjustments adjustment (f) and SummaryRecent Developments for further discussion of this transaction. |
See notes to unaudited pro forma condensed consolidated financial statements.
50
Hilton Worldwide Holdings Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2013
(in millions, except per share data)
Pro Forma Adjustments (1) | ||||||||||||||||
Historical |
Financing
Transactions |
Common
Stock Offering |
Pro Forma | |||||||||||||
Revenues |
||||||||||||||||
Owned and leased hotels |
$ | 1,984 | $ | $ | $ | |||||||||||
Management and franchise fees and other |
561 | |||||||||||||||
Timeshare |
507 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,052 | | | ||||||||||||||
Other revenues from managed and franchised properties |
1,591 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
4,643 | | | |||||||||||||
Expenses |
||||||||||||||||
Owned and leased hotels |
1,547 | |||||||||||||||
Timeshare |
351 | |||||||||||||||
Depreciation and amortization |
309 | |||||||||||||||
General, administrative, and other |
189 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,396 | | | ||||||||||||||
Other expenses from managed and franchised properties |
1,591 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
3,987 | | | |||||||||||||
Operating income |
656 | | | |||||||||||||
Interest income |
3 | |||||||||||||||
Interest expense |
(274) | (71) | (h) | |||||||||||||
Equity in earnings from unconsolidated affiliates |
8 | |||||||||||||||
Loss on foreign currency transactions |
(82) | |||||||||||||||
Other gain, net |
6 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
317 | (71) | | |||||||||||||
Income tax expense |
(122) | 27 | (i) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
195 | (44) | | |||||||||||||
Net income attributable to noncontrolling interests |
(6) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to Hilton stockholder |
$ | 189 | $ | (44) | $ | | $ | |||||||||
|
|
|
|
|
|
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments. |
See notes to unaudited pro forma condensed consolidated financial statements.
51
Hilton Worldwide Holdings Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2012
(in millions)
Pro Forma
Adjustments (1) |
||||||||||||||||
Historical |
Financing
Transactions |
Common
Stock Offering |
Pro Forma | |||||||||||||
Revenues |
||||||||||||||||
Owned and leased hotels |
$ | 3,979 | $ | $ | $ | |||||||||||
Management and franchise fees and other |
1,088 | |||||||||||||||
Timeshare |
1,085 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
6,152 | | | ||||||||||||||
Other revenues from managed and franchised properties |
3,124 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
9,276 | | | |||||||||||||
Expenses |
||||||||||||||||
Owned and leased hotels |
3,230 | |||||||||||||||
Timeshare |
758 | |||||||||||||||
Depreciation and amortization |
550 | |||||||||||||||
Impairment losses |
54 | |||||||||||||||
General, administrative, and other |
460 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
5,052 | | | ||||||||||||||
Other expenses from managed and franchised properties |
3,124 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
8,176 | | | |||||||||||||
Operating income |
1,100 | | | |||||||||||||
Interest income |
15 | |||||||||||||||
Interest expense |
(569) | (145) | (h) | |||||||||||||
Equity in losses from unconsolidated affiliates |
(11) | |||||||||||||||
Gain on foreign currency transactions |
23 | |||||||||||||||
Other gain, net |
15 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
573 | (145) | | |||||||||||||
Income tax expense |
(214) | 56 | (i) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
359 | (89) | | |||||||||||||
Net income attributable to noncontrolling interests |
(7) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to Hilton stockholder |
$ | 352 | $ | (89) | $ | | $ | |||||||||
|
|
|
|
|
|
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments. |
See notes to unaudited pro forma condensed consolidated financial statements.
52
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Note 1: Basis of Presentation
The unaudited pro forma financial information is based on our historical financial statements, which are included elsewhere in this prospectus, and has been prepared to reflect this offering and the Financing Transactions.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2013 is presented on a pro forma adjusted basis to give effect to this offering and the Financing Transactions. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2012 and the six months ended June 30, 2013 are presented on a pro forma adjusted basis to give effect to this offering and the Financing Transactions as if they had been completed on January 1, 2012.
The unaudited pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. These adjustments are included only to the extent they are directly attributable to this offering and the Financing Transactions and the appropriate information is known and factually supportable. We continue to evaluate the accounting impact of the Financing Transactions and believe that substantially all of the existing long-term debt (and related current portion) to be repaid as a part of the Financing Transactions will be considered extinguished. Accordingly, the pro forma financial information reflects all of the repaid debt being accounted for as an extinguishment of debt. We believe that any portion of the repaid debt that may be required to be subject to modification of debt accounting guidance will not have a material impact on the pro forma financial information. Pro forma adjustments reflected in the unaudited pro forma condensed consolidated statements of operations are expected to have a continuing effect on us. As a result, the unaudited pro forma condensed consolidated statements of operations exclude gains and losses related to the Financing Transactions that will not have a continuing effect on us, although these items are reflected in the unaudited pro forma condensed consolidated balance sheet.
Note 2: Financing Transactions
Prior to consummating this offering, we closed or expect to close various debt refinancing and related transactions. These Financing Transactions, which are discussed in greater detail elsewhere in this prospectus, include the following:
| entry into a new $1 billion senior secured revolving credit facility (the Revolving Credit Facility), with no expected borrowings upon the completion of the Financing Transactions; |
| entry into a new $7.6 billion senior secured term loan facility (the Term Loan); |
| the issuance of $1.5 billion of our 5.625% Senior Notes due 2021 (the Senior Notes); |
| entry into a new $3.5 billion commercial mortgage-backed securities loan (the CMBS Loan) secured by 23 of our U.S. owned real estate assets; |
| entry into a new $525 million mortgage loan (the Waldorf=Astoria Loan) secured by our Waldorf=Astoria New York property; |
| issuance of $250 million of Timeshare ABS notes; |
| additional borrowings of $50 million under our Timeshare Facility; |
| sale of Hilton HHonors points for cash proceeds of $650 million, classified as deferred revenue at the date of receipt; and |
| the repayment of our senior mortgage loans and secured mezzanine loans and the redemption of our unsecured notes due 2031 with available cash and proceeds from the transactions described above. |
For more information regarding these transactions, see SummaryRefinancing Transactions, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of OperationsOverviewRecent Events and Description of Certain Indebtedness.
53
Note 3: The Common Stock Offering
We intend to use the net proceeds from this offering to repay certain of our then outstanding indebtedness.
Note 4: Pro Forma Adjustments
Adjustments included under the heading Pro Forma AdjustmentsFinancing Transactions represent the following:
a. | To adjust cash for the transactions discussed below, as follows: |
(in millions) | ||||
Cash paid to repay debt principal (1) |
$ (14,350) | |||
Cash paid for interest on repaid debt (2) |
(40) | |||
Cash paid for debt issuance costs |
(267) | |||
Cash received from new debt issuances |
13,387 | |||
Cash received from Hilton HHonors point sales |
650 | |||
|
|
|||
Net adjustment to cash (3) |
$ (620) | |||
|
|
(1) | The long-term debt balance of our senior mortgage loans and secured mezzanine loans include $20 million and $29 million, respectively, of yield adjustments related to prior debt modifications. Thus, the principal balance of our debt to be repaid in cash is presented net of this amount. These yield adjustments, totaling $49 million, will be released concurrent with the repayment of the debt. This release is not considered to have a continuing effect on us and, therefore, it is not reflected in our unaudited pro forma condensed consolidated statements of operations. |
(2) | Includes our accrued balance of $22 million and $18 million of additional interest we are required to pay, concurrent with the principal repayment of our senior mortgage loans and secured mezzanine loans. |
(3) | The above adjustments result in changes to cash and cash equivalents of $372 million and to restricted cash and cash equivalents of $248 million. |
b. | To adjust for the completion of the Financing Transactions and the repayment of our senior mortgage loans, secured mezzanine loans and unsecured notes due 2031, as follows: |
Long-term
Debt |
||||
(in millions) | ||||
Repayment of existing debt: |
||||
Senior mortgage loans |
$ | (7,094) | ||
Secured mezzanine loans |
(7,209) | |||
Unsecured notes due 2031 |
(96) | |||
|
|
|||
(14,399) | (1) | |||
Issuance of new debt: |
||||
Term Loan |
7,562 | (2)(3) | ||
Senior Notes |
1,500 | |||
CMBS Loan |
3,500 | |||
Waldorf=Astoria Loan |
525 | |||
|
|
|||
13,087 | ||||
|
|
|||
Net effect of refinancing on long-term debt, including current maturities |
$ | (1,312) | ||
|
|
(1) | Includes current maturities of long-term debt of $352 million. |
(2) | Long-term debt for the Term Loan is net of the original issue discount of $38 million. |
54
(3) | The Term Loan requires amortization payments of one percent of the principal balance per year; therefore, $76 million of this balance is reflected as current maturities of long-term debt on a pro forma basis. |
The Financing Transactions also reflect:
| the release of debt issuance costs of $18 million related to the existing debt payoff and the addition of debt issuance costs of $267 million related to the new debt being issued, which includes $2 million of debt issuance costs related to the Timeshare ABS discussed below. The net increase to the debt issuance costs, which are classified as other assets in our unaudited pro forma condensed consolidated balance sheet, was $249 million; |
| the release of current accrued interest of $22 million related to the existing debt payoff, which was reflected in accounts payable, accrued expenses, and other in our unaudited pro forma condensed consolidated balance sheet. This release is not considered to have a continuing effect on us and, therefore, it is not reflected in our unaudited pro forma condensed consolidated statements of operations; and |
| the release of $213 million of interest, which was reflected in other liabilities in our unaudited pro forma condensed consolidated balance sheet, that related to our senior mortgage loans and secured mezzanine loans. The interest expense was recognized using the interest method and has exceeded the cash paid due to the fact that the terms of the senior mortgage loans and secured mezzanine loans require annual increases in the interest rate. Since we have assumed all extensions of the senior mortgage loans and secured mezzanine loans, which were at our option, our accrual of interest under the interest method contemplated these increases in interest expense over the fully extended life of the debt, resulting in an accrual of interest expected to be paid over the term of the debt based on increased cash payments of interest in subsequent periods. Upon consummation of the Financing Transactions, such payments will no longer be required and the accrual for these amounts will be reversed. Refer to adjustment (d) for the associated adjustment to deferred tax liabilities. This release is not considered to have a continuing effect on us and, therefore, it is not reflected in our unaudited pro forma condensed consolidated statements of operations. |
c. | To adjust for the issuance of the $250 million Timeshare ABS notes, of which $48 million is current. |
d. | To adjust for the tax effects of the gains and losses referenced in adjustment (g) and the Hilton HHonors point sales referenced in adjustment (f), using the statutory tax rate of 38.4% referenced in adjustment (i), as follows: |
(in millions) | ||||
Income taxes payable: |
||||
Unamortized portion of yield adjustments of debt principal |
$ | 19 | ||
Interest not accrued (1) |
(7) | |||
Unamortized debt issuance costs |
(32) | |||
Hilton HHonors point sales |
144 | |||
|
|
|||
Net adjustment to income taxes payable |
$ | 124 | ||
|
|
|||
Deferred tax liabilities: |
||||
Other liabilities - interest accrued under the interest method |
$ | 82 | ||
Unamortized debt issuance costs |
25 | |||
Hilton HHonors point sales |
(144) | |||
|
|
|||
Net adjustment to deferred tax liabilities |
$ | (37) | ||
|
|
(1) | Represents interest we are required to pay, concurrent with the principal repayment of our senior mortgage loans and secured mezzanine loans. |
55
e. | To adjust for additional borrowings of $50 million under our Timeshare Facility. |
f. | To adjust for proceeds of $650 million presented as deferred revenue as a result of the Hilton HHonors point sales. Refer to adjustment (d) for related tax adjustments. |
g. | To adjust accumulated deficit for amounts related to the senior mortgage loans and secured mezzanine loans that do not have a continuing effect on us, as follows: |
(in millions) | ||||
Unamortized portion of yield adjustments of debt principal, net of taxes of $19 million |
$ | 30 | ||
Other liabilities - interest accrued under the interest method, net of taxes of $82 million |
131 | |||
Interest not accrued, net of taxes of $7 million (1) |
(11) | |||
Unamortized debt issuance costs, net of taxes of $7 million |
(11) | |||
|
|
|||
Net adjustment to accumulated deficit |
$ | 139 | ||
|
|
(1) | Represents interest we are required to pay, concurrent with the principal repayment of our senior mortgage loans and secured mezzanine loans. |
h. | To adjust interest expense for the repayment of the existing indebtedness and additional borrowings discussed above, as follows: |
Six Months Ended
June 30, 2013 |
Year Ended
December 31, 2012 |
|||||||
(in millions) | ||||||||
Repayment of existing debt: |
||||||||
Interest expense |
$ | (228) | $ | (461) | ||||
Amortization expense of debt issuance costs |
(5) | (9) | ||||||
|
|
|
|
|||||
(233) | (470) | |||||||
|
|
|
|
|||||
Issuance of new debt: |
||||||||
Interest expense (1)(2) |
280 | 566 | ||||||
Amortization expense of debt issuance costs and discounts (1) |
24 | 49 | ||||||
|
|
|
|
|||||
304 | 615 | |||||||
|
|
|
|
|||||
Net adjustment to interest expense |
$ | 71 | $ | 145 | ||||
|
|
|
|
(1) | Includes interest expense and amortization expense of the debt issuance costs of the revolving non-recourse timeshare notes credit facility as if the facility was in place on January 1, 2012. |
(2) | We applied the interest rates that were prevailing during the periods presented for our variable interest rate debt totaling approximately $9.5 billion. A 0.125 percent change to interest rates on our variable rate debt would result in an increase in interest expense of approximately $6 million and $12 million for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively. |
i. | To adjust income tax expense for the changes in the expense items noted above in adjustment (h). The statutory tax rate of 38.4% is a blended U.S. federal and state income tax rate. |
Adjustments included under the heading Pro Forma AdjustmentsCommon Stock Offering represent the following:
56
We derived the selected statement of operations data for the years ended December 31, 2012, 2011 and 2010 and the selected balance sheet data as of December 31, 2012 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected balance sheet data as of December 31, 2010 from our unaudited consolidated financial statements that are not included in this prospectus. We derived the selected statement of operations data for the years ended December 31, 2009 and 2008 and the selected balance sheet data as of December 31, 2009 and 2008 from Hilton Worldwide, Inc.s audited consolidated financial statements, which are not included in this prospectus. We derived the selected statement of operations data for the six months ended June 30, 2013 and 2012 and the selected consolidated balance sheet data as of June 30, 2013 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We have prepared our unaudited consolidated financial statements on the same basis as our audited consolidated financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period.
You should read the selected consolidated financial data below together with the consolidated financial statements including the related notes thereto appearing elsewhere in this prospectus, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations and Description of Certain Indebtedness, and the other financial information included elsewhere in this prospectus.
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||||
2013 | 2012 | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Owned and leased hotels |
$ | 1,984 | $ | 1,925 | $ | 3,979 | $ | 3,898 | $ | 3,667 | $ | 3,540 | $ | 4,301 | ||||||||||||||
Management and franchise fees and other |
561 | 521 | 1,088 | 1,014 | 901 | 807 | 901 | |||||||||||||||||||||
Timeshare |
507 | 515 | 1,085 | 944 | 863 | 832 | 920 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
3,052 | 2,961 | 6,152 | 5,856 | 5,431 | 5,179 | 6,122 | ||||||||||||||||||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | 3,124 | 2,927 | 2,637 | 2,397 | 2,753 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
4,643 | 4,521 | 9,276 | 8,783 | 8,068 | 7,576 | 8,875 | |||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||
Owned and leased hotels |
1,547 | 1,595 | 3,230 | 3,213 | 3,009 | 2,904 | 3,328 | |||||||||||||||||||||
Timeshare |
351 | 363 | 758 | 668 | 634 | 644 | 682 | |||||||||||||||||||||
Depreciation and amortization |
309 | 259 | 550 | 564 | 574 | 587 | 598 | |||||||||||||||||||||
Impairment losses |
| 16 | 54 | 20 | 24 | 475 | 5,611 | |||||||||||||||||||||
General, administrative and other |
189 | 236 | 460 | 416 | 637 | 423 | 416 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
2,396 | 2,469 | 5,052 | 4,881 | 4,878 | 5,033 | 10,635 | ||||||||||||||||||||||
Other expenses from managed and franchised properties |
1,591 | 1,560 | 3,124 | 2,927 | 2,637 | 2,394 | 2,746 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total expenses |
3,987 | 4,029 | 8,176 | 7,808 | 7,515 | 7,427 | 13,381 | |||||||||||||||||||||
Operating income (loss) |
656 | 492 | 1,100 | 975 | 553 | 149 | (4,506) | |||||||||||||||||||||
Net income (loss) attributable to Hilton stockholder |
189 | 114 | 352 | 253 | 128 | (532) | (5,663) |
57
June 30,
2013 |
December 31, | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Selected Balance Sheet Data: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 661 | $ | 755 | $ | 781 | $ | 796 | $ | 738 | $ | 397 | ||||||||||||
Restricted cash and cash equivalents |
625 | 550 | 658 | 619 | 394 | 691 | ||||||||||||||||||
Total assets |
26,785 | 27,066 | 27,312 | 27,750 | 29,140 | 30,639 | ||||||||||||||||||
Long-term debt (1)(2) |
14,280 | 15,183 | 15,969 | 16,673 | 20,987 | 21,079 | ||||||||||||||||||
Revolving non-recourse timeshare notes credit facility |
400 | | | | | | ||||||||||||||||||
Total debt (1) |
15,068 | 15,575 | 16,311 | 16,995 | 21,125 | 21,157 | ||||||||||||||||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities (2) |
306 | 405 | 439 | 512 | 457 | 454 | ||||||||||||||||||
Total equity (deficit) |
2,178 | 2,155 | 1,702 | 1,544 | (1,470 | ) | (1,253 | ) |
(1) | Excludes non-recourse debt and capital lease obligations of consolidated variable interest entities. |
(2) | Excludes current portion. |
58
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with SummarySummary Historical Financial Data, Selected Financial Data and our consolidated financial statements and related notes that appear elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in Risk Factors.
Overview
Our Business
Hilton Worldwide is one of the largest and fastest growing hospitality companies in the world, with 4,041 hotels, resorts and timeshare properties comprising 665,667 rooms in 90 countries and territories. In the nearly 100 years since our founding, we have defined the hospitality industry and established a portfolio of 10 world-class brands. Our flagship full-service Hilton Hotels & Resorts brand is the most recognized hotel brand in the world. Our premier brand portfolio also includes our luxury hotel brands, Waldorf Astoria Hotels & Resorts and Conrad Hotels & Resorts, our full-service hotel brands, DoubleTree by Hilton and Embassy Suites Hotels, our focused-service hotel brands, Hilton Garden Inn, Hampton Inn, Homewood Suites by Hilton and Home2 Suites by Hilton, and our timeshare brand, Hilton Grand Vacations (HGV). We own or lease interests in 157 hotels, many of which are located in global gateway cities, including iconic properties such as The Waldorf=Astoria New York, the Hilton Hawaiian Village, and the London Hilton on Park Lane. More than 300,000 team members proudly serve in our properties and corporate offices around the world, and we have approximately 38 million members in our award-winning customer loyalty program, Hilton HHonors.
Segments and Regions
Management analyzes our operations and business by both operating segments and geographic regions. Our operations consist of three reportable segments that are based on similar products or services: management and franchise, ownership, and timeshare. The management and franchise segment provides services, which include hotel management and licensing of our brands to franchisees, as well as property management at timeshare properties. This segment generates its revenue from management and franchise fees charged to hotel owners, including our owned and leased hotels, and to homeowners associations at timeshare properties. As a manager of hotels and timeshare resorts, we typically are responsible for supervising or operating the property in exchange for management fees, which, at hotels, are based on a percentage of the hotels gross revenue, operating profits, cash flows, or a combination thereof, and, at timeshare properties, are fixed amounts stated in the management agreements. As a franchisor of hotels, we charge franchise fees, which generally are based on a percentage of room revenue, and in some instances, may also include a percentage of food and beverage and other revenues in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing, and information technology services. The ownership segment derives earnings from providing hotel room rentals, food and beverage sales, and other services at our owned and leased hotels. The timeshare segment consists of multi-unit vacation ownership properties. This segment generates revenue by marketing and selling timeshare interests owned by Hilton and third parties, providing consumer financing, and resort operations.
Geographically, management conducts business through three distinct geographic regions: the Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific. The Americas region includes North America, South America, and Central America, including all Caribbean nations. Although the U.S. is included in the Americas, it is often analyzed separately and apart from the Americas geographic region and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Ireland in the west to Russia in the east, and the Middle East
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and Africa (MEA), which represents the Middle East region and all African nations, including the Indian Ocean island nations. Europe and MEA are often analyzed separately by management and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand, and the Pacific island nations.
As of June 30, 2013, approximately 78 percent of our system-wide hotel rooms were located in the U.S. We expect that the percentage of our hotels outside the U.S. will continue to increase in future years as hotels in our pipeline open.
System Growth and Pipeline
In recent years, we have made significant progress on our strategic priorities including the expansion of our global footprint, particularly in our management and franchise business, and as of June 30, 2013, we had the largest rooms pipeline in the lodging industry according to data provided by STR. From June 30, 2007 through June 30, 2013, we added a net 1,142 managed and franchised hotels to our system with 166,242 rooms, of which 28.7 percent of the rooms were located outside the U.S.
To support our growth strategy, we also continue to expand our development pipeline. As of June 30, 2013, we had a total of 1,007 hotels in our development pipeline, representing 176,449 rooms under construction or approved for development throughout 70 countries. As of June 30, 2013, 92,457 rooms, representing 52.4 percent of our development pipeline, are under construction. Over 99% of the rooms under construction are within our management and franchise segment. Of the 176,449 rooms in the pipeline, 107,269 rooms, representing 60.8 percent of the pipeline, were located outside the U.S. Over 99% of the hotels in our pipeline as of June 30, 2013 are within our management and franchise segment. As of June 30, 2013, only one development project was within our ownership segment. We do not consider such project, or any development project relating to properties under our management and franchise segment, to be material to us.
Our management and franchise contracts are designed to expand our business with limited or no capital investment. The capital required to build and maintain hotels that we manage or franchise, is typically provided by the owner of the respective hotel with minimal or no capital required by us as the manager or franchisor. Additionally, prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on the geographic location, the credit quality of the third-party owner, and other factors. As a result, by increasing the number of management and franchise agreements with third-party owners we expect to achieve a higher overall return on invested capital.
Recent Events
In October 2013, we sold Hilton HHonors points to American Express Travel Related Services Company, Inc., or Amex, and Citibank, N.A., or Citi, for $400 million and $250 million, respectively, in cash. We used the proceeds of the HHonors points sales to reduce outstanding indebtedness. Amex and Citi and their respective designees may use the points in connection with Hilton HHonors co-branded credit cards and for promotions, rewards and incentive programs or other certain activities as they may establish or engage in from time to time.
Principal Components and Factors Affecting our Results of Operations
Revenues
Principal Components
We primarily derive our revenues from the following sources:
| Owned and leased hotels. Represents revenues derived from hotel operations, including room rentals and food and beverage sales and other ancillary services. |
Revenues from room rentals, food and beverage sales, and other ancillary services are primarily derived from two categories of customers: transient and group. Transient guests are individual travelers
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who are traveling for business or leisure. Our group guests are traveling for group events that reserve rooms for meetings, conferences, or social functions sponsored by associations, corporate, social, military, educational, religious or other organizations. Group business usually includes a block of room accommodations as well as other ancillary services, such as catering and banquet services.
| Management and franchise fees and other. Represents revenues derived from fees earned from hotels and timeshare properties managed by us, franchise fees received in connection with the franchising of our brands, and other revenue generated by the incidental support of hotel operations for owned, leased, managed, and franchised properties, and other rental income. |
| Terms of our management agreements vary, but our fees generally consist of a base fee, which is generally a percentage of each hotels gross revenue, and in some cases an incentive fee, which is based on gross operating profits, cash flow or a combination thereof. Management fees from timeshare properties are generally a fixed amount as stated in the management agreement. Outside of the U.S., our fees are often more dependent on hotel profitability measures, either through a single management fee structure where the entire fee is based on a profitability measure, or because our two-tier fee structure is more heavily weighted toward the incentive fee than the base fee. Additionally, we receive one-time upfront fees upon execution of certain management contracts. In general, the hotel owner pays all operating and other expenses and reimburses our out-of-pocket expenses. The initial terms of our management agreements for full service hotels typically are 20 years. Extensions are negotiated and vary, but typically are more prevalent in full-service hotels. These extensions typically are either for five or ten years and can be exercised once or twice at our or the other partys option or by mutual agreement. Some of our management agreements provide early termination rights to hotel owners upon certain events, including the failure to meet certain financial or performance criteria. Performance test measures typically are based upon the hotels performance individually and/or in comparison to specified hotels. |
| Under our franchise agreements, franchisees pay us franchise fees which consist of an initial application and initiation fees for new hotels entering the system and monthly royalty fees, generally calculated as a percentage of room revenue. Royalty fees for our full-service brands may also include a percentage of gross food and beverage revenues and other revenues, where applicable. In addition to the franchise application and royalty fees, franchisees also generally pay a monthly program fee based on a percentage of the total gross room revenue that covers the cost of advertising and marketing programs; internet, technology and reservation system expenses; and quality assurance program costs. Our franchise agreements typically have initial terms of approximately 20 years for new construction and approximately 10 to 20 years for properties that are converted from other brands. At the expiration of the initial term, we may relicense the hotel to the franchisee, at our or the other partys option or by mutual agreement, for an additional term ranging from 10 to 15 years. We have the right to terminate a franchise agreement upon specified events of default, including nonpayment of fees or noncompliance with brand standards. If a franchise agreement is terminated by us because of a franchisees default, the franchisee is contractually required to pay us liquidated damages. |
| Timeshare. Represents revenues derived from the sale and financing of timeshare units and revenues from enrollments and other fees, rentals of timeshare units, food and beverage sales, and other ancillary services at our timeshare properties, which we refer to as resort operations. |
| Other revenues from managed and franchised properties. These revenues represent the payroll and its related costs for hotels that we manage where the hotel employees are legally our responsibility, as well as certain other operating costs of the managed and franchised hotels operations, marketing expenses, and other expenses associated with our brands and shared services that are contractually either reimbursed to us by the hotel owners or paid from fees collected in advance from these hotels. The corresponding expenses are presented as other expenses from managed and franchised properties in our consolidated statements of operations resulting in no impact to operating income or net income. |
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Factors Affecting our Revenues
The following factors affect the revenues we derive from our operations. For other factors affecting our revenues, see Risk FactorsRisks Relating to Our Business and Industry.
| Consumer demand and global economic conditions . Consumer demand for our products and services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political conditions can lower the revenues and profitability of our owned operations and the amount of management and franchise fee revenues we are able to generate from our managed and franchised properties. Also, declines in hotel profitability during an economic downturn directly impact the incentive portion of our management fees, which is based on hotel profit measures. Our timeshare segment is also linked to cycles in the general economy and consumer discretionary spending. As a result, changes in consumer demand and general business cycles can subject and have subjected our revenues to significant volatility. See Risk FactorsRisks Relating to Our Business and Industry. |
Our results of operations have steadily improved as the global economy continues to improve following the global recession in recent years. Our comparable system-wide RevPAR increased 19.1% from the year ended December 31, 2009 to the six months ended June 30, 2013.
| Agreements with third-party owners and franchisees and relationships with developers . We depend on our long-term management and franchise agreements with third-party owners and franchisees for a significant portion of our management and franchise fee revenues. The success and sustainability of our management and franchise business depends on our ability to perform under our management and franchise agreements and maintain good relationships with third-party owners and franchisees. Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth. We believe that we have good relationships with our third-party owners, franchisees and developers and are committed to the continued growth and development of these relationships. These relationships exist with a diverse group of owners, franchisees and developers and are not significantly concentrated with any particular third party. Additionally, in recent years we have entered into sales and marketing agreements to sell timeshare units on behalf of third-party developers. |
Expenses
Principal Components
We primarily incur the following expenses:
| Owned and leased hotels. Owned and leased hotel expenses reflect the operating expenses of our consolidated owned and leased hotels, including room expense, food and beverage costs, other support costs and property expenses. Room expense includes compensation costs for housekeeping, laundry and front desk staff and supply costs for guest room amenities and laundry. Food and beverage costs include costs for wait and kitchen staff and food and beverage products. Other support expenses consist of costs associated with property-level management, utilities, sales and marketing, operating hotel spas, telephones, parking and other guest recreation, entertainment and services. Property expenses include property taxes, repairs and maintenance, rent and insurance. |
| Timeshare . Timeshare expenses include the cost of inventory sold during the period, sales and marketing expenses, resort operations expenses, bad debt expense on financing of timeshare units, and other overhead expenses associated with our timeshare business. |
|
Depreciation and amortization. These are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings, furniture, fixtures and equipment at our consolidated owned and leased hotels, as well as certain corporate assets. Amortization expense primarily consists of amortization of |
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management agreement acquisition costs and franchise and brand intangibles, which are amortized over their estimated useful lives. |
| General, administrative, and other expenses. General, administrative, and other expenses consist primarily of compensation expense for our corporate staff and personnel supporting our business segments (including divisional offices that support our management and franchising segments), professional fees (including consulting, audit and legal fees), travel and entertainment expenses, bad debt expenses, contractual performance obligations and office administrative and related expenses. Expenses incurred by our supply management business, laundry facilities and other ancillary businesses are also included in general, administrative and other expenses. Certain members of our senior management team were offered the opportunity to participate in an executive compensation plan (the Promote plan). The Promote plan provides for the grant of a Tier I liability award, or an alternative cash payment in lieu thereof, and a Tier II equity award. The Tier I liability awards provide the participants the right to share in 2.75 percent of the equity value of Hilton up to $8.352 billion (or $230 million) based on the achievement of certain service and performance conditions. The awards vest based on continued employment in equal annual installments over five years and certain performance conditions. Compensation expense associated with the Promote plan is recognized in general, administrative, and other expenses in our consolidated statements of operations. For further discussion of the Promote plan, refer to our audited consolidated financial statements included elsewhere within this prospectus. |
| Impairment losses. We hold goodwill, amortizing and non-amortizing intangible assets, long-lived assets and equity method investments. We evaluate these assets for impairment as further discussed in Critical Accounting Policies and Estimates. These evaluations have, in the past, resulted in impairment losses for certain of these assets based on the specific facts and circumstances surrounding those assets and our estimates of the fair value of those assets. Based on economic conditions or other factors at a property-specific or company-wide level, we may be required to take additional impairment losses to reflect further declines in our asset and/or investment values. |
| Other expenses from managed and franchised properties. These expenses represent the payroll and its related costs for hotels that we manage where the hotel employees are legally our responsibility, as well as certain other operating costs of the managed and franchised hotels operations, marketing expenses, and other expenses associated with our brands and shared services that are contractually either reimbursed to us by the hotel owners or paid from fees collected in advance from these hotels. The corresponding revenues are presented as other revenues from managed and franchised properties in our consolidated statements of operations resulting in no impact to operating income or net income. |
Factors Affecting our Costs and Expenses
The following are several principal factors that affect the costs and expenses we incur in the course of our operations. For other factors affecting our costs and expenses, see Risk FactorsRisks Relating to Our Business and Industry.
|
Fixed nature of expenses. Many of the expenses associated with managing, franchising, and owning hotels and timeshare resorts are relatively fixed. These expenses include personnel costs, rent, property taxes, insurance and utilities, as well as sales and marketing expenses for our timeshare segment. If we are unable to decrease these costs significantly or rapidly when demand for our hotels and other properties decreases, the resulting decline in our revenues can have an adverse effect on our net cash flow, margins and profits. This effect can be especially pronounced during periods of economic contraction or slow economic growth. Economic downturns generally affect the results of our ownership segment more significantly than the results of our management and franchise segment due to the high fixed costs associated with operating an owned or leased hotel. The effectiveness of any cost-cutting efforts is limited by the fixed-cost nature of our business. As a result, we may not be able to offset further revenue reductions through cost cutting. Employees at some of our owned hotels are |
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parties to collective bargaining agreements that may also limit our ability to make timely staffing or labor changes in response to declining revenues. In addition, any of our efforts to reduce costs, or to defer or cancel capital improvements, could adversely affect the economic value of our hotels and brands. We have taken steps to reduce our fixed costs to levels we feel are appropriate to maximize profitability and respond to market conditions without jeopardizing the overall customer experience or the value of our hotels or brands. Also, a significant portion of our costs to support our timeshare business relates to direct sales and marketing of these units. In periods of decreased demand for timeshare units, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profit margins on our timeshare business. |
| Changes in depreciation and amortization expense. Changes in depreciation expenses may be driven by renovations of existing hotels, acquisition or development of new hotels or the disposition of existing hotels through sale or closure. As we place new assets into service, we will be required to record additional depreciation expense on those assets. Additionally, we capitalize costs associated with certain software development projects, and as those projects are completed and placed into service, amortization expense will increase. |
Other Items
Effect of foreign currency exchange rate fluctuations
Significant portions of our operations are conducted in functional currencies other than our reporting currency, which is the U.S. dollar, and we have assets and liabilities denominated in a variety of foreign currencies. As a result, we are required to translate those results, assets and liabilities from the functional currency into U.S. dollars at market-based exchange rates for each reporting period. When comparing our results of operations between periods, there may be material portions of the changes in our revenues or expenses that are derived from fluctuations in exchange rates experienced between those periods.
Seasonality
The lodging industry is seasonal in nature. However, the periods during which our hotels experience higher or lower levels of demand vary from property to property and depend upon location, type of property, and competitive mix within the specific location. Based on historical results, we generally expect our revenue to be lower during the first calendar quarter of each year than during each of the three subsequent quarters, with the fourth quarter producing the strongest revenues of the year.
Key Business and Financial Metrics Used by Management
Comparable Hotels
We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and were open as of January 1st of the previous year; (ii) have not undergone a change in brand or ownership during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects, or for which comparable results are not available.
| Of the 4,000 hotels in our system as of June 30, 2013, 3,583 have been classified as comparable hotels for the six months ended June 30, 2013. Our non-comparable hotels include 16 properties, or less than one percent of the total hotels in our system, that have been removed from the comparable group during the last twelve months because they have sustained substantial property damage, business interruption, undergone large-scale capital projects or comparable results were not available. |
| Of the 3,926, 3,806 and 3,671 hotels in our system as of December 31, 2012, 2011, and 2010, respectively, 3,484, 3,401, and 3,164 have been classified as comparable hotels for the years ended December 31, 2012, 2011, and 2010, respectively. |
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Occupancy
Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of our hotels available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable Average Daily Rate (ADR) levels as demand for hotel rooms increases or decreases.
Average Daily Rate (ADR)
ADR represents hotel room revenue divided by total number of rooms sold in a given period. ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.
Revenue per Available Room (RevPAR)
We calculate RevPAR by dividing hotel room revenue by room nights available to guests for the period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at our hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.
References to RevPAR and ADR throughout this report are presented on a currency neutral (all periods using the same exchange rates) and comparable basis, unless otherwise noted.
Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA
EBITDA, presented herein, is a non-GAAP financial measure that reflects net income attributable to Hilton stockholder, excluding interest expense, a provision for income taxes, and depreciation and amortization. We consider EBITDA to be a useful measure of operating performance, due to the significance of our long-lived assets and level of indebtedness.
Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude gains, losses and expenses in connection with (i) asset dispositions for both consolidated and unconsolidated investments, (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment charges; (v) furniture, fixtures and equipment, or FF&E, replacement reserves required under certain lease agreements; (vi) reorganization costs; (vii) share-based and certain other compensation expenses; (viii) severance, relocation and other expenses and (ix) other items.
EBITDA and Adjusted EBITDA are not recognized terms under generally accepted accounting principles in the United States, or U.S. GAAP, and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
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EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered either in isolation or as a substitute for profit (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
| EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
| EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; |
| EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; |
| EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
| EBITDA and Adjusted EBITDA do not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations; |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and |
| other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Results of Operations
Our business has steadily improved in recent years, resulting in higher RevPAR on a year-over-year basis since 2010. We have experienced occupancy increases in all segments of our business and we have been able to increase rates in market segments where demand has outpaced supply. The following table presents hotel operating statistics for our system-wide comparable hotels:
Six Months
Ended June 30, 2013 |
Variance
2013 vs. 2012 |
Year Ended
December 31, 2012 |
Variance
2012 vs. 2011 |
Year Ended
December 31, 2011 |
Variance
2011 vs. 2010 |
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Occupancy |
72.3 | % | 1.5 | % pts | 71.1 | % | 1.9 | % pts | 69.7 | % | 2.1 | % pts | ||||||||||||
ADR |
$ | 136.43 | 3.2 | % | $ | 131.35 | 2.9 | % | $ | 130.15 | 2.8 | % | ||||||||||||
RevPAR |
$ | 98.69 | 5.4 | % | $ | 93.38 | 5.7 | % | $ | 90.70 | 5.9 | % |
We anticipate that if worldwide gross domestic product continues to exhibit growth, we will continue to experience increases in demand for lodging accommodations. Because this continued increase in demand is not expected to be met with a corresponding significant increase in hotel room supply in the near term, particularly in the U.S., we expect to see continued improvement in our operational and financial metrics. While we expect operating results at existing properties to improve and our business to continue to grow based on our business strengths and strategies that have and will continue to maximize our performance, our ability to do so is dependent in part on increases in discretionary spending and continued stabilization and recovery in the global economic environment. We also anticipate growth in our management and franchise fee business, driven both by improvements in performance at our existing hotels and by increases in the number of hotels in our system based on our management and franchise property development pipeline. However, should hotel developers experience difficulty in securing on-going financing for hotel projects or a decline in demand for any other reason, our pipeline may be adversely affected, resulting in delays in the opening of new hotels or decreases in the number of future properties that we could potentially manage or franchise.
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As of June 30, 2013, we had sales and marketing agreements with third-party developers to sell approximately 69,000 timeshare intervals. We expect sales and marketing agreements with third-party developers and resort operations to comprise a growing percentage of our timeshare revenue and revenues derived from the sale and financing of timeshare units developed by us to comprise a smaller percentage of our timeshare revenue in future periods, consistent with our strategy to focus our business on the management aspects and deploy less of our capital to asset construction. As a result of these changes, our overall timeshare segment revenue and segment Adjusted EBITDA is not expected to materially change.
Six Months Ended June 30, 2013 Compared with Six Months Ended June 30, 2012
During the six months ended June 30, 2013, we experienced system-wide improvement at our comparable hotels in occupancy, ADR, and RevPAR, compared to the six months ended June 30, 2012. As discussed above, trends in both occupancy and rate have been improving since 2010 and that momentum has carried into 2013. Despite challenges in specific markets, we were able to increase rates in markets where demand outpaced supply resulting in a 3.2 percent increase in system-wide ADR in the six months ended June 30, 2013, compared to the six months ended June 30, 2012. System-wide occupancy increased 1.5 percentage points in the six months ended June 30, 2013, compared to the six months ended June 30, 2012; and, the combination of improved occupancy and ADR drove a system-wide RevPAR increase of 5.4 percent in the six months ended June 30, 2013, compared to the six months ended June 30, 2012.
The system-wide increase in occupancy was led by our Asia Pacific region, which had an increase of 5.5 percentage points. In the Americas region, which includes the U.S., occupancy grew by 1.2 percentage points; however, RevPAR experienced a 5.3 percent increase due to increases in ADR of 3.6 percent during the six months ended June 30, 2013, compared to the six months ended June 30, 2012.
There continues to be political unrest and macroeconomic uncertainty in certain portions of the Europe, Middle East and Africa (EMEA) region; however, our hotels in the Middle East and Africa experienced a 14.1 percent increase in RevPAR in the six months ended June 30, 2013, compared to the six months ended June 30, 2012. Despite general economic weakness, our European hotels experienced a 4.4 percent increase in RevPAR in the six months ended June 30, 2013, compared to the six months ended June 30, 2012.
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Our overall operating performance during the six months ended June 30, 2013 improved when compared to the six months ended June 30, 2012, driven by improvements in both system-wide occupancy and ADR. Our results for the periods are as follows:
Six Months Ended
June 30, |
Increase / (Decrease) | |||||||||||||||
2013 | 2012 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Revenues |
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Owned and leased hotels |
$ | 1,984 | $ | 1,925 | $ | 59 | 3.1 | |||||||||
Management and franchise fees and other |
561 | 521 | 40 | 7.7 | ||||||||||||
Timeshare |
507 | 515 | (8) | (1.6 | ) | |||||||||||
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3,052 | 2,961 | 91 | 3.1 | |||||||||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | 31 | 2.0 | ||||||||||||
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|
|
|
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Total revenues |
4,643 | 4,521 | 122 | 2.7 | ||||||||||||
Expenses |
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Owned and leased hotels |
1,547 | 1,595 | (48) | (3.0 | ) | |||||||||||
Timeshare |
351 | 363 | (12) | (3.3 | ) | |||||||||||
Depreciation and amortization |
309 | 259 | 50 | 19.3 | ||||||||||||
Impairment losses |
| 16 | (16) | NM | (1) | |||||||||||
General, administrative, and other |
189 | 236 | (47) | (19.9 | ) | |||||||||||
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2,396 | 2,469 | (73) | (3.0 | ) | ||||||||||||
Other expenses from managed and franchised properties |
1,591 | 1,560 | 31 | 2.0 | ||||||||||||
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Total expenses |
3,987 | 4,029 | (42) | (1.0 | ) | |||||||||||
Operating income |
656 | 492 | 164 | 33.3 | ||||||||||||
Interest income |
3 | 9 | (6) | (66.7 | ) | |||||||||||
Interest expense |
(274) | (281) | 7 | (2.5 | ) | |||||||||||
Equity in earnings (losses) from unconsolidated affiliates |
8 | (2) | 10 | NM | (1) | |||||||||||
Gain (loss) on foreign currency transactions |
(82) | 1 | (83) | NM | (1) | |||||||||||
Other gain, net |
6 | 9 | (3) | (33.3 | ) | |||||||||||
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Income before income taxes |
317 | 228 | 89 | 39.0 | ||||||||||||
Income tax expense |
(122) | (112) | (10) | 8.9 | ||||||||||||
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Net income |
195 | 116 | 79 | 68.1 | ||||||||||||
Net income attributable to noncontrolling interests |
(6) | (2) | (4) | NM | (1) | |||||||||||
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Net income attributable to Hilton stockholder |
$ | 189 | $ | 114 | $ | 75 | 65.8 | |||||||||
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(1) | Fluctuation in terms of percentage change is not meaningful. |
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Six Months
Ended June 30, 2013 |
Variance
2013 vs. 2012 |
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Comparable Hotel Statistics |
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Owned and leased hotels |
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Occupancy |
75.4 | % | 1.4 | % pts | ||||
ADR |
$ | 187.82 | 3.4 | % | ||||
RevPAR |
$ | 141.53 | 5.3 | % | ||||
Managed and franchised hotels |
||||||||
Occupancy |
72.0 | % | 1.5 | % pts | ||||
ADR |
$ | 131.01 | 3.3 | % | ||||
RevPAR |
$ | 94.38 | 5.5 | % | ||||
System-wide |
||||||||
Occupancy |
72.3 | % | 1.5 | % pts | ||||
ADR |
$ | 136.43 | 3.2 | % | ||||
RevPAR |
$ | 98.69 | 5.4 | % |
Revenues
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 1,984 | $ | 1,925 | 3.1 | |||||||
Management and franchise fees and other |
561 | 521 | 7.7 | |||||||||
Timeshare |
507 | 515 | (1.6 | ) | ||||||||
|
|
|
|
|||||||||
$ | 3,052 | $ | 2,961 | 3.1 | ||||||||
|
|
|
|
Revenues as presented in this section, excludes other revenues from managed and franchised properties of $1,591 million and $1,560 million during the six months ended June 30, 2013 and 2012, respectively.
Owned and leased hotels
During the six months ended June 30, 2013, the improved performance of our owned and leased hotels primarily was a result of improvement in RevPAR of 5.3 percent at our comparable owned and leased hotels.
As of June 30, 2013, we had 35 consolidated owned and leased hotels located in the U.S., comprising 24,050 rooms. Revenue at our U.S. owned and leased hotels for the six months ended June 30, 2013 and 2012 totaled $1,014 million and $931 million, respectively. The increase of $83 million, or 8.9 percent, was primarily driven by an increase in RevPAR of 7.5 percent, which was due to increases in ADR and occupancy at our U.S. comparable owned and leased hotels of 4.5 percent and 2.2 percentage points, respectively.
The increase in our U.S. owned and leased hotel revenue was driven by a combination of transient and group business. Room revenue from transient guests at our U.S. comparable owned and leased hotels increased 4.2 percent, primarily due to increased transient ADR of 3.6 percent. Room revenue from group travel at our U.S. comparable owned and leased hotels increased 7.8 percent, primarily due to increases in group ADR of 2.5 percent and group occupancy of 5.1 percent.
As of June 30, 2013, we had 89 consolidated owned and leased hotels located outside of the U.S., comprising 25,778 rooms. Revenue from our international (non-U.S.) owned and leased hotels totaled $970 million and $994 million for the six months ended June 30, 2013 and 2012, respectively. The revenue decrease of $24 million, or 2.4 percent, was primarily due to an unfavorable movement in foreign currency rates of
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$30 million. On a currency neutral basis, international owned and leased hotel revenue was consistent in these periods.
Management and franchise fees and other
Management and franchise fee revenue for the six months ended June 30, 2013 and 2012 totaled $536 million and $495 million, respectively. The increase of $41 million, or 8.3 percent, in our management and franchise business reflects increases in RevPAR of 6.4 percent and 5.1 percent at our comparable managed and franchised properties, respectively. The increases in RevPAR for managed and franchised hotels were primarily driven by increased occupancy and rates charged to guests.
The addition of new hotels to our managed and franchised system also contributed to the growth in revenue. From June 30, 2012 to June 30, 2013 we added 39 managed properties on a net basis, contributing an additional 6,468 rooms to our system, as well as 107 franchised properties on a net basis, providing an additional 16,526 rooms to our system. As new hotels are established in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods.
Other revenues for the six months ended June 30, 2013 and 2012 were relatively unchanged at $25 million and $26 million, respectively.
Timeshare
The decrease in timeshare revenue was primarily due to a decrease of approximately $59 million in real estate sales due to lower sales volumes on our developed properties, which we expect to continue as we further develop our capital light timeshare business. These decreases were partially offset by increases of $38 million in sales commissions and fees earned on projects developed by third-party developers, due to two properties comprising 1,033 units commencing sales after June 30, 2012. There were also increases of approximately $12 million in financing and other revenues.
Operating Expenses
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 1,547 | $ | 1,595 | (3.0 | ) | ||||||
Timeshare |
351 | 363 | (3.3 | ) |
Fluctuations in operating expenses at our owned and leased hotels can be related to various factors, including changes in occupancy levels, labor costs, utilities, taxes, and insurance costs. The change in the number of occupied room nights directly impacts certain variable expenses, which include payroll, supplies, and other operating expenses.
U.S. owned and leased hotel expense totaled $698 million and $680 million, respectively, for the six months ended June 30, 2013 and 2012. The increase of $18 million, or 2.6 percent, was partially due to increased occupancy of 2.2 percentage points at our comparable U.S. owned and leased hotels, which resulted in an increase in labor and utility costs. The expense increases resulting from increased occupancy were partially offset by the effects of cost mitigation strategies and operational efficiencies employed at all of our owned and leased properties.
International owned and leased hotel expense decreased $66 million, or 7.2 percent, to $849 million from $915 million. Foreign currency movements contributed $25 million of the decrease, as international owned and
70
leased hotel expenses, on a currency neutral basis, decreased $41 million. The decrease in currency neutral expense was primarily due to decreases in rent expense resulting from lease terminations of certain properties (mainly in Europe) after June 30, 2012 and cost mitigation strategies and operational efficiencies employed at all of our owned and leased properties. Occupancy at our international comparable owned and leased hotels was relatively consistent period over period.
Timeshare expense decreased $12 million for the six months ended June 30, 2013, compared to the six months ended June 30, 2012. The decrease was primarily due to lower sales volume at our developed properties resulting in lower cost of sales, offset by an increase in sales and marketing expenses of $11 million for the six months ended June 30, 2013. This is consistent with the slight decrease in timeshare revenue during the same periods.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Depreciation and amortization |
$ | 309 | $ | 259 | 19.3 |
Depreciation and amortization expense increased $50 million primarily due to $311 million in capital expenditures between June 30, 2012 and June 30, 2013, resulting in additional depreciation on certain owned and leased assets in 2013. Amortization expense increased $24 million primarily due to capitalized software costs that were placed into service during the fourth quarter of 2012.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Impairment losses |
$ | | $ | 16 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
During the first six months of 2012, certain specific markets and properties, particularly in our EMEA region, faced operating and competitive challenges. Such challenges caused a decline in expected future results for certain owned and leased properties, which caused us to evaluate the carrying values of these affected properties for impairment. As a result of this evaluation, we recognized impairment losses of $16 million related to our owned and leased hotels for the six months ended June 30, 2012.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
General, administrative, and other expenses |
$ | 189 | $ | 236 | (19.9 | ) |
General and administrative expenses consist of our corporate operations, compensation and related expenses, including share-based compensation, and other operating costs.
General and administrative expenses decreased $46 million from $211 million for the six months ended June 30, 2012 to $165 million for the six months ended June 30, 2013, primarily as a result of legal and other operating costs incurred during the six months ended June 30, 2012 that did not occur in the six months ended June 30, 2013. The decrease also included a $14 million decrease in share-based compensation expense due to the acceleration of certain payments under our share-based compensation plan in the first quarter of 2012. Additionally, there was a net periodic pension credit of $13 million on our pension plan in the United Kingdom (U.K. Pension Plan) during the first quarter of 2012, which resulted in a reduction to general and administrative expenses during the six months ended June 30, 2012.
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Other expenses were relatively unchanged at $24 million and $25 million for the six months ended June 30, 2013 and 2012, respectively.
Non-operating Income and Expenses
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Interest expense |
$ | 274 | $ | 281 | (2.5 | ) |
Interest expense decreased $7 million as a result of reductions in our debt balances, including our unsecured notes, which were repaid in the fourth quarter of 2012, as well as additional unscheduled, voluntary debt payments of $700 million that occurred during the six months ended June 30, 2013.
The weighted average effective interest rate on our outstanding debt was approximately 3.2 percent and 3.1 percent for the six months ended June 30, 2013 and 2012, respectively.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Equity in earnings (losses) from unconsolidated affiliates |
$ | 8 | $ | (2 | ) | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The $10 million increase in equity in earnings (losses) from unconsolidated affiliates was primarily due to increased earnings of $4 million resulting from lower depreciation and amortization expense for the six months ended June 30, 2013, compared to the same period in 2012. In addition, for the six months ended June 30, 2012, we recognized $4 million of impairments losses on our equity investments, compared to none in the same period of 2013.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Gain (loss) on foreign currency transactions |
$ | (82 | ) | $ | 1 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The net gain (loss) on foreign currency transactions primarily relates to changes in foreign currency rates relating to short-term cross-currency intercompany loans.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Other gain, net |
$ | 6 | $ | 9 | (33.3 | ) |
The other gain, net for the six months ended June 30, 2013 was primarily related to a capital lease restructuring by one of our consolidated variable interest entities (VIEs) during the period. The revised terms reduced the future minimum lease payments, resulting in a reduction of the capital lease obligation and a residual amount, which was recorded in other gain, net.
72
The other gain, net for the six months ended June 30, 2012 was primarily related to the pre-tax gain of $5 million resulting from the sale of our interest in an investment in affiliate accounted for under the equity method.
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Income tax expense |
$ | 122 | $ | 112 | 8.9 |
The effective income tax rate is determined by the level and composition of pre-tax income which is subject to federal, foreign, state, and local income taxes. The Companys effective tax rate for the six months ended June 30, 2013 was 39 percent, compared to 49 percent for the six months ended June 30, 2012. The tax rate for the six months ended June 30, 2013 was lower, primarily as a result of increases in unrecognized tax benefits that occurred during the six months ended June 30, 2012 that did not occur during the six months ended June 30, 2013.
Segment Results
We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 15: Business Segments in our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Refer to those financial statements for a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income attributable to Hilton stockholder. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness, refer to Key Business and Financial Metrics Used by Management. The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts, for the six months ended June 30, 2013 and 2012:
Six Months Ended
June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Revenues |
||||||||||||
Ownership |
$ | 1,998 | $ | 1,942 | 2.9 | |||||||
Management and franchise |
608 | 564 | 7.8 | |||||||||
Timeshare |
507 | 515 | (1.6 | ) | ||||||||
|
|
|
|
|||||||||
Segment revenues |
3,113 | 3,021 | 3.0 | |||||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | 2.0 | |||||||||
Other |
30 | 30 | 0.0 | |||||||||
Intersegment fees elimination (1)(2)(3) |
(91) | (90) | 1.1 | |||||||||
|
|
|
|
|||||||||
$ | 4,643 | $ | 4,521 | 2.7 | ||||||||
|
|
|
|
|||||||||
Adjusted EBITDA: |
||||||||||||
Ownership (1)(4) |
$ | 445 | $ | 358 | 24.3 | |||||||
Management and franchise (2) |
608 | 564 | 7.8 | |||||||||
Timeshare |
119 | 113 | 5.3 | |||||||||
Corporate and other (3) |
(135) | (148) | (8.8 | ) | ||||||||
|
|
|
|
|||||||||
$ | 1,037 | $ | 887 | 16.9 | ||||||||
|
|
|
|
(1) |
Includes charges to our timeshare segment by our ownership segment for rental fees and fees for other amenities, which are eliminated in our condensed consolidated financial statements. These charges totaled $12 million and $15 million for the six months ended June 30, 2013 and 2012, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to the ownership |
73
segment and a cost to the timeshare segment. Additionally, includes various other intercompany charges of $2 million for the six months ended June 30, 2013 and 2012, which are eliminated in our condensed consolidated financial statements. |
(2) | Includes management, royalty, and intellectual property fees of $47 million and $45 million for the six months ended June 30, 2013 and 2012, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our condensed consolidated financial statements. Also, includes a licensing fee of $25 million and $24 million for the six months ended June 30, 2013 and 2012, respectively, which is charged to our timeshare segment by our management and franchise segment and is eliminated in our condensed consolidated financial statements. |
(3) | Includes charges to consolidated owned and leased properties for laundry services of $5 million and $4 million for the six months ended June 30, 2013 and 2012, respectively. These charges are earned by our Other category and therefore are eliminated in our condensed consolidated financial statements. |
(4) | Includes Adjusted EBITDA from unconsolidated affiliates. |
Ownership
Ownership segment revenues increased primarily due to an improvement in RevPAR of 5.3 percent at our comparable owned and leased hotels. Refer to RevenuesOwned and leased hotels within this section for further discussion on the increase in revenues from our comparable owned and leased hotels. Our ownership segments Adjusted EBITDA increased primarily as a result of the increase in ownership segment revenues of $56 million and the decrease in operating expenses of $48 million at our owned and leased hotels. Refer to Operating ExpensesOwned and leased hotels within this section for further discussion on the decrease in operating expenses at our owned and leased hotels.
Management and franchise
Management and franchise segment revenues increased primarily as a result of increases in RevPAR of 6.4 percent and 5.1 percent at our comparable managed and franchised properties, respectively, and the net addition of hotels added to our managed and franchised system. Refer to RevenuesManagement and franchise fees and other within this section for further discussion on the increase in revenues from our comparable managed and franchised properties. Our management and franchise segments Adjusted EBITDA increased as a result of the increase in management and franchise segment revenues.
Timeshare
Refer to RevenuesTimeshare within this section for a discussion of the decrease in revenues from our timeshare segment. Our timeshare segments Adjusted EBITDA increased as a result of the $12 million decrease in timeshare operating expense, offset by an $8 million decrease in timeshare revenue. Refer to Operating ExpensesTimeshare within this section for a discussion of the decrease in operating expenses from our timeshare segment.
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
For 2012, the growth in hotel room demand continued from 2011 and 2010, as we experienced system-wide improvement in occupancy, ADR, and RevPAR, compared to the year ended December 31, 2011. Despite challenges in specific markets, we were able to increase rates in markets where demand outpaced supply resulting in a 2.9 percent increase in system-wide ADR in the year ended December 31, 2012, compared to the year ended December 31, 2011. System-wide occupancy increased 1.9 percentage points in the year ended December 31, 2012, compared to the year ended December 31, 2011; and, the combination of improved occupancy and ADR drove a system-wide RevPAR increase of 5.7 percent in the year ended December 31, 2012, compared to the year ended December 31, 2011.
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The system-wide increase in occupancy was led by our Asia Pacific region, which had an increase of 4.8 percentage points, and was lagged by our European hotels, which had a growth in occupancy of 1.3 percentage points. Our European hotels experienced a 2.5 percent increase in RevPAR in the year ended December 31, 2012, compared to the year ended December 31, 2011, partially attributable to the 2012 Summer Olympics held in London. While political unrest in portions of the Middle East continued throughout 2012, the Middle East and Africa experienced a 2.8 percent increase in RevPAR in the year ended December 31, 2012, compared to the year ended December 31, 2011.
As of December 31, 2012, we had ten hotels in Japan, five of which were included in our ownership segment. Additionally, HGV had eight sales centers and offices in Japan. None of our hotels or offices in Japan were damaged in the March 2011 earthquake and tsunami. Our Japanese operations stabilized during the third quarter of 2011 and, from that time on, our Japanese hotels have experienced continued improvement in RevPAR, which increased 14.9 percent in the year ended December 31, 2012, compared to the year ended December 31, 2011 and supported the increase in RevPAR of 8.7 percent in our Asia Pacific region between periods. The Asia Pacific region experienced the largest increase in RevPAR of all our regions from 2011.
Year Ended
December 31, |
Increase / (Decrease) | |||||||||||||||
2012 | 2011 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Revenues |
||||||||||||||||
Owned and leased hotels |
$ | 3,979 | $ | 3,898 | $ | 81 | 2.1 | |||||||||
Management and franchise fees and other |
1,088 | 1,014 | 74 | 7.3 | ||||||||||||
Timeshare |
1,085 | 944 | 141 | 14.9 | ||||||||||||
|
|
|
|
|
|
|||||||||||
6,152 | 5,856 | 296 | 5.1 | |||||||||||||
Other revenues from managed and franchised properties |
3,124 | 2,927 | 197 | 6.7 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
9,276 | 8,783 | 493 | 5.6 | ||||||||||||
Expenses |
||||||||||||||||
Owned and leased hotels |
3,230 | 3,213 | 17 | 0.5 | ||||||||||||
Timeshare |
758 | 668 | 90 | 13.5 | ||||||||||||
Depreciation and amortization |
550 | 564 | (14) | (2.5 | ) | |||||||||||
Impairment losses |
54 | 20 | 34 | NM | (1) | |||||||||||
General, administrative, and other |
460 | 416 | 44 | 10.6 | ||||||||||||
|
|
|
|
|
|
|||||||||||
5,052 | 4,881 | 171 | 3.5 | |||||||||||||
Other expenses from managed and franchised properties |
3,124 | 2,927 | 197 | 6.7 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total expenses |
8,176 | 7,808 | 368 | 4.7 | ||||||||||||
Operating income |
1,100 | 975 | 125 | 12.8 | ||||||||||||
Interest income |
15 | 11 | 4 | 36.4 | ||||||||||||
Interest expense |
(569) | (643) | 74 | (11.5 | ) | |||||||||||
Equity in losses from unconsolidated affiliates |
(11) | (145) | 134 | (92.4 | ) | |||||||||||
Gain (loss) on foreign currency transactions |
23 | (21) | 44 | NM | (1) | |||||||||||
Other gain, net |
15 | 19 | (4) | (21.1 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
573 | 196 | 377 | NM | (1) | |||||||||||
Income tax benefit (expense) |
(214) | 59 | (273) | NM | (1) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net income |
359 | 255 | 104 | 40.8 | ||||||||||||
Net income attributable to noncontrolling interests |
(7) | (2) | (5) | NM | (1) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net income attributable to Hilton stockholder |
$ | 352 | $ | 253 | $ | 99 | 39.1 | |||||||||
|
|
|
|
|
|
(1) | Fluctuation in terms of percentage change is not meaningful. |
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Year Ended
December 31, 2012 |
Variance
2012 vs. 2011 |
|||||||
Comparable Hotel Statistics |
||||||||
Owned and leased hotels |
||||||||
Occupancy |
74.5 | % | 2.3 | %pts | ||||
ADR |
$ | 183.29 | 1.0 | % | ||||
RevPAR |
$ | 136.55 | 4.2 | % | ||||
Managed and franchised hotels |
||||||||
Occupancy |
70.8 | % | 1.9 | %pts | ||||
ADR |
$ | 126.17 | 3.0 | % | ||||
RevPAR |
$ | 89.34 | 5.8 | % | ||||
System-wide |
||||||||
Occupancy |
71.1 | % | 1.9 | %pts | ||||
ADR |
$ | 131.35 | 2.9 | % | ||||
RevPAR |
$ | 93.38 | 5.7 | % |
Revenues
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 3,979 | $ | 3,898 | 2.1 | |||||||
Management and franchise fees and other |
1,088 | 1,014 | 7.3 | |||||||||
Timeshare |
1,085 | 944 | 14.9 | |||||||||
|
|
|
|
|||||||||
$ | 6,152 | $ | 5,856 | 5.1 | ||||||||
|
|
|
|
Revenues as presented in this section, excludes other revenues from managed and franchised properties of $3,124 million and $2,927 million during the years ended December 31, 2012 and 2011, respectively.
Owned and leased hotels
During the year ended December 31, 2012, the improved performance of our owned and leased hotels primarily was a result of improvement in RevPAR of 4.2 percent at our comparable owned and leased hotels.
As of December 31, 2012, we had 35 consolidated owned and leased hotels located in the U.S., comprising 24,054 rooms. Revenue at our U.S. owned and leased hotels for the years ended December 31, 2012 and 2011 totaled $1,922 million and $1,822 million, respectively. The increase of $100 million, or 5.5 percent, was primarily driven by an increase in RevPAR of 5.1 percent, which was due to increases in ADR and occupancy at our U.S. comparable owned and leased hotels of 1.5 percent and 2.7 percentage points, respectively.
Room revenue from transient guests at our U.S. comparable owned and leased hotels increased 10.4 percent, due to increases in transient ADR of 2.9 percent and transient occupancy of 7.3 percent. The increased transient room revenue was in part offset by decreases in room revenue from group travel at our U.S. comparable owned and leased hotels of 3.0 percent during the year ended December 31, 2012, compared to the year ended December 31, 2011. The decrease in group room revenue at our U.S. comparable owned and leased hotels was primarily due to one large group at one hotel driving significant group room revenue in 2011 that did not recur in 2012. Excluding this one hotel from the prior year results, our group room revenue at our U.S. comparable owned and leased hotels increased 2.0 percent.
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As of December 31, 2012, we had 94 consolidated owned and leased hotels located outside of the U.S., comprising 26,565 rooms. Revenue from our international owned and leased hotels totaled $2,057 million and $2,076 million for the years ended December 31, 2012 and December 31, 2011, respectively. The revenue decrease of $19 million, or 0.9 percent, was primarily due to an unfavorable movement in foreign currency rates of $76 million. On a currency neutral basis, international owned and leased hotel revenue increased $57 million, or 2.9 percent. The increase was primarily driven by an increase in RevPAR of 3.4 percent, which was due to an increase in occupancy at our comparable international owned and leased hotels of 1.9 percentage points, while ADR remained relatively consistent period over period. The increase was also due to recovery in Japan as operations stabilized in the third quarter of 2011 after the natural disasters negatively impacted revenues for the first half of 2011. This recovery, on a currency neutral basis, resulted in an increase in RevPAR at our comparable Japanese owned and leased hotels of 18.2 percent, which was driven by an increase in occupancy and ADR of 10.5 percentage points and 2.1 percent, respectively.
Management and franchise fees and other
Management and franchise fee revenue for the years ended December 31, 2012 and 2011 totaled $1,032 million and $965 million, respectively. The increase of $67 million, or 6.9 percent, in our management and franchise business reflects increases in RevPAR of 4.9 percent and 6.2 percent at our comparable managed and franchised properties, respectively. The increases in RevPAR for both comparable periods for managed and franchised hotels were primarily driven by increased occupancy and rates charged to guests.
The addition of new hotels to our managed and franchised system also contributed to the growth in revenue. We added 13 managed properties on a net basis, contributing an additional 4,265 rooms to our system, as well as 107 franchised properties on a net basis, providing an additional 14,007 rooms to our system. As new hotels are established in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods.
Other revenues increased $7 million, or 14.3 percent, between periods, totaling $56 million and $49 million, respectively, for the years ended December 31, 2012 and 2011.
Timeshare
Timeshare revenue for the year ended December 31, 2012 was $1,085 million, an increase of $141 million, or 14.9 percent, from $944 million during the year ended December 31, 2011. This increase was primarily due to a $66 million increase in revenue from the sale of timeshare units developed by us, as well as an increase of $46 million in sales commissions and fees earned on projects developed by third parties. Additionally, our revenue from resorts operations and financing and other revenues both increased $9 million.
Operating Expenses
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 3,230 | $ | 3,213 | 0.5 | |||||||
Timeshare |
758 | 668 | 13.5 |
U.S. owned and leased hotel expense totaled $1,370 million and $1,345 million, respectively, for the years ended December 31, 2012 and 2011. The increase of $25 million, or 1.9 percent, was partially due to increased occupancy of 2.7 percentage points at our comparable U.S. owned and leased hotels, which resulted in an increase in labor and utility costs. The increase was also due to increases to sales and marketing expenses, insurance expenses, and property taxes at our U.S. owned and leased hotels.
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International owned and leased hotel expense decreased $8 million, or 0.4 percent, to $1,860 million from $1,868 million, respectively, for the year ended December 31, 2012 compared to the year ended December 31, 2011. However, there were foreign currency movements of $66 million between the years ended December 31, 2012 and 2011, which decreased owned and leased hotel expenses. International owned and leased hotel expenses, on a currency neutral basis, increased $58 million. The increase in currency neutral expense was primarily due to increased occupancy of 1.9 percentage points at our comparable international owned and leased hotels, which resulted in an increase in variable operating expenses and energy costs. The increase was also due to increases in rent expenses, certain of which have a variable component based on hotel revenues or profitability, as well as repair and maintenance expenses, insurance expenses, and property taxes at our international owned and leased hotels.
Timeshare expense increased $90 million for the year ended December 31, 2012, compared to the year ended December 31, 2011 primarily due to increased sales, marketing, general, and administrative costs associated with the increase in timeshare revenue during the same period.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Depreciation and amortization |
$ | 550 | $ | 564 | (2.5 | ) |
Depreciation and amortization expense decreased $14 million for the year ended December 31, 2012, compared to the year ended December 31, 2011. Depreciation expense, including amortization of assets recorded under capital leases, decreased $33 million primarily due to capital lease amendments which resulted in extending asset useful lives in the second half of 2011, as well as 2011 impairments, which resulted in lower depreciable asset bases for 2012. These instances led to lower depreciation expense on the same assets for the year ended December 31, 2012 compared to the year ended December 31, 2011. Amortization expense increased $19 million primarily due to capitalized software that was placed in service during the year ended December 31, 2012.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Impairment losses |
$ | 54 | $ | 20 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
During the year ended December 31, 2012, certain specific markets and properties, particularly in Europe, continued to face operating and competitive challenges. Such challenges caused a decline in market value of certain corporate buildings in the current year and in expected future results for certain owned and leased properties, which caused us to evaluate the carrying values of these affected properties for impairment. During 2012, we recognized impairment losses of $42 million related to our owned and leased hotels, $11 million of impairment losses related to certain corporate office facilities, and $1 million of impairment losses related to one cost method investment. During 2011, we recognized impairment losses of $17 million related to our owned and leased hotels and $3 million on timeshare properties.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
General, administrative, and other expense |
$ | 460 | $ | 416 | 10.6 |
General and administrative expenses consist of our corporate operations, compensation and related expenses, including share-based compensation, and other operating costs.
78
General and administrative expenses for the years ended December 31, 2012 and 2011 totaled $398 million and $377 million, respectively. In 2011, we recorded a one-time $20 million insurance recovery related to a prior year legal settlement. Excluding this recovery, general and administrative expenses increased $1 million for the year ended December 31, 2012, compared to the year ended December 31, 2011. The increase includes a $31 million increase in share-based compensation expense due to the acceleration of certain payments under our share-based compensation plan. These increases were offset by decreases in employee retirement costs from the acceleration of a $13 million prior service credit relating to the freeze of our U.K. Pension Plan agreed to in March 2012, reorganization costs of $16 million that were recorded in 2011, and other operating costs.
Other expenses were $62 million and $39 million, respectively, for the years ended December 31, 2012 and 2011. This increase of $23 million was due to an increase of $16 million in various operating expenses incurred for the incidental support of hotel operations and an increase of $3 million for guarantee payments.
Non-operating Income and Expenses
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Interest expense |
$ | 569 | $ | 643 | (11.5 | ) |
Interest expense decreased $74 million for the year ended December 31, 2012, compared to the year ended December 31, 2011. The decrease in interest expense was attributable to debt payments during the fourth quarter 2011, which resulted in lower 2012 debt principal balances to which interest was applied.
The weighted average effective interest rate on our outstanding debt was approximately 3.4 percent and 3.7 percent for the years ended December 31, 2012 and 2011, respectively.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Equity in losses from unconsolidated affiliates |
$ | 11 | $ | 145 | (92.4 | ) |
The $134 million decrease in the loss from prior year was primarily due to other-than-temporary impairments on our equity investments of $19 million for the year ended December 31, 2012, as compared to other-than-temporary impairments of $141 million for the year ended December 31, 2011 resulting from declines in certain joint ventures current and expected future operating results.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Gain (loss) on foreign currency transactions |
$ | 23 | $ | (21 | ) | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The net gain (loss) on foreign currency transactions primarily relates to changes in foreign currency rates relating to short-term cross-currency intercompany loans.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Other gain, net |
$ | 15 | $ | 19 | (21.1 | ) |
79
The other gain, net for the year ended December 31, 2012 was primarily related to a pre-tax gain of $5 million resulting from the sale of our interest in an investment in affiliate accounted for under the equity method, as well as a $6 million gain due to the resolution of certain contingencies relating to historical asset sales.
The other gain, net for the year ended December 31, 2011 was primarily due to a gain of $16 million on the sale of our former headquarters building in Beverly Hills, California, as well a gain of $13 million related to the restructuring of a capital lease. These gains were offset by a loss of $10 million related to the sale of our interest in a hotel development joint venture.
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Income tax benefit (expense) |
$ | (214 | ) | $ | 59 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
Our income tax expense for the year ended December 31, 2012 was primarily a result of $201 million related to our U.S. federal income tax provision. For the year ended December 31, 2011, our income tax expense, which was primarily related to $69 million and $50 million in U.S. federal and foreign income tax provision, respectively, was offset by a release of $182 million in valuation allowance against our deferred tax assets related to U.S. federal foreign tax credits resulting in an overall tax benefit. Based on our consideration of all positive and negative evidence available, we believe that it is more likely than not we will be able to realize our U.S. federal foreign tax credits.
80
Segment Results
We evaluate our business segment operating performance using segment revenue and segment Adjusted EBITDA, as described in Note 22: Business Segments in our audited consolidated financial statements included elsewhere in this prospectus. Refer to those financial statements for a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income attributable to Hilton stockholder. For a discussion of our definition of EBITDA and Adjusted EBITDA, how we use it and material limitation on its usefulness, refer to Key Business and Financial Metrics Used by Management. The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts, for the years ended December 31, 2012 and 2011:
Year ended December 31, |
Percent
Change |
|||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||
(in millions) | ||||||||||||
Revenues |
||||||||||||
Ownership |
$ | 4,006 | $ | 3,926 | 2.0 | |||||||
Management and franchise |
1,180 | 1,095 | 7.8 | |||||||||
Timeshare |
1,085 | 944 | 14.9 | |||||||||
|
|
|
|
|||||||||
Segment revenues |
6,271 | 5,965 | 5.1 | |||||||||
|
|
|
|
|||||||||
Other revenues from managed and franchised properties |
3,124 | 2,927 | 6.7 | |||||||||
Other |
66 | 58 | 13.8 | |||||||||
Intersegment fees elimination (1)(2)(3) |
(185) | (167) | 10.8 | |||||||||
|
|
|
|
|||||||||
$ | 9,276 | $ | 8,783 | 5.6 | ||||||||
|
|
|
|
|||||||||
Adjusted EBITDA: |
||||||||||||
Ownership (1)(4) |
$ | 793 | $ | 725 | 9.4 | |||||||
Management and franchise (2) |
1,180 | 1,095 | 7.8 | |||||||||
Timeshare |
252 | 207 | 21.7 | |||||||||
Corporate and other (3) |
(269) | (274) | (1.8) | |||||||||
|
|
|
|
|||||||||
$ | 1,956 | $ | 1,753 | 11.6 | ||||||||
|
|
|
|
(1) | Includes charges to our timeshare segment by our ownership segment for rental fees and fees for other amenities, which are eliminated in our consolidated financial statements. These charges totaled $24 million and $27 million for the years ended December 31, 2012 and 2011, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to ownership Adjusted EBITDA and a cost to the timeshare segment. Additionally, includes various other intercompany charges of $3 million for the year ended December 31, 2012, which are eliminated in our consolidated financial statements. |
(2) | Includes management, royalty, and intellectual property fees of $96 million and $88 million for the years ended December 31, 2012 and 2011, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our consolidated financial statements. Also, includes a licensing fee of $52 million and $43 million for the years ended December 31, 2012 and 2011, respectively, charged to our timeshare segment by our management and franchise segment and eliminated in our consolidated financial statements. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to management and franchise Adjusted EBITDA and a cost to the ownership and timeshare segments. |
(3) | Includes charges to consolidated owned and leased properties for laundry services of $10 million and $9 million for the years ended December 31, 2012 and 2011, respectively. These charges are earned by our Other category and therefore are eliminated in our consolidated financial statements. |
(4) | Includes unconsolidated affiliate Adjusted EBITDA. |
81
Ownership
Ownership segment revenues increased primarily due to an improvement in RevPAR of 4.2 percent at our comparable owned and leased hotels. Refer to RevenuesOwned and leased hotels within this section for further discussion on the increase in revenues from our comparable owned and leased hotels. Our ownership segments Adjusted EBITDA increased primarily as a result of the increase in ownership segment revenues of $80 million offset by an increase in operating expenses of $17 million at our owned and leased hotels. Refer to Operating ExpensesOwned and leased hotels within this section for further discussion on the increase in operating expenses at our owned and leased hotels.
Management and franchise
Management and franchise segment revenues increased primarily as a result of increases in RevPAR of 4.9 percent and 6.2 percent at our comparable managed and franchised properties, respectively, and the net addition of hotels added to our managed and franchised system. Refer to RevenuesManagement and franchise fees and other within this section for further discussion on the increase in revenues from our comparable managed and franchised properties. Our management and franchise segments Adjusted EBITDA increased as a result of the increase in management and franchise segment revenues.
Timeshare
Refer to RevenuesTimeshare within this section for a discussion of the increase in revenues from our timeshare segment. Our timeshare segments Adjusted EBITDA increased as a result of the $141 million increase in timeshare revenue, offset by a $90 million increase in timeshare operating expenses. Refer to Operating ExpensesTimeshare within this section for a discussion of the increase in operating expenses from our timeshare segment.
82
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
In 2011, we continued to experience the recovery in hotel room demand that began in 2010, as we had system-wide improvement in occupancy, ADR, and RevPAR during the year ended December 31, 2011 compared to the year ended December 31, 2010. System-wide occupancy increased 2.1 percentage points, in the year ended December 31, 2011, compared to the year ended December 31, 2010, although certain geographic regions had lower growth or occupancy, which was driven by unrest in the Middle East and the tsunami in Japan. Despite challenges in specific markets, we were able to increase rates in markets where demand outpaced supply. System-wide ADR increased 2.8 percent, on a currency neutral basis, in the year ended December 31, 2011, compared to the year ended December 31, 2010, reflecting an improvement in pricing power and stronger year-over-year revenue from business travel. The combination of improved occupancy and ADR drove a system-wide RevPAR increase of 5.9 percent, on a currency neutral basis, in the year ended December 31, 2011, compared to the year ended December 31, 2010.
Year Ended
December 31, |
Increase / (Decrease) | |||||||||||||||
2011 | 2010 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Revenues |
||||||||||||||||
Owned and leased hotels |
$ | 3,898 | $ | 3,667 | $ | 231 | 6.3 | |||||||||
Management and franchise fees and other |
1,014 | 901 | 113 | 12.5 | ||||||||||||
Timeshare |
944 | 863 | 81 | 9.4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
5,856 | 5,431 | 425 | 7.8 | |||||||||||||
Other revenues from managed and franchised properties |
2,927 | 2,637 | 290 | 11.0 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
8,783 | 8,068 | 715 | 8.9 | ||||||||||||
Expenses |
||||||||||||||||
Owned and leased hotels |
3,213 | 3,009 | 204 | 6.8 | ||||||||||||
Timeshare |
668 | 634 | 34 | 5.4 | ||||||||||||
Depreciation and amortization |
564 | 574 | (10) | (1.7) | ||||||||||||
Impairment losses |
20 | 24 | (4) | (16.7) | ||||||||||||
General, administrative, and other |
416 | 637 | (221) | (34.7) | ||||||||||||
|
|
|
|
|
|
|||||||||||
4,881 | 4,878 | 3 | 0.1 | |||||||||||||
Other expenses from managed and franchised properties |
2,927 | 2,637 | 290 | 11.0 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total expenses |
7,808 | 7,515 | 293 | 3.9 | ||||||||||||
Operating income |
975 | 553 | 422 | 76.3 | ||||||||||||
Interest income |
11 | 9 | 2 | 22.2 | ||||||||||||
Interest expense |
(643) | (946) | 303 | (32.0) | ||||||||||||
Equity in losses from unconsolidated affiliates |
(145) | (12) | (133) | NM | (1) | |||||||||||
Gain (loss) on foreign currency transactions |
(21) | 18 | (39) | NM | (1) | |||||||||||
Gain on debt restructuring |
| 789 | (789) | NM | (1) | |||||||||||
Other gain, net |
19 | 8 | 11 | NM | (1) | |||||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
196 | 419 | (223) | (53.2) | ||||||||||||
Income tax benefit (expense) |
59 | (308) | 367 | NM | (1) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net income |
255 | 111 | 144 | NM | (1) | |||||||||||
Net loss (income) attributable to noncontrolling interests |
(2) | 17 | (19) | NM | (1) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net income attributable to Hilton stockholder |
$ | 253 | $ | 128 | $ | 125 | 97.7 | |||||||||
|
|
|
|
|
|
(1) | Fluctuation in terms of percentage change is not meaningful. |
83
Year Ended
December 31, 2011 |
Variance
2011 vs. 2010 |
|||||||
Comparable Hotel Statistics |
||||||||
Owned and leased hotels |
||||||||
Occupancy |
73.7 | % | 0.1 | %pts | ||||
ADR |
$ | 186.56 | 4.1 | % | ||||
RevPAR |
$ | 137.41 | 4.3 | % | ||||
Managed and franchised hotels |
||||||||
Occupancy |
69.4 | % | 2.3 | %pts | ||||
ADR |
$ | 124.11 | 2.7 | % | ||||
RevPAR |
$ | 86.09 | 6.3 | % | ||||
System-wide |
||||||||
Occupancy |
69.7 | % | 2.1 | %pts | ||||
ADR |
$ | 130.15 | 2.8 | % | ||||
RevPAR |
$ | 90.70 | 5.9 | % |
Revenues
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 3,898 | $ | 3,667 | 6.3 | |||||||
Management and franchise fees and other |
1,014 | 901 | 12.5 | |||||||||
Timeshare |
944 | 863 | 9.4 | |||||||||
|
|
|
|
|||||||||
$ | 5,856 | $ | 5,431 | 7.8 | ||||||||
|
|
|
|
Revenues as presented in this section, excludes other revenues from managed and franchised properties of $2,927 million and $2,637 million during the years ended December 31, 2011 and 2010, respectively.
Owned and leased hotels
During the year ended December 31, 2011, the improved performance of our owned and leased hotels primarily was a result of an increase in RevPAR of 4.3 percent at our comparable owned and leased hotels and an additional $35 million in revenue from the Hilton Orlando Lake Buena Vista, which we acquired in August 2010.
As of December 31, 2011, we had 35 consolidated owned and leased hotels located in the U.S., comprising 24,044 rooms. Revenue at our U.S. owned and leased hotels for the years ended December 31, 2011 and 2010 totaled $1,822 million and $1,707 million, respectively. The increase of $115 million, or 6.7 percent, was primarily driven by an increase in RevPAR of 5.1 percent, which was due to an increase in ADR at our U.S. comparable owned and leased hotels of 5.1 percent, while occupancy remained consistent.
Room revenue from group travel at our U.S. comparable owned and leased hotels increased 8.1 percent, due to increases in group ADR and group occupancy of 4.4 percent and 3.6 percent, respectively. Room revenue from transient guests at our U.S. comparable owned and leased hotels increased 3.3 percent, due to an increase in transient ADR of 6.0 percent, offset by a decrease in transient occupancy of 2.5 percent.
As of December 31, 2011, we had 94 consolidated owned and leased hotels located outside of the U.S., comprising 26,578 rooms. Revenue from our international owned and leased hotels totaled $2,076 million and $1,960 million for the years ended December 31, 2011 and December 31, 2010, respectively. The revenue increase of $116 million, or 5.9 percent, was primarily due to a favorable movement in foreign currency rates of
84
$82 million. On a currency neutral basis, international owned and leased hotel revenue increased $34 million, or 1.7 percent. The increase was primarily driven by an increase in RevPAR of 3.6 percent, which was due to an increase in ADR at our comparable international owned and leased hotels of 3.3 percent, while occupancy remained relatively flat.
Management and franchise fees and other
Management and franchise fee revenue for the years ended December 31, 2011 and 2010 totaled $965 million and $851 million, respectively. The increase of $114 million, or 13.4 percent, in our management and franchise business reflects increases in RevPAR of 4.9 percent and 6.8 percent at our comparable managed and franchised properties, respectively. The increases in RevPAR for both comparable periods for managed and franchised hotels were primarily driven by global economic recovery. Additionally, we recognized $24 million of termination fees during 2011, primarily related to the early termination of two management contracts.
The addition of new hotels to our managed and franchised system also contributed to the growth in revenue. We added 32 managed properties on a net basis, contributing an additional 8,122 rooms to our system, as well as 103 franchised properties on a net basis, providing an additional 15,431 rooms to our system. As new hotels are established in our system, we expect the fees received from such hotels to increase as they are part of our system for full periods.
Other revenues decreased $1 million, or 2.0 percent, between periods, totaling $49 million and $50 million, respectively, for the years ended December 31, 2011 and 2010.
Timeshare
Timeshare revenue for the year ended December 31, 2011 was $944 million, an increase of $81 million, or 9.4 percent, from $863 million during the year ended December 31, 2010. This increase was primarily due to an increase of $28 million in sales and marketing fee revenue from selling timeshare properties developed by third parties and a $23 million increase in revenue from the sale of timeshare units developed by us. Our revenue from resort operations and financing and other revenues also increased $19 million and $7 million, respectively.
Operating Expenses
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 3,213 | $ | 3,009 | 6.8 | |||||||
Timeshare |
668 | 634 | 5.4 |
U.S. owned and leased hotel expense totaled $1,345 million and $1,256 million, respectively, for the years ended December 31, 2011 and 2010. As occupancy was relatively unchanged between the years, the increase of $89 million, or 7.1 percent, was primarily due to increases in wages and benefits, energy costs, as well as an increase in food and beverage expenses at our U.S. comparable owned and leased hotels, which correlates with the increase in food and beverage revenue at those hotels.
International owned and leased hotel expense increased $115 million, or 6.6 percent, from $1,753 million to $1,868 million, respectively, for the year ended December 31, 2011, compared to the year ended December 31, 2010. The primary driver of this increase was foreign currency movements of $70 million between the years ended December 31, 2011 and 2010. International owned and leased hotel expenses, on a currency neutral basis, increased $45 million. As occupancy remained relatively consistent, the increase in currency neutral expense was primarily due to increases in wages and benefits at our international owned and leased hotels.
85
Timeshare expense increased $34 million for the year ended December 31, 2011, compared to the year ended December 31, 2010, primarily due to increased sales, marketing, general, and administrative costs as well as increased timeshare cost of sales.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Depreciation and amortization |
$ | 564 | $ | 574 | (1.7 | ) |
Depreciation and amortization expense decreased $10 million for the year ended December 31, 2011, compared to the year ended December 31, 2010, due to certain furniture, fixtures, and equipment being fully depreciated in 2011.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Impairment losses |
$ | 20 | $ | 24 | (16.7 | ) |
While the performance of our owned and leased portfolio generally improved during 2011, certain segments and markets continued to face challenges. Such challenges caused a decline in 2011 results and expected future results for certain owned and leased properties, which caused us to evaluate the carrying values of specific owned and leased properties. During 2011, we recognized impairment on various property and equipment, including $17 million related to our owned and leased hotels and $3 million on timeshare properties. During 2010, we recognized impairment of $23 million related to our owned and leased hotels and $1 million on timeshare properties.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
General, administrative, and other expenses |
$ | 416 | $ | 637 | (34.7 | ) |
General and administrative expenses consist of our corporate operations, compensation and related expenses, including share-based compensation, and other operating costs.
General and administrative expenses for the years ended December 31, 2011 and 2010 totaled $377 million and $578 million, respectively. In 2011, we recorded a one-time $20 million insurance recovery related to a prior year legal settlement. In 2010, we recorded $150 million of expense related to a legal settlement. Excluding this recovery and legal settlement, general and administrative expenses decreased $31 million. The decrease was primarily due to higher share-based compensation expense in 2010 of $37 million, resulting from the modification of our share-based compensation plan, offset by increases in various other general and administrative costs.
Other expenses were $39 million and $59 million, respectively, for the years ended December 31, 2011 and 2010. This decrease of $20 million, or 33.9 percent, was due to a decrease of $9 million in guarantee payments related to management contracts and a net decrease of $11 million in various operating expenses incurred for the incidental support of hotel operations.
86
Non-operating Income and Expenses
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Interest expense |
$ | 643 | $ | 946 | (32.0 | ) |
Interest expense decreased $303 million for the year ended December 31, 2011, compared to the year ended December 31, 2010. The decrease was primarily due to a decrease in our long-term debt that occurred as a result of the restructuring (the Debt Restructuring) of our senior mortgage loan and our secured mezzanine loans (collectively, the Secured Debt) in April 2010. The Debt Restructuring resulted in a $4.0 billion overall reduction in our indebtedness. Additionally, the decrease is the result of a reduction in the long-term debt balance due to principal payments of $726 million made during the year ended December 31, 2011 and the expiration of our interest rate swaps at the end of 2010. This decrease was partially offset by an increase in the interest rate spreads on certain portions of the Secured Debt in conjunction with the Debt Restructuring. The increases in the interest rate spreads were partially offset by a decrease in the London Interbank Offered Rate (LIBOR) between periods (see Liquidity and Capital Resources) and the reduction of the principal of third-party debt.
The weighted average effective interest rate on our outstanding debt was approximately 3.7 percent and 4.9 percent for the years ended December 31, 2011 and 2010, respectively.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Equity in losses from unconsolidated affiliates |
$ | 145 | $ | 12 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The increase in the loss from prior year was primarily due to other-than-temporary impairments on our equity investments of $141 million for the year ended December 31, 2011, as compared to other than temporary impairments of $6 million for the year ended December 31, 2010. In connection with the economic downturn and recent valuations received for our equity method investments, which indicate a lack of recoverability to the fair values assigned during our acquisition in October 2007, we determined that we had an other-than-temporary impairment on 20 and three of our equity method investments during 2011 and 2010, respectively. These impairments resulted from declines in certain hotel joint ventures current and expected future operating results. The amount of the impairment was based on the excess of carrying amount of the assets over the fair value as calculated using discounted operating cash flows.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Gain (loss) on foreign currency transactions |
$ | (21 | ) | $ | 18 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
87
The net gain (loss) on foreign currency transactions primarily relates to changes in foreign currency rates relating to short-term cross-currency intercompany loans. Additionally, the gain in 2010 partially resulted from the settlement of our portfolio of Euro (EUR) and Australian dollar (AUD) foreign currency options with a notional value of approximately EUR 540 million and AUD 374 million, as well as the settlement of our remaining undesignated foreign currency options, for a gain of $20 million.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Gain on debt restructuring |
$ | | $ | 789 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The gain on debt restructuring of $789 million for the year ended December 31, 2010 relates to the Debt Restructuring, of which $4 million of unamortized deferred financing costs were expensed and $39 million of fees were incurred as part of the overall transaction and were required to be expensed in accordance with the accounting guidance for debt modifications and extinguishments. See the table below for a reconciliation of the $789 million gain:
(in millions) | ||||
Gain on excess of carrying amount over reacquisition price of certain debt |
$ | 910 | ||
Less: write-off of existing deferred financing costs |
(4) | |||
Less: fees incurred as part of Debt Restructuring |
(39) | |||
Loss on excess of reacquisition price over carrying value of debt extinguished by an affiliate on behalf of the Company |
(78) | |||
|
|
|||
$ | 789 | |||
|
|
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Other gain, net |
$ | 19 | $ | 8 | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
The other gain, net for the year ended December 31, 2011 was primarily due to a gain of $16 million on the sale of our former headquarters building in Beverly Hills, California, as well a gain of $13 million related to the restructuring of a capital lease. These gains were offset by a loss of $10 million related to the sale of our interest in a hotel development joint venture.
The other gain, net for the year ended December 31, 2010 was primarily related to a gain of $11 million related to the discounted acquisition of senior unsecured debt in December 2010.
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Income tax benefit (expense) |
$ | 59 | $ | (308) | NM | (1) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
For the year ended December 31, 2011, our income tax expense, which was primarily related to $69 million and $50 million in U.S. federal and foreign income tax provision, respectively, was offset by a release of
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$182 million in valuation allowance against our deferred tax assets related to U.S. federal foreign tax credits resulting in an overall tax benefit. Based on our consideration of all positive and negative evidence available, we believe that it is more likely than not that we will be able to realize our U.S. federal foreign tax credits. Our income tax expense for the year ended December 31, 2010 was primarily a result of $147 million related to our U.S. federal income tax provision and $185 million in provision for uncertain tax positions.
Segment Results
We evaluate our business segment operating performance using segment revenue and segment Adjusted EBITDA, as described in Note 22: Business Segments in our audited consolidated financial statements included elsewhere in this prospectus. Refer to those financial statements for a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income attributable to Hilton stockholder. For a discussion of our definition of EBITDA and Adjusted EBITDA, how we use it and material limitation on its usefulness, refer to Key Business and Financial Metrics Used by Management. The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts, for the years ended December 31, 2011 and 2010:
Year ended December 31, |
Percent
Change |
|||||||||||
2011 | 2010 | 2011 vs. 2010 | ||||||||||
(in millions) | ||||||||||||
Revenues |
||||||||||||
Ownership |
$ | 3,926 | $ | 3,684 | 6.6 | |||||||
Management and franchise |
1,095 | 933 | 17.4 | |||||||||
Timeshare |
944 | 863 | 9.4 | |||||||||
|
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|
|||||||||
Segment revenues |
5,965 | 5,480 | 8.9 | |||||||||
Other revenues from managed and franchised properties |
2,927 | 2,637 | 11.0 | |||||||||
Other |
58 | 59 | (1.7) | |||||||||
Intersegment fees elimination (1)(2)(3) |
(167) | (108) | 54.6 | |||||||||
|
|
|
|
|||||||||
$ | 8,783 | $ | 8,068 | 8.9 | ||||||||
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|||||||||
Adjusted EBITDA: |
||||||||||||
Ownership (1)(4) |
$ | 725 | $ | 688 | 5.4 | |||||||
Management and franchise (2) |
1,095 | 927 | 18.1 | |||||||||
Timeshare |
207 | 212 | (2.4) | |||||||||
Corporate and other (3) |
(274) | (263) | 4.2 | |||||||||
|
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|||||||||
$ | 1,753 | $ | 1,564 | 12.1 | ||||||||
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(1) | Includes charges to our timeshare segment by our ownership segment for rental fees and fees for other amenities, which are eliminated in our consolidated financial statements. These charges totaled $27 million and $17 million for the years ended December 31, 2011 and 2010, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to ownership Adjusted EBITDA and a cost to the timeshare segment. |
(2) | Includes management, royalty, and intellectual property fees of $88 million and $82 million for the years ended December 31, 2011 and 2010, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our consolidated financial statements. Effective January 1, 2011, management and franchise began charging a licensing fee to our timeshare segment, which is also eliminated in our consolidated financial statements. This fee was $43 million for the year ended December 31, 2011. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to management and franchise Adjusted EBITDA and a cost to the ownership and timeshare segments. |
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(3) | Includes charges to consolidated owned and leased properties for services provided by our wholly-owned laundry business of $9 million for the years ended December 31, 2011 and 2010. These charges are eliminated in our consolidated financial statements. |
(4) | Includes unconsolidated affiliate Adjusted EBITDA. |
Ownership
Ownership segment revenues increased primarily due to an improvement in RevPAR of 4.3 percent at our comparable owned and leased hotels. Refer to RevenuesOwned and leased hotels within this section for further discussion on the increase in revenues from our comparable owned and leased hotels. Our ownership segments Adjusted EBITDA increased primarily as a result of the increase in ownership segment revenues of $242 million offset by an increase in operating expenses of $204 million at our owned and leased hotels. Refer to Operating ExpensesOwned and leased hotels within this section for further discussion on the increase in operating expenses at our owned and leased hotels.
Management and franchise
Management and franchise segment revenues increased primarily as a result of increases in RevPAR of 4.9 percent and 6.8 percent at our comparable managed and franchised properties, respectively, $24 million in termination fees recognized in 2011 and the net addition of hotels added to our managed and franchised system. Refer to RevenuesManagement and franchise fees and other within this section for further discussion on the increase in revenues from our comparable managed and franchised properties and the termination fees recognized in 2011. Our management and franchise segments Adjusted EBITDA increased as a result of the increase in management and franchise segment revenues.
Timeshare
Refer to RevenuesTimeshare within this section for a discussion of the increase in revenues from our timeshare segment. Our timeshare segments Adjusted EBITDA remained relatively flat as a result of the $81 million increase in revenues from our timeshare segment being offset by a $34 million increase in timeshare operating expenses. Refer to Operating ExpensesTimeshare within this section for a discussion of the increase in operating expenses from our timeshare segment. The increase in revenues from our timeshare segment was further offset by a $43 million licensing fee charged to our timeshare segment by our management and franchise segment, which was effective on January 1, 2011.
Liquidity and Capital Resources
Overview
As of June 30, 2013, we had total cash and cash equivalents of $1,286 million, including both restricted and unrestricted cash balances. Unrestricted cash and cash equivalents totaled $661 million as of June 30, 2013. Our restricted cash and cash equivalents totaled $625 million as of June 30, 2013. The majority of our restricted cash and cash equivalents balances relates to prefunded cash reserves and cash collateral on our self-insurance programs. The prefunded cash reserves are required under the terms of the loan agreement for our Secured Debt. They may be used to pay debt service and other amounts due under the Secured Debt and for general corporate purposes, including capital expenditures, but are classified in our consolidated balance sheets as restricted cash and cash equivalents in accordance with U.S. GAAP because they generally require lender consent to be used.
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including corporate expenses, payroll and related benefits, legal costs, operating costs associated with the management of hotels, interest and scheduled principal payments on our outstanding indebtedness, contract acquisition costs, and capital expenditures for renovations and maintenance at
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our owned hotels. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our owned and leased hotels, purchase commitments, costs associated with potential acquisitions, and corporate capital expenditures.
We finance our business activities primarily with existing cash and cash generated from our operations. We believe that this cash will be adequate to meet anticipated requirements for operating expenses and other expenditures, including corporate expenses, payroll and related benefits, legal costs, and purchase commitments for the foreseeable future. The objectives of our cash management policy are to maintain the availability of liquidity and minimize operational costs. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments across all three of our business segments.
The following table summarizes our net cash flows and key metrics related to our liquidity:
As of and for the six months
ended June 30, |
Percent
Change |
|||||||||||
2013 | 2012 | 2013 vs. 2012 | ||||||||||
(in millions) | ||||||||||||
Net cash provided by operating activities |
$ | 638 | $ | 428 | 49.1 | |||||||
Net cash used in investing activities |
(183 | ) | (296 | ) | (38.2 | ) | ||||||
Net cash used in financing activities |
(534 | ) | (173 | ) | NM | (1) | ||||||
Working capital surplus (2) |
503 | 767 | (34.4 | ) |
As of and for the year ended
December 31, |
Percent Change | |||||||||||||||||||
2012 | 2011 | 2010 | 2012 vs. 2011 | 2011 vs. 2010 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Net cash provided by operating activities |
$ | 1,110 | $ | 1,167 | $ | 833 | (4.9 | ) | 40.1 | |||||||||||
Net cash used in investing activities |
(558 | ) | (463 | ) | (68 | ) | 20.5 | NM | (1) | |||||||||||
Net cash used in financing activities |
(576 | ) | (714 | ) | (703 | ) | (19.3 | ) | 1.6 | |||||||||||
Working capital surplus (2) |
478 | 826 | 1,093 | (42.1 | ) | (24.4 | ) |
(1) | Fluctuation in terms of percentage change is not meaningful. |
(2) | Total current assets less total current liabilities. |
Our ratio of current assets to current liabilities was 1.21, 1.20, and 1.37 as of June 30, 2013, December 31, 2012 and 2011, respectively.
Operating Activities
Cash flow from operating activities is primarily generated from management and franchise revenues, operating income from our owned and leased hotels and resorts, and sales of timeshare units. In a recessionary market, we may experience significant declines in travel and, thus, declines in demand for our hotel and resort rooms and timeshare units. A decline in demand could have a material impact on our cash flow from operating activities.
Net cash provided by operating activities was $638 million for the six months ended June 30, 2013, compared to $428 million for the six months ended June 30, 2012. The $210 million increase was primarily due to an increase in operating income of $164 million, a decrease in the change in restricted cash and cash equivalents of $22 million, and an increase in the change in our working capital surplus. These increases were partially offset by lower distributions from unconsolidated affiliates, which was $10 million for the six months ended June 30, 2013 as compared to $20 million for the six months ended June 30, 2012.
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The net $57 million decrease in cash provided by operating activities during the year ended December 31, 2012, compared to the year ended December 31, 2011, was primarily due to changes in various working capital components and an increase in the change in restricted cash and cash equivalents of $65 million, which were partially offset by an increase in operating income of $125 million.
The net $334 million increase in cash provided by operating activities during the year ended December 31, 2011, compared to the year ended December 31, 2010, was primarily due to an increase in operating income of $422 million, changes in various working capital components, and a decrease in the change in restricted cash and cash equivalents of $39 million.
Investing Activities
Net cash used in investing activities during the six months ended June 30, 2013 was $183 million, compared to $296 million during the six months ended June 30, 2012. The $113 million decrease in cash used in investing activities was primarily attributable to a decrease in capital expenditures of $122 million and a decrease in software capitalization costs of $25 million. The decrease in capital expenditures compared to the six months ended June 30, 2012 was a result of the completion of renovations at a number of properties in 2012. The decrease in software capitalization costs compared to the six months ended June 30, 2012 was a result of corporate software projects that were completed in 2012. Additionally, for the six months ended June 30, 2013, we had a $13 million distribution from unconsolidated affiliates from the proceeds of a debt refinancing of our equity investments. These decreases were offset by an increase in acquisitions of $30 million during the six months ended June 30, 2013, primarily due to the acquisition of a parcel of land that we previously held under a long-term ground lease for $28 million. For the six months ended June 30, 2013 and 2012, we capitalized labor costs relating to our investing activities, including capital expenditures and software development, of $7 million for both periods.
The $95 million increase in net cash used in investing activities during the year ended December 31, 2012, compared to the year ended December 31, 2011, was primarily attributable to an increase in capital expenditures of $44 million, a decrease in proceeds from asset dispositions of $80 million, and a decrease in contract acquisition costs of $22 million. The majority of the increase in capital expenditures related to improvements at existing hotel properties. The decrease in proceeds from asset dispositions was a result of proceeds of $8 million related to the sale of our interest in an investment accounted for under the equity method in 2012, compared to proceeds of $23 million and $65 million, respectively, from the sales of our interest in a hotel development joint venture and our former corporate headquarters office building in 2011. For the years ended December 31, 2012 and 2011, we capitalized labor costs relating to our investing activities, including capital expenditures and software development, of $14 million for both years.
The $395 million increase in net cash used in investing activities during the year ended December 31, 2011, compared to the year ended December 31, 2010, was primarily due to increases in capital expenditures of $241 million, contract acquisition costs of $47 million, and software capitalization costs of $73 million, offset by decreases in acquisition costs of $204 million, proceeds from asset dispositions of $88 million, and proceeds from the settlement of our foreign currency exchange derivative portfolio of $324 million. The majority of the increase in capital expenditures related to improvements at existing hotel properties. The decrease in acquisition costs was a result of the purchase of the Hilton Orlando Lake Buena Vista for a cash payment of $216 million in 2010, compared to acquisition costs of $12 million for the purchase of the remaining ownership interest in two hotels in 2011. For the years ended December 31, 2011 and 2010, we capitalized labor costs relating to our investing activities, including capital expenditures and software development, of $14 million and $3 million, respectively. The increase in the capitalization of labor was due to increased capital expenditures and increased software capitalization costs in 2011 compared to 2010.
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Financing Activities
Net cash used in financing activities during the six months ended June 30, 2013 was $534 million, compared to $173 million during the six months ended June 30, 2012. The $361 million increase in cash used in financing activities was primarily attributable to unscheduled voluntary debt repayments of $700 million on our Secured Debt offset by borrowings of $400 million received under our revolving timeshare notes credit facility.
Net cash used in financing activities during the year ended December 31, 2012, decreased $138 million compared to the year ended December 31, 2011, due to an increase in borrowings of $56 million, primarily related to our consolidated VIEs and a change in restricted cash and cash equivalents that increased cash available for financing activities by $212 million. The change in restricted cash and cash equivalents was primarily due to a decrease of $174 million in our prefunded cash reserves, which was a result of using the reserves for capital expenditures. These increases in cash provided by financing activities were partially offset by an increase in our debt repayments of $128 million, which primarily related to an increase in non-recourse debt repayments related to our consolidated VIEs of $90 million.
Net cash used in financing activities during the year ended December 31, 2011 was $714 million compared to net cash used in financing activities during the year ended December 31, 2010 of $703 million, an increase of $11 million. During the year ended December 31, 2010, we had financing activities that resulted in $185 million of net cash used in financing activities that did not recur during the year ended December 31, 2011, primarily due to $111 million in net cash used in our debt restructuring that occurred in April 2010 (see Note 13: Debt in our audited consolidated financial statements included elsewhere in this prospectus for further discussion) and the acquisition of noncontrolling interests in two hotels for $107 million, offset by $33 million in contributions from noncontrolling interests.
The remaining increase in net cash used in financing activities during the year ended December 31, 2011 compared to the year ended December 31, 2010 was primarily a result of $448 million in additional repayment of debt offset by a smaller change in our restricted cash and cash equivalents of $224 million, both associated with requirements arising from our debt restructuring that occurred in April 2010.
Capital Expenditures
Our capital expenditures primarily include expenditures related to the renovation of existing owned and leased properties and our corporate facilities, as well as software capitalization costs related to various systems initiatives for the benefit of our hotel owners and our overall corporate operations. As of June 30, 2013 we had outstanding commitments under construction contracts of approximately $61 million for capital expenditures at certain owned and leased properties, including our consolidated variable interest entities. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
Debt
As of June 30, 2013, our total indebtedness, excluding $310 million of our share of debt of our investments in affiliates, was approximately $15.4 billion, including obligations for capital leases and $319 million of debt and capital lease obligations of consolidated variable interest entities that are non-recourse to us. For further information on our total indebtedness, refer to Note 8: Debt in our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We will refinance a substantial portion of this debt in the Refinancing Transactions. See Description of Certain Indebtedness for a discussion regarding our material indebtedness that will be outstanding following the Refinancing Transactions, including material covenants and minimum ratios required for covenant compliance.
Substantially all of our consolidated assets in which we hold an ownership interest are encumbered or have been pledged as collateral for our Secured Debt. Our debt contains certain restrictions on us incurring any additional indebtedness relating to secured assets, including the prohibition of us incurring indebtedness in the
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form of borrowed money and/or evidenced by bonds, debentures, notes or other similar instruments without prior approval from our creditors. Further, as a condition to permitting certain events under the Secured Debt, such as a release of certain assets as collateral for the loan or change of control of the Company, we must satisfy certain debt yield tests. We were able to satisfy all of the debt yield tests as of our most recent testing date.
In August 2013, we issued $250 million in aggregate principal amount of 2.28% notes that are secured by a pledge of certain assets, consisting primarily of a pool of our timeshare financing receivables that are secured by a first mortgage or first deed of trust on a timeshare interest. Interest on the notes is payable monthly at a fixed annual rate of 2.28%. The proceeds from the asset-backed notes were used to reduce the outstanding balance on our revolving non-recourse timeshare notes credit facility that we entered into in May 2013. Additionally, in August 2013 we made an unscheduled, voluntary debt repayment of $200 million on our secured mezzanine loans.
As a result of our investment strategy, combined with our discipline for managing costs, we have increased our cash flow from operations from $833 million in 2010 to over $1.1 billion in 2012. As a result, we have taken steps to reduce our long-term debt by almost $2.4 billion between December 31, 2010 and June 30, 2013. The reduction in long-term debt has reduced our interest expense from approximately $946 million for the year ended December 31, 2010 to $569 million for the year ended December 31, 2012.
If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or refinance all or a portion of our existing debt. Our ability to make scheduled principal payments and to pay interest on our debt depends on the future performance of our operations, which is subject to general conditions in or affecting the hotel and timeshare industries that are beyond our control.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2012:
Payments Due By Period | ||||||||||||||||||||
Total |
Less than
1 year |
1-3 years | 3-5 years |
More
than 5 years |
||||||||||||||||
(in millions) | ||||||||||||||||||||
Debt |
||||||||||||||||||||
Recourse (1)(3) |
$ | 18,019 | $ | 971 | $ | 16,273 | $ | 82 | $ | 693 | ||||||||||
Non-recourse (2)(3) |
49 | 5 | 29 | | 15 | |||||||||||||||
Mortgage notes |
134 | 32 | | 102 | | |||||||||||||||
Capital lease obligations (3) |
||||||||||||||||||||
Recourse |
194 | 8 | 27 | 13 | 146 | |||||||||||||||
Non-recourse (2) |
593 | 34 | 76 | 78 | 405 | |||||||||||||||
Operating leases |
3,528 | 265 | 492 | 456 | 2,315 | |||||||||||||||
Contract acquisition costs |
49 | 24 | 23 | 2 | | |||||||||||||||
Purchase commitments |
92 | 23 | 46 | 23 | | |||||||||||||||
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Total contractual obligations |
$ | 22,658 | $ | 1,362 | $ | 16,966 | $ | 756 | $ | 3,574 | ||||||||||
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(1) | The Secured Debt has five one-year extensions solely at our option that effectively extends the maturity date to November 12, 2015. We have assumed all extensions herein, including an extension fee equal to 50 basis points. |
(2) | Non-recourse debt and capital lease obligations are related to our consolidated VIEs. |
(3) | Includes principal as well as interest payments. We have assumed a constant 30-day LIBOR rate of 0.21 percent as of December 31, 2012 for our Secured Debt. |
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The total amount of unrecognized tax benefits as of December 31, 2012 was $469 million. These amounts are excluded from the table above because they are uncertain and subject to the findings of the taxing authorities in the jurisdictions in which we are subject to tax. It is possible that the amount of the liability for unrecognized tax benefits could change during the next twelve months. Refer to Note 18: Income Taxes in our audited consolidated financial statements included elsewhere in this prospectus for further discussion of our liability for unrecognized tax benefits.
In addition to the purchase commitments in the table above, in the normal course of business we enter into purchase commitments for which we are reimbursed by the owners of our managed and franchised hotels. These obligations have minimal or no impact on our net income and cash flow.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of June 30, 2013 included guarantees of $27 million for debt and obligations of third parties and performance guarantees with possible cash outlays totaling approximately $185 million, of which we have accrued for estimated probable exposure of up to $61 million as of June 30, 2013. Further, we had outstanding construction contract commitments of approximately $61 million for capital expenditures at certain owned and leased properties as of June 30, 2013. Additionally, during 2010, in conjunction with a lawsuit settlement, our owner entered into service contracts with the plaintiff. As part of the settlement, we entered into a guarantee with the plaintiff to pay any shortfall that our owner does not fund related to those service contracts. The remaining potential exposure under this guarantee as of June 30, 2013 was approximately $52 million. See Note 16: Commitments and Contingencies in our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further discussion.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the consolidated financial statements and accompanying footnotes. We believe that of our significant accounting policies, which are described in Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this prospectus, the following accounting policies are critical because they involve a higher degree of judgment, and the estimates required to be made were based on assumptions that are inherently uncertain. As a result, these accounting policies could materially affect our financial position, results of operations, and related disclosures. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that are believed to reflect the current circumstances. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on financial position or results of operations.
Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of the board of directors.
Property and Equipment and Intangible Assets with Finite Lives
We evaluate the carrying value of our property and equipment and intangible assets with finite lives by comparing the expected undiscounted future cash flows to the net book value of the assets if we determine there are indicators of potential impairment. If it is determined that the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations as impairment losses.
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As part of the process described above, we exercise judgment to:
| determine if there are indicators of impairment present. Factors we consider when making this determination include assessing the overall impact of trends in the hospitality industry and the general economy, historical experience, capital costs, and other asset-specific information; |
| determine the projected undiscounted future cash flows when indicators of impairment are present. Judgment is required when developing projections of future revenues and expenses based on estimated growth rates over the expected useful life of the asset group. These estimated growth rates are based on historical operating results, as well as various internal projections and external sources; and |
| determine the asset fair value when required. In determining the fair value, we often use internally-developed discounted cash flow models. Assumptions used in the discounted cash flow models include estimating cash flows, which may require us to adjust for specific market conditions, as well as capitalization rates, which are based on location, property or asset type, market-specific dynamics, and overall economic performance. The discount rate takes into account our weighted average cost of capital according to our capital structure and other market specific considerations. |
We had $9,084 million of property and equipment, net and $2,215 million of intangible assets with finite lives as of June 30, 2013. Changes in estimates and assumptions used in our impairment testing of property and equipment could result in future impairment losses, which could be material.
In conjunction with our regular assessment of impairment, we did not identify any property and equipment with indicators of impairment for which a 10% reduction in our estimate of undiscounted future cash flows would result in additional impairment losses.
Investments in Affiliates
We evaluate our investments in affiliates for impairment when there are indicators that the fair value of our investment may be less than our carrying value. We record an impairment loss when we determine there has been an other-than-temporary decline in the investments fair value. If an identified event or change in circumstances requires an evaluation to determine if the value of an investment may have an other-than-temporary decline, we assess the fair value of the investment based on the accepted valuation methods, which include discounted cash flows, estimates of sales proceeds, and external appraisals. If an investments fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in earnings (losses) from unconsolidated affiliates for equity method investments or impairment losses for cost method investments in our consolidated statements of operations.
Our investments in affiliates consist primarily of our interests in entities that own and/or operate hotels. As such, the factors we consider when determining if there are indicators of potential impairment are similar to property and equipment discussed above. If there are indicators of potential impairment, we estimate the fair value of our equity method and cost method investments by internally developed discounted cash flow models. The principal factors used in our discounted cash flow models that require judgment are the same as the items discussed in property and equipment above.
We had $274 million of investments in affiliates as of June 30, 2013. Changes in the estimates and assumptions used in our investments in affiliates impairment testing can result in additional impairment expense, which can materially change our consolidated financial statements.
In conjunction with our regular assessment of impairment, we did not identify any investments in affiliates with indicators of impairment for which a 10% change in our projected future operating cash flows, capitalization rates and discount rates used to determine fair value would result in impairment losses.
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Goodwill
We review the carrying value of our goodwill by comparing the carrying value of our reporting units to their fair value. Our reporting units are the same as our operating segments as described in Note 22: Business Segments in our audited consolidated financial statements included elsewhere in this prospectus. We perform this evaluation annually or at an interim date if indicators of impairment exist. In any given year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process. In the first step, we evaluate the fair value of our reporting units quantitatively. When determining fair value, we utilize discounted future cash flow models, as well as market conditions relative to the operations of our reporting units. Under the discounted cash flow approach, we utilize various assumptions that require judgment, including projections of revenues and expenses based on estimated long-term growth rates, and discount rates based on weighted average cost of capital. Our estimates of long-term growth and costs are based on historical data, as well as various internal projections and external sources. The weighted average cost of capital is estimated based on each reporting units cost of debt and equity and a selected capital structure. The selected capital structure for each reporting unit is based on consideration of capital structures of comparable publicly traded companies operating in the business of that reporting unit. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step must be performed. In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination.
We had $6,172 million of goodwill as of June 30, 2013. Changes in the estimates and assumptions used in our goodwill impairment testing could result in future impairment losses, which could be material. A 10% change in our estimates of projected future operating cash flows, discount rates, and terminal growth rates used in our discounted cash flow calculations of the fair values of reporting units would not result in an impairment of any of our reporting units.
Brands
We evaluate our brand intangible assets for impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of the brand is below the carrying value. When determining fair value, we utilize discounted future cash flow models for hotels in which we have an ownership interest or a management or franchise contract. Under the discounted cash flow approach, we utilize various assumptions that require judgment, including projections of revenues and expenses based on estimated long-term growth rates and discount rates based on weighted average cost of capital. Our estimates of long-term growth and costs are based on historical data, as well as various internal estimates that are developed. If a brands estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses.
We had $4,993 million brand intangible assets as of June 30, 2013. Changes in the estimates and assumptions used in our brands impairment testing, most notably revenue growth rates and discount rates, could result in future impairment losses, which could be material. A 10% change in our estimates of projected future operating cash flows used in our discounted cash flow calculations of the fair values of our brands would not result in an impairment of any of the brand intangible assets.
Hilton HHonors
Hilton HHonors defers revenue received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future
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point redemptions based on factors that require judgment, including an estimate of breakage (points that will never be redeemed), an estimate of the points that will eventually be redeemed, and the cost of the points to be redeemed. The cost of the points to be redeemed includes further estimates of available room nights, occupancy rates, room rates, and any devaluation or appreciation of points based on changes in reward prices or changes in points earned per stay.
We had $796 million of guest loyalty liability as of June 30, 2013. Changes in the estimates used in developing our breakage rate could result in a material change to our loyalty liability. Currently, a 10% decrease to the breakage estimate used in determining future award redemption obligations would increase our loyalty liability by approximately $28 million.
Allowance for Loan Losses
The allowance for loan losses is related to the receivables generated by our financing of timeshare interval sales, which are secured by the underlying timeshare properties. We determine our timeshare notes receivable to be past due based on the contractual terms of the individual mortgage loans. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our timeshare notes receivable. The adequacy of the related allowance is determined by management through analysis of several factors requiring judgment, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including assumed default rates.
We had $95 million of allowance for loan losses as of June 30, 2013. Changes in the estimates used in developing our default rates could result in a material change to our allowance. Currently, a 10% increase to our default rates used in the allowance calculation would increase our allowance for loan losses by approximately $34 million.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.
We use a prescribed more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the financial statements. Assumptions and estimates are used to determine the more-likely-than-not designation. Changes to these assumptions and estimates can lead to an additional income tax expense (benefit), which can materially change our consolidated financial statements.
Legal Contingencies
We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. An estimated loss from a loss contingency should be accrued by a charge to income if it is probable and the amount of the loss can be reasonably estimated. Significant judgment is required when we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.
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Consolidations
We use judgment evaluating whether we have a controlling financial interest in our partnership and other investments, including the assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests that are not controllable through voting interests. If the entity is considered to be a variable interest entity (VIE), we use judgment determining whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or have a controlling general partner interest of a partnership, assuming the absence of other factors determining control, including the ability of minority owners to participate in or block certain decisions. Changes to judgments used in evaluating our partnership and other investments could materially impact our consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may impact future income, cash flows, and fair value of the Company, depending on changes to interest rates and/or foreign exchange rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged. We enter into derivative financial arrangements to the extent they meet the objective described above, and we do not use derivatives for trading or speculative purposes.
Interest Rate Risk
We are exposed to interest rate risk on our floating rate debt. Interest rates on our floating rate debt discussed below are based on 30-day LIBOR, so we are most vulnerable to changes in this rate. The 30-day LIBOR rate decreased from 0.28 percent per annum as of December 31, 2011, to 0.21 percent per annum as of December 31, 2012. Changes in interest rates also affect the fair value of our fixed rate debt and our fixed rate financing receivables.
Under the terms of our Secured Debt, we are required to hedge interest rate risk using derivative instruments with an aggregate notional amount equal to the principal amount of the Secured Debt. As of December 31, 2012, we held ten interest rate caps with an aggregate notional amount of $15.2 billion that caps the floating portion of the interest rate on our Secured Debt at 6.5 percent. The caps were executed in August 2012 to replace the previous portfolio of interest rate caps that expired in November 2012 and expire in November 2013. We have elected not to designate any of the ten interest rate caps as effective hedging instruments. The fair values of our interest rate caps were immaterial to our consolidated balance sheet as of December 31, 2012. During the year ended December 31, 2012, we recorded a loss of $1 million in other gain, net in our consolidated statement of operations, which represented the premiums paid on these interest rate caps. No other gain or loss related to the ten undesignated interest rate caps in our current portfolio or previous portfolio that expired in November 2012 were recorded for the year ended December 31, 2012 as changes in the fair values of our interest rate caps were immaterial.
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The following table sets forth the scheduled maturities and the total fair value as of December 31, 2012 for our financial instruments that are materially affected by interest rate risks (in millions, excluding average interest rates):
Maturities by Period |
Carrying
Value |
Fair
Value |
||||||||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | |||||||||||||||||||||||||||
Fixed rate timeshare financing receivables |
$ | 131 | $ | 113 | $ | 113 | $ | 115 | $ | 115 | $ | 397 | $ | 984 | $ | 987 | ||||||||||||||||
Average interest rate (1) |
12.27 | % | ||||||||||||||||||||||||||||||
Fixed rate debt (2) |
$ | 33 | $ | | $ | | $ | 102 | $ | 53 | $ | 96 | $ | 284 | $ | 297 | ||||||||||||||||
Average interest rate (1) |
7.02 | % | ||||||||||||||||||||||||||||||
Floating rate Secured Debt |
$ | 357 | $ | 383 | $ | 14,468 | $ | | $ | | $ | | $ | 15,208 | $ | 15,571 | ||||||||||||||||
Average interest rate (1) |
3.36 | % |
(1) | Average interest rate as of December 31, 2012. |
(2) | Excludes capital lease obligations. |
Refer to our Note 16: Fair Value Measurements in our audited consolidated financial statements included elsewhere in this prospectus for further discussion of the fair value measurements of our financial assets and liabilities.
Foreign Currency Exchange Rate Risk
We conduct business in various foreign currencies and are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. This exposure is primarily related to our international assets and liabilities, whose value could change materially in reference to our U.S. dollar (USD) reporting currency. The most significant impact of changes to foreign currency values include certain intercompany loans not deemed to be permanently invested and to transactions for management and franchise fee revenues earned in foreign currencies.
Our most significant foreign currency exposure relates to fluctuations in the foreign exchange rate between USD and the British Pound Sterling (GBP) and Euro (EUR). Historically, we used foreign exchange currency option agreements to hedge our exposure to changes in foreign exchange rates on certain of our foreign investments. Under the terms of these currency option contracts, we paid a premium to a counterparty for the right to sell a specified amount of foreign currency at a specified strike rate at the maturity date of the option. During 2010, we settled our remaining foreign currency options, and we have not held any foreign currency options since that time.
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Global Hotel Industry
The global hotel industry generated approximately $384 billion of room revenues during 2012, with approximately 156,000 hotels and 14.5 million hotel rooms as of June 2013, according to STR data. Since 2001, global hotel revenues have increased at a CAGR of 4.9%. While the top 10 hotel companies in the U.S. control 58% of U.S. hotel rooms, the industry is significantly more fragmented in markets outside the U.S., where no company controls more than 5% of global hotel rooms.
The following chart sets forth the number of rooms and relative market share for the top 10 global and U.S. hotel companies.
Top 10 Global Hotel Companies |
Rooms
(thousands) |
% of
Global |
Top 10 U.S. Hotel Companies |
Rooms
(thousands) |
% of
U.S. |
|||||||||||||
Hilton Worldwide |
659 | 5 | % | Hilton Worldwide | 513 | 10 | % | |||||||||||
Intercontinental Hotels Group |
656 | 5 | % | Marriott International | 505 | 10 | % | |||||||||||
Marriott International |
649 | 5 | % | Wyndham Worldwide | 455 | 9 | % | |||||||||||
Wyndham Worldwide |
634 | 4 | % | Choice Hotels International | 398 | 8 | % | |||||||||||
Choice Hotels International |
503 | 4 | % | Intercontinental Hotels Group | 372 | 8 | % | |||||||||||
Accor Company |
435 | 3 | % | Best Western Company | 161 | 3 | % | |||||||||||
Starwood Hotels & Resorts |
338 | 2 | % | Starwood Hotels & Resorts | 155 | 3 | % | |||||||||||
Best Western Company |
313 | 2 | % | G6 Hospitality | 106 | 2 | % | |||||||||||
Carlson Hospitality Company |
167 | 1 | % | Hyatt | 93 | 2 | % | |||||||||||
Hyatt |
139 | 1 | % | LQ Management LLC | 84 | 2 | % | |||||||||||
|
|
|
|
|||||||||||||||
Top 10 |
4,493 | 31 | % | Top 10 | 2,842 | 58 | % | |||||||||||
|
|
|
|
|||||||||||||||
Other |
10,018 | 69 | % | Other | 2,078 | 42 | % | |||||||||||
|
|
|
|
|||||||||||||||
Global Total |
14,511 | U.S. Total | 4,920 | |||||||||||||||
|
|
|
|
Source: STR Global Census, July 2013 (adjusted to June 2013), other than Hilton Worldwide room information which is based on internal room counts and excludes timeshare properties.
Hotel market performance generally is measured by three metrics: (1) average daily rate (ADR); (2) occupancy; and (3) revenue per available room (RevPAR). ADR represents hotel room revenue divided by total number of rooms sold in a given period, measuring average room price attained by a hotel. Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels, measuring the utilization of hotels available capacity. RevPAR is calculated by dividing hotel room revenue by room nights available to guests for the period. Because RevPAR combines two key drivers of operations at hotels, ADR and occupancy, it is commonly used to measure performance over comparable periods.
According to STR data, during the past three years, global hotel demand has grown at a CAGR of 5.3%, whereas global hotel supply has grown at a CAGR of just 1.6%, which has driven positive RevPAR growth during the period. We believe this supply-demand imbalance provides a favorable operating environment for existing hotels, and this trend should continue for the next several years.
Hotel industry fundamentals can vary by region, largely driven by economic trends. Globally, according to STR data, the hotel industry has been in a period of recovery over the past three years despite headwinds in Europe and parts of the Middle East and Africa. In the Americas, RevPAR has increased at a CAGR of 6.9% over the past three years and demand has returned to pre-economic crisis levels. The Asia Pacific region also has experienced high RevPAR growth during the last three years, primarily fueled by China and to a lesser degree Southeast Asia. Weaker economic conditions in Europe dampened RevPAR growth, but recent trends show improvement. The Middle East and Africa region recovered in 2012 with strong growth in key countries,
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such as Egypt, the United Arab Emirates, and Saudi Arabia, but concerns remain over political unrest in this region. Third-party forecasts indicate that global GDP growth should improve from approximately 2% in 2013 to greater than 3% annually over the next three years. We believe that stronger global economic growth should in turn drive stronger hotel demand and RevPAR growth.
U.S. Hotel Industry
The U.S. has a greater share of global hotel revenues than any other country, with $115 billion in room revenues during 2012, according to STR data. As of June 2013, the U.S. hotel sector comprised approximately 53,000 hotels with 4.9 million hotel rooms, of which 69% were affiliated with a brand. Over the past 25 years, the sector revenue has grown at a CAGR of 4.8%.
According to data provided by STR, U.S. hotel demand has improved with the economic recovery in recent years, experiencing a CAGR of 4.9% over the last three years, while hotel supply growth has experienced a CAGR of 0.9%. This recent demand growth has exceeded the 25-year CAGR of 1.8%, while supply growth has trended lower than the 25-year CAGR of 2.0%. According to PKF-HR, room supply is expected to grow at relatively low rates of 0.8% and 1.1% in 2013 and 2014 respectively, while demand is expected to continue to outpace supply growth, growing at 2.4% and 3.1% in 2013 and 2014, respectively. This imbalance of low supply and high demand growth is expected by analysts to continue at least through 2015, which should drive strong RevPAR growth.
The following graph illustrates historical and projected U.S. supply, demand and RevPAR growth. The trends are derived from historical data provided by STR and projections provided by PKF-HR. Forecasts for RevPAR remain positive for the next several years as the hotel industry is expected to continue to benefit from a supply and demand imbalance, with RevPAR in the U.S. projected to grow at a CAGR of 7% over the next three years, according to PKF-HR, compared to a CAGR of 2% from 2005 to 2012 according to STR data.
Historical and Projected U.S. Supply, Demand and RevPAR Growth
Sources: STR (2005-2012), PKF-HR (2013-2015).
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Hilton Worldwide is one of the largest and fastest growing hospitality companies in the world, with 4,041 hotels, resorts and timeshare properties comprising 665,667 rooms in 90 countries and territories. In the nearly 100 years since our founding, we have defined the hospitality industry and established a portfolio of 10 world-class brands. Our flagship full-service Hilton Hotels & Resorts brand is the most recognized hotel brand in the world. Our premier brand portfolio also includes our luxury hotel brands, Waldorf Astoria Hotels & Resorts and Conrad Hotels & Resorts, our full-service hotel brands, DoubleTree by Hilton and Embassy Suites Hotels, our focused-service hotel brands, Hilton Garden Inn, Hampton Inn, Homewood Suites by Hilton and Home2 Suites by Hilton, and our timeshare brand, Hilton Grand Vacations (HGV). We own or lease interests in 157 hotels, many of which are located in global gateway cities, including iconic properties such as The Waldorf=Astoria New York, the Hilton Hawaiian Village, and the London Hilton on Park Lane. More than 300,000 team members proudly serve in our properties and corporate offices around the world, and we have approximately 38 million members in our award-winning customer loyalty program, Hilton HHonors.
We operate our business through three segments: (1) management and franchise; (2) ownership; and (3) timeshare. These complementary business segments enable us to capitalize on our strong brands, global market presence and significant operational scale. Through our management and franchise segment, which consists of 3,843 hotels with 596,765 rooms, we manage hotels, resorts and timeshare properties owned by third parties and we license our brands to franchisees. Our management and franchise segment generates high margins and long-term recurring cash flow, and has grown by 39% in terms of number of rooms since June 30, 2007, representing 98% of our overall room growth, with virtually no capital investment by us. Our ownership segment consists of 157 hotels with 62,498 rooms that we own or lease. Through our timeshare segment, which consists of 41 properties comprising 6,404 units, we market and sell timeshare intervals, operate timeshare resorts and a timeshare membership club and provide consumer financing.
In October 2007 we were acquired by affiliates of The Blackstone Group L.P. and assembled a new management team led by Christopher J. Nassetta, our President and Chief Executive Officer. Under our new leadership, we have transformed our business, creating a globally aligned organization and establishing a performance-driven culture. As part of our transformation, we focused on both top- and bottom-line operating performance, strengthening and expanding our brands and commercial services platform, and enhancing our growth rate, particularly in markets outside the U.S. where our brands historically had been underrepresented.
As a result of the transformation of our business, despite the sharp downturn in our industry, between June 30, 2007 and June 30, 2013, we have:
| increased the number of open rooms in our system by 34%, or 170,000 rooms, which represents the highest growth rate of any major lodging company; |
| grown the number of rooms in our development pipeline by 52% to an industry-leading 176,000 rooms, over 99% of which are within our higher-margin, capital light management and franchise segment; |
| increased our total number of rooms under construction by 121%, to an industry-leading 92,000 rooms, over 99% of which are within our management and franchise segment; |
| increased the geographic diversity of our pipeline, with rooms in the development pipeline outside the U.S. increasing from less than 20% to more than 60%, and rooms under construction outside the U.S. increasing from less than 15% to nearly 80%; |
| significantly enhanced our presence in key segments, brands and geographies; for example: |
| in the luxury segment, the number of hotels in our system and in our development pipeline is more than triple the number of luxury hotels in our system as of June 2007; |
| the number of DoubleTree by Hilton hotels has grown 96%, with 76% of hotel growth coming through conversions from other hotel brands; |
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| our number of hotels in Europe outside of our Hilton Hotels & Resorts and Conrad Hotels & Resorts brands (primarily DoubleTree by Hilton, Hampton Inn and Hilton Garden Inn) has increased from 9 open hotels to 207 hotels open or in our development pipeline; |
| our number of hotels in Greater China has grown from 6 open hotels to 160 open and pipeline hotels; and |
| our Home2 Suites by Hilton brand, which was launched in 2011 with the opening of its first hotel, now has 18 hotels open and another 82 in our development pipeline; |
| increased our management and franchise segments Adjusted EBITDA by 25% from the year ended December 31, 2007 to the year ended December 31, 2012 and grown the proportion of our aggregate segment Adjusted EBITDA contributed by our management and franchise segment from 47% to 53%; |
| increased the average global revenue per available room, or RevPAR, premium for all brands globally by approximately two percentage points to 15% on a trailing twelve month basis; |
| expanded membership in our Hilton HHonors program by 83% since December 31, 2007; |
| significantly outperformed our competitors in the timeshare segment, with annual interval sales increasing over 40% since the year ended December 31, 2007 and segment Adjusted EBITDA as a percentage of timeshare revenue increasing 400 basis points since the year ended December 31, 2010, while beginning a transformation of the business to a more capital-efficient model; for the twelve months ended June 30, 2013, 43% of our sales of timeshare intervals were developed by third parties versus 0% for the year ended December 31, 2009; and |
| significantly improved profitability, increasing our Adjusted EBITDA by an annual average of 12% from the year ended December 31, 2010 through the year ended December 31, 2012, and for the six months ended June 30, 2013, increasing our Adjusted EBITDA by 17% compared to the six months ended June 30, 2012. Net income attributable to Hilton stockholder increased by 68% on average from the year ended December 31, 2010 through the year ended December 31, 2012, and for the six months ended June 30, 2013 net income attributable to Hilton stockholder increased 66% as compared to the six months ended June 30, 2012. |
See SummarySummary Historical Financial Data for the definition of Adjusted EBITDA and a reconciliation of net income attributable to Hilton stockholder to Adjusted EBITDA.
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We believe this transformation positions us to continue to increase our share of the expanding global lodging industry, which continues to exhibit strong fundamentals and significant long-term growth prospects supported by increasing global travel and tourism. Our business has grown during times of economic expansion as well as during global economic downturns. For example, during the period between January 1, 2000 and June 30, 2013, we increased the total number of hotel rooms in our system every year, achieving total growth of 120% and a CAGR of 6%. We expect our global existing room supply and rooms under construction will enable us to build on our leading market position. As illustrated in the table below, our percentage of global rooms under construction of 17.9% significantly exceeds our percentage of the existing global hotel supply of 4.5%, according to data provided by STR.
Hilton Worldwide Rooms
Supply |
Hilton Worldwide Rooms
Under Construction |
|||||||||||||||
Market |
% of Existing
Rooms Supply |
Industry
Rank |
% of
Total |
Industry
Rank |
||||||||||||
Americas |
8.7 | % | #1 | 19.1 | % | #2 | ||||||||||
Europe |
1.3 | % | #6 | 22.3 | % | #1 | ||||||||||
Middle East and Africa |
2.4 | % | #4 | 22.0 | % | #1 | ||||||||||
Asia Pacific |
1.1 | % | #8 | 15.2 | % | #1 | ||||||||||
Global |
4.5 | % | #1 | 17.9 | % | #1 |
Source: Information as of June 2013, derived from STR Global Census (July 2013) and STR Pipeline (June 2013).
The transformation of our business since 2007 has enabled us to increase the number of hotels and timeshare units in our system at a more rapid rate than any other major lodging company. The following table illustrates our global room supply by business segment.
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Hilton Worldwide Value Proposition
|
Our value proposition starts with our award-winning brands and industry-leading commercial services platform
This leads to satisfied customers, including nearly 38 million HHonors loyalty members
As a result, we are able to drive premium performance to the hotels in our system
These hotel operating premiums drive strong financial returns, which benefit our hotel owners
Satisfied existing and new owners continue to invest in growing our brands, making us a global leader in hotel supply and pipeline
We believe the reinforcing nature of these activities will allow us to outperform the competition |
Our Competitive Strengths
We believe the following competitive strengths provide the foundation for our position as a leading global hospitality company.
| World-Class Hospitality Brands. Our globally recognized, world-class brands have defined the hospitality industry. Our flagship Hilton Hotels & Resorts brand often serves as an introduction to our wider range of brands that are designed to accommodate any customers needs anywhere in the world. Our brands have achieved an average global RevPAR index premium of 15% for the twelve months ended June 30, 2013, based on STR data. This means that our brands achieve on average 15% more revenue per room than competitive properties in similar markets. The global RevPAR index premium is the average RevPAR index premium of our comparable hotels (as defined in Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Business and Financial Metrics Used by ManagementComparable Hotels on page 64, but excluding hotels that do not receive competitive set information from STR or do not participate with STR). The owner or manager of each Hilton comparable hotel exercises its discretion in identifying the competitive set of properties for such hotel, considering factors such as physical proximity, competition for similar customers, product features, services and amenities, quality and average daily rate, as well as STR rules regarding competitive set makeup. Accordingly, while the hotel brands included in the competitive set for any given Hilton comparable hotel depend heavily on market-specific conditions, the competitive sets for Hilton comparable hotels frequently include properties branded with the competing brands identified for the relevant Hilton comparable hotel listed under Selected Competitors on page 111. STR provides us with the relevant data for competitive sets that we submit for each of our comparable hotels, which we utilize to compute the RevPAR index for our comparable hotels. The demonstrated strength of our brands makes us a preferred partner for hotel owners, who have invested tens of billions of dollars since December 31, 2007 in the development and improvement of our branded hotels. |
|
Leading Global Presence and Scale. We are one of the largest hospitality companies in the world with 4,041 properties and 665,667 rooms in 90 countries and territories. We have hotels in key gateway cities such as New York, London, Dubai, Johannesburg, Tokyo, Shanghai and Sydney and 347 hotels located at or near airports around the world. Our global presence allows us to serve our loyal customers throughout the world and to introduce our award-winning brands to customers in new markets. These world-class brands facilitate system growth by providing hotel owners with a variety of options to address each markets specific needs. In addition, the diversity of our operations reduces our exposure |
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to business cycles, individual market disruptions and other risks. Our robust commercial services platform allows us to take advantage of our scale to more effectively deliver products and services that drive customer preference and enhance commercial performance on a global basis. |
| Large and Growing Loyal Customer Base. Serving our customers is our first priority. By continually adapting to customer preferences and providing our customers with superior experiences, we have improved our overall customer satisfaction ratings four of the last five years. We earned 32 first place awards in the J.D. Power North America Guest Satisfaction rankings since 1999, more than any multi-brand lodging company. Our hotels accommodated more than 125 million customer visits during the twelve months ended June 30, 2013, with members of our Hilton HHonors loyalty program contributing approximately 50% of the more than 170 million resulting room nights. Hilton HHonors unites all our brands, encourages customer loyalty and allows us to provide tailored promotions, messaging and customer experiences. We have grown the membership in our Hilton HHonors program by approximately 83% from approximately 21 million as of December 31, 2007 to nearly 38 million as of June 30, 2013. |
| Significant Embedded Growth. All of our segments are expected to grow through improvement in same-store performance driven by strong anticipated industry fundamentals. PKF-HR predicts that the lodging industry RevPAR in the U.S., where 78% of our system rooms are located, will grow 7.2% in 2014 and 8.1% in 2015. Our management and franchise segment also is expected to grow through new room additions, as upon completion, our industry-leading development pipeline would result in a 27% increase in our room count with minimal capital investment from us. In addition, our franchise revenues should grow over time as franchise agreements renew at our published license rates, which are higher than our current effective rates. For the twelve months ended June 30, 2013, our weighted average effective license rate across our brands was 4.5% of room revenue, an increase of over 12% since 2007, and our weighted average published license rate was 5.4% as of June 30, 2013. We also expect our incentive management fees, which are linked to hotel profitability measures, to increase as a result of the expected improvements in industry fundamentals. In our ownership segment, we believe we will benefit from strong growth in bottom-line earnings as industry fundamentals continue to improve as a result of this segments operating leverage, and our large hotels with significant meeting space should benefit from recent improvements in group demand, which we expect will exhibit strong growth as the current stage of the lodging cycle advances. Finally, our timeshare business has over five years of projected interval supply at our current sales pace in the form of existing owned inventory and executed capital light projects, which should enable us to continue to grow our earnings from the segment with lower levels of capital investment from us. |
| Strong Cash Flow Generation . We generate significant cash flow from operating activities with an increasing percentage from our growing capital light management and franchise and timeshare segments. During the five-year period ended December 31, 2012, we generated an aggregate of $3.6 billion in cash flow from operating activities. We increased our cash flow from operating activities from $219 million for the year ended December 31, 2008 to $1.1 billion for the year ended December 31, 2012. We believe that our focus on cash flow generation, the relatively low investment required to grow our management and franchise and timeshare segments, and our disciplined approach to capital allocation position us to maximize opportunities for profitability and growth while continuing to reduce our indebtedness over time. |
|
Iconic Hotels with Significant Underlying Real Estate Value. Our diverse global portfolio of owned and leased hotels includes a number of iconic properties in major gateway cities such as New York City, London, San Francisco, Chicago, São Paolo, Sydney and Tokyo. The portfolio also includes iconic hotels with significant embedded asset value, including: The Waldorf=Astoria New York, a landmark luxury hotel with 1,413 rooms encompassing an entire city block in the heart of midtown Manhattan near Grand Central Terminal; the Hilton Hawaiian Village, a full-service beach resort with 2,860 rooms that sits on approximately 22 oceanfront acres along Waikiki Beach on the island of Oahu; and the London Hilton on Park Lane, a 453-room hotel overlooking Hyde Park in the exclusive |
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Mayfair district of London. Our ten owned hotels with the highest Adjusted EBITDA contributed 54% of our ownership segments Adjusted EBITDA during the year ended December 31, 2012, which highlights the quality of our key flagship properties. In addition, we believe the iconic nature of many of these properties creates significant value for our entire system of properties by reinforcing the world-class nature of our brands. We continually focus on increasing the value and enhancing the market position of our owned and leased hotels and have invested $1.8 billion in these properties between December 31, 2007 and June 30, 2013. Over time, we believe we can unlock significant incremental value through opportunistically exiting assets or executing on adaptive reuse plans for all or a portion of certain hotels as retail, residential or timeshare uses. |
| Market-Leading and Innovative Timeshare Platform. Our timeshare business complements our other segments and provides an alternative hospitality product that serves an attractive customer base. Our timeshare customers are among our most loyal hotel customers, with estimated spend in our hotel system increasing approximately 40% after the purchase of their timeshare interests. Historically, we have concentrated our timeshare efforts in four key markets: Florida, Hawaii, New York City and Las Vegas, which has helped us to increase annual sales of timeshare intervals by more than 40% since 2007 while yielding strong profit margins during a time when our competitors generally experienced declines in both sales and profit margins. As a result of this strong operating performance and the returns we were able to drive on our own timeshare developments, in 2010 we began a transformation of our timeshare business to a capital light model in which third-party timeshare owners and developers provide capital for development while we act as sales and marketing agent and property manager. Through these transactions, we receive a sales and marketing commission and branding fees on sales of timeshare intervals, recurring fees to operate the homeowners associations and revenues from resort operations. We also earn recurring fees in connection with the points-based membership programs we operate that provide for exclusive exchange, leisure travel and reservation services, and through fees related to the servicing of consumer loans. We have increased the sales of intervals developed by third parties from zero in 2009 to 43% for the twelve months ended June 30, 2013, which has dramatically reduced the capital requirements of our timeshare segment while continuing to drive strong earnings and cash flows. For the year ended December 31, 2012 and the six months ended June 30, 2013, we incurred $46 million and $35 million, respectively, of inventory costs in the timeshare segment, compared to an average of $405 million annually during 2007 and 2008. |
| Performance-Driven Culture. We are an organization of people serving people, thus it is imperative that we attract and retain best-in-class talent to serve our various stakeholders. We have a performance-driven culture that begins with an intense alignment around our mission, vision, values and key strategic priorities. Our President and Chief Executive Officer, Christopher J. Nassetta, has nearly 30 years of experience in the hotel industry, previously serving as President and Chief Executive Officer of Host Hotels & Resorts, Inc., where he was named Institutional Investor s 2007 REIT CEO of the Year. He and the balance of our executive management team have been instrumental in transforming our organization and installing a culture that develops leaders at all levels of the organization who are focused on delivering exceptional service to our customers every day. We rely on our over 300,000 team members to execute our strategy and continue to enhance our products and services to ensure that we remain at the forefront of performance and innovation in the lodging industry. |
Our Business and Growth Strategy
The following are key elements of our strategy to become the preeminent global hospitality companythe first choice of guests, team members and owners alike:
|
Expand our Global Footprint . We intend to build on our leading position in the U.S. and expand our global footprint. In February 2006, we reacquired Hilton International Co., which had operated as a separate company since 1964, and in so doing, reacquired its international Hilton branding rights. Reuniting Hiltons U.S. and international operations has provided us with the platform to grow our |
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business and brands globally. As a result of the reacquisition and focus on global expansion, we currently rank number one or number two in every major region of the world by rooms under construction, based on STR data. We aim to increase the relative contribution of our international operations, which accounted for only 27% of our revenues during the year ended December 31, 2012. Of our new rooms under construction, 79% are located outside of the U.S. We plan to continue to expand our global footprint by introducing the right brands with the right product positioning in targeted markets and allocating business development resources effectively to drive new unit growth in every region of the world. |
| Grow our Fee-Based Businesses. We intend to grow our higher margin, fee-based businesses. We expect to increase the contribution of our management and franchise segment, which already accounts for more than half of our aggregate segment Adjusted EBITDA, through new third-party hotel development and the conversion of existing hotels to our brands. The number of rooms in our management and franchise segment grew by 39% from June 30, 2007 to June 30, 2013 and substantially all of our current development pipeline of 176,449 rooms consists of hotels in this segment. Upon completion, this pipeline of new, third-party owned hotels would result in a 30% increase in our management and franchise room count with minimal capital investment from us. In addition, we aim to increase the average effective franchise fees we receive over time by renewing and entering into new franchise agreements at our current published franchise fee rates. |
| Continue to Increase the Capital Efficiency of our Timeshare Business. Traditionally, timeshare operators have funded 100% of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing timeshare intervals through sales and marketing agreements with third-party developers. These agreements enable us to generate fees from the sales and marketing of the timeshare intervals and club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. Our supply of third-party developed timeshare intervals has increased to 69,000 as of June 2013, compared to no supply in 2009, and the percentage of sales of timeshare intervals developed by third parties has already increased to 43% for the twelve months ended June 30, 2013. We will continue to seek opportunities to grow our timeshare business through this capital light model. |
| Optimize the Performance of our Owned and Leased Hotels. In addition to utilizing our commercial services platform to enhance the revenue performance of our owned and leased assets, we have focused on maximizing the cost efficiency of the portfolio by implementing labor management practices and systems and reducing fixed costs to drive profitability. Through our disciplined approach to asset management, we have developed and executed on strategic plans for each of our hotels and have invested $1.8 billion in our portfolio since December 31, 2007 to enhance the market position of each property. We expect to continue to enhance the performance of our hotels by improving operating efficiencies, and believe there is an opportunity to drive further improvements in operating margins and Adjusted EBITDA. The Adjusted EBITDA of our owned and leased portfolio for 2012 was still below 2008 levels. Further, at certain of our hotels, we are developing plans for the adaptive reuse of all or a portion of the property to residential, retail or timeshare uses. Finally, we expect to create value over time by opportunistically selling assets and restructuring or exiting leases. |
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Strengthen our Brands and Commercial Services Platform. We intend to enhance our world-class brands through superior brand management by continuing to develop products and services that drive increased RevPAR premiums. We will continue to refine our luxury brands to deliver modern products and service standards that are relevant to todays luxury traveler. We will continue to position our full-service operating model and product standards to meet evolving customer needs and drive financial results that support incremental owner investment in our hotels. In our focused-service brands, we will continue to position for growth in the U.S., and tailor our products as appropriate to meet the needs of customers and developers outside the U.S. We will continue to innovate and enhance our commercial services platform to ensure we have the most formidable sales, pricing, marketing and distribution platform in the industry to drive premium commercial performance to our entire system of hotels. We |
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also will continue to invest in our Hilton HHonors customer loyalty program to ensure it remains relevant to our customers and drives customer loyalty and value to our hotel owners. |
The Hilton Legacy
Our history dates to 1919, when Conrad Hilton purchased his first hotel in Cisco, Texas. During ensuing decades we expanded our hotel portfolio and established a track record of innovation in our industry, including the first in-room televisions, the first airport hotel and the first centralized reservation system for a hospitality company. Key events in our history are illustrated in the following timeline:
We are guided by a common vision, mission and values:
Vision: |
To fill the earth with the light and warmth of hospitality. | |
Mission: |
To be the preeminent global hospitality companythe first choice of guests, team members and owners alike. | |
Values: |
H ospitalityWe are passionate about delivering exceptional guest experiences. I ntegrityWe do the right thing, all the time. L eadershipWe are leaders in our industry and in our communities. T eamworkWe are team players in everything we do. O wnershipWe are the owners of our actions and decisions. N owWe operate with a sense of urgency and discipline. |
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Our Brand Portfolio
The goal of each of our brands is to deliver exceptional customer experiences and superior operating performance. Across our brands, we have improved our overall customer satisfaction ratings over the last five years, which we believe will develop increased customer loyalty to our brands. According to data from STR, all of our brands command premiums in their respective system-wide RevPAR indices, meaning they achieve higher revenue per available room than competitive properties in their respective markets.
June 30, 2013 | ||||||||||||||||||||
Brand (1) |
Segment |
Countries/
Territories |
Hotels | Rooms |
Percentage of
Total Rooms |
Selected Competitors (2) |
||||||||||||||
|
Luxury | 9 | 23 | 9,990 | 1.5 | % | Ritz Carlton, Four Seasons, Peninsula, St. Regis, Mandarin Oriental | |||||||||||||
|
Luxury | 17 | 23 | 7,895 | 1.2 | % | Park Hyatt, Sofitel, Intercontinental, JW Marriott, Fairmont | |||||||||||||
|
Upper Upscale | 79 | 551 | 194,919 | 29.3 | % | Marriott, Sheraton, Hyatt, Radisson Blu, Renaissance, Westin, Sofitel, Swissotel, Moevenpick | |||||||||||||
|
Upscale | 30 | 351 | 88,386 | 13.3 | % | Sheraton, Marriott, Crowne Plaza, Wyndham, Radisson, Moevenpick, Hotel Nikko, Holiday Inn, Renaissance | |||||||||||||
|
Upper Upscale | 5 | 213 | 50,997 | 7.7 | % |
Renaissance, Sheraton, Hyatt, Residence Inn by Marriott |
|||||||||||||
|
Upscale | 19 | 572 | 78,716 | 11.8 | % | Courtyard by Marriott, Holiday Inn, Hyatt Place, Novotel, Aloft, Four Points by Sheraton | |||||||||||||
|
Upper Midscale | 14 | 1,914 | 188,271 | 28.3 | % | Fairfield Inn by Marriott, Holiday Inn Express, Comfort Inn, Quality Inn, La Quinta Inns, Wyngate by Wyndham | |||||||||||||
|
Upscale | 3 | 325 | 35,843 | 5.4 | % | Residence Inn by Marriott, Hyatt House, Staybridge Suites, Candlewood Suites | |||||||||||||
|
Upper Midscale | 1 | 18 | 1,873 | 0.3 | % | Candlewood Suites, AmericInn, Towne Place Suites | |||||||||||||
|
Timeshare | 3 | 41 | 6,404 | 1.0 | % | Marriott Vacation Club, Starwood Vacation Ownership, Hyatt Residence Club, Wyndham Vacations Resorts |
(1) | The table above excludes 10 unbranded hotels with 2,373 rooms, representing approximately 0.2% of total rooms. |
(2) | The table excludes lesser known regional competitors. |
Waldorf Astoria Hotels & Resorts : What began as an iconic hotel in New York City is today a portfolio of 23 luxury hotels and resorts. In landmark destinations around the world, Waldorf Astoria Hotels & Resorts reflect their locations, each providing the inspirational environments and personalized attention that are the source of unforgettable moments. Properties typically include elegant spa and wellness facilities, high-end restaurants, golf courses (at resort properties), 24-hour room service, fitness and business centers, meeting, wedding and banquet facilities and special event and concierge services. We continue to extend the brands reach
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through the development of new properties in some of the worlds most sought after destinations, including recently opened hotels in Berlin, Shanghai and Panama City and hotels under construction in Beijing and Dubai. Between June 30, 2007 and June 30, 2013, we added 18 Waldorf Astoria hotels with 6,224 rooms to our system. There were 14 hotels with 2,936 rooms in the Waldorf Astoria Hotels & Resorts development pipeline as of June 30, 2013.
Conrad Hotels & Resorts : Conrad is a global luxury brand of 23 properties offering guests personalized experiences with sophisticated, locally inspired surroundings and an intuitive service model based on customization and control, as demonstrated by the Conrad Concierge mobile application that enables guest control of on-property amenities and services. Properties typically include convenient and relaxing spa and wellness facilities, enticing restaurants, comprehensive room service, fitness and business centers, multi-purpose meeting facilities and special event and concierge services. With a strong global footprint, Conrad Hotels & Resorts has recently opened hotels in Beijing, Seoul and New York City and plans to add a significant number of new hotels to its portfolio in key gateway cities and resort destinations around the world, such as Hong Kong, Tokyo and Bali. Between June 30, 2007 and June 30, 2013, we added 6 Conrad hotels with 1,878 rooms to our system. There were 13 hotels with 3,795 rooms in the Conrad Hotels & Resorts development pipeline as of June 30, 2013.
Hilton Hotels & Resorts : Hilton is our global flagship brand and ranks number one for global brand awareness in the hospitality industry, with 551 hotels and resorts in 79 countries and territories across six continents. The brand primarily serves business and leisure upper-upscale travelers and meeting groups. Hilton hotels are full-service hotels that typically include meeting, wedding and banquet facilities and special event services, restaurants and lounges, food and beverage services, swimming pools, gift shops, retail facilities and other services. The brand was awarded the Harris Poll EquiTrend Brand of the Year Full Service Hotel for 2010 and 2011. Between June 30, 2007 and June 30, 2013, we added 43 Hilton hotels with 17,172 rooms to our system. There were 142 hotels with 47,209 rooms in the Hilton Hotels & Resorts development pipeline as of June 30, 2013.
DoubleTree by Hilton : DoubleTree by Hilton is an upscale, full-service hotel designed to provide true comfort to todays business and leisure travelers. DoubleTree is united by the brands CARE (Creating a Rewarding Experience) culture and a warm chocolate chip cookie served at check-in. DoubleTrees diverse portfolio includes historic icons, small contemporary hotels, resorts and large urban hotels. The brand is growing quickly around the world, both with new-build properties and via conversions of existing properties into DoubleTree hotels. Between June 30, 2007 and June 30, 2013, we added 172 DoubleTree by Hilton hotels with 42,109 rooms to our system. There were 125 hotels with 31,928 rooms in the DoubleTree by Hilton development pipeline as of June 30, 2013.
Embassy Suites Hotels : Embassy Suites are our upper upscale, all-suite hotels that feature two-room guest suites with a separate living room and dining/work area, a complimentary cooked-to-order breakfast and complimentary evening receptions every night. Embassy Suites bundled pricing ensures that guests receive value at a single price. Whether traveling for business, with family, with a group, or for leisure, our guests return again and again to experience the consistently award-winning customer service provided at Embassy Suites. Between June 30, 2007 and June 30, 2013, we added 27 Embassy Suites Hotels with 5,109 rooms to our system. There were 30 hotels with 5,945 rooms in the Embassy Suites Hotels development pipeline as of June 30, 2013.
Hilton Garden Inn : Hilton Garden Inn is our award-winning, upscale hotel brand that strives to ensure todays busy travelers have what they need to be productive on the road. From the Serta Perfect Sleeper bed, to complimentary Internet access, to a comfortable lobby pavilion, Hilton Garden Inn is the brand guests can count on to support them on their journeys. Hilton Garden Inn has received numerous awards, including being ranked by J.D. Power for Highest in Guest Satisfaction in its segment nine out of the past twelve years. Between June 30, 2007 and June 30, 2013, we added 246 Hilton Garden Inn hotels with 33,743 rooms to our system. There were 170 hotels with 26,767 rooms in the Hilton Garden Inn development pipeline as of June 30, 2013.
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Hampton : Hampton Inn hotels are our moderately priced upper midscale hotels with limited food and beverage facilities. The Hampton brand also includes Hampton Inn & Suites hotels, which offer both traditional hotel room accommodations and apartment style suites within one property. Across our over 1,900 Hampton locations around the world, guests receive free hot breakfast and free high-speed Internet access, all for a great price and all supported by the Hampton satisfaction guarantee. Hamptons numerous recognitions include #1 in Entrepreneur Magazine s 2013, 2012 and 2011 Franchise 500 ; Travel Weekly Readers Choice Awards SurveyBest Mid-Priced Hotel; Hospitality Sales & Marketing Association International Gold and Bronze Adrian Awards; and J.D. Power 2012 Customer Service Champion Award. Between June 30, 2007 and June 30, 2013, we added 485 Hampton hotels with 46,812 rooms to our system. There were 326 hotels with 36,403 rooms in the Hampton development pipeline as of June 30, 2013.
Homewood Suites by Hilton : Homewood Suites by Hilton are our upscale, extended-stay hotels that feature residential style accommodations including business centers, swimming pools, convenience stores and limited meeting facilities. The brand provides the touches, familiarity and comforts of home so that extended-stay travelers can feel at home on the road. Homewood Suites by Hilton is consistently ranked above the competition by guests, thanks to an appealing combination of bundled services and award-winning quality. J.D. Power ranked Homewood Suites by Hilton highest in Guest Satisfaction among Upper Extended Stay Hotels in 2013 and highest in segment in 10 out of the last 13 years. Between June 30, 2007 and June 30, 2013, we added 124 Homewood Suites by Hilton hotels with 13,748 rooms to our system. There were 103 hotels with 12,207 rooms in the Homewood Suites by Hilton development pipeline as of June 30, 2013.
Home2 Suites by Hilton : Home2 Suites by Hilton, our newest brand, are upper midscale hotels that provide a modern and savvy option to budget conscious extended-stay travelers. Offering innovative suites with contemporary design and cutting-edge technology, we strive to ensure that our guests are comfortable and productive, whether they are staying a few days or a few months. The hotel offers a complimentary continental breakfast, integrated laundry and exercise facility, recycling and sustainability initiatives and a pet-friendly policy. Home2 Suites by Hilton has grown rapidly since its first hotel opened in 2011, with 18 hotels open, 18 new hotels under construction and 64 additional hotels under development, each as of June 30, 2013. There were 82 hotels with 8,477 rooms in the Home2 Suites by Hilton development pipeline as of June 30, 2013.
Hilton Grand Vacations : HGV is our timeshare brand. Ownership of a deeded real estate interest with club membership points provides members with a lifetime of vacation advantages and the comfort and convenience of residential-style resort accommodations in select, renowned vacation destinations. Each club property provides a distinctive setting, while signature elements remain consistent, such as high-quality guest service, spacious units and extensive on-property amenities. HGVs developed timeshare properties are relatively concentrated in Florida, Nevada, Hawaii and New York, with additional properties available to Club Members at affiliated resorts in the U.S. and internationally. Between June 30, 2007 and June 30, 2013, we have added 8 HGV properties with 2,630 units to our system.
Commercial Services Platform
Our commercial services platform utilizes our global scale and formidable sales, pricing and marketing infrastructure to maximize commercial performance at our hotels, delivering RevPAR index premiums, higher customer loyalty and enhanced financial returns in a cost efficient manner.
|
Hilton HHonors is our award-winning guest loyalty program that supports our portfolio of 10 brands and our entire system of hotels and timeshare properties. The program generates significant repeat business by rewarding guests with points for each stay at any of our more than 4,000 hotels worldwide, which are then redeemable for free hotel nights and other rewards. Members also can earn points with over 125 partners, including airlines, rail and car rental companies, credit card providers and others. The program provides targeted marketing, promotions and customized guest experiences to nearly 38 million members. Our HHonors members represented approximately 50% of our system-wide |
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occupancy and contributed hotel-level revenues of nearly $12 billion during the twelve months ending June 30, 2013. Affiliation with our loyalty programs encourages members to allocate more of their travel spending to our hotels. The percentage of travel spending we capture from loyalty members increases as they move up the tiers of our program. Our HHonors members on average spend four times as much money in our system of hotels than our non-HHonors members. The program is funded by contributions from eligible revenues generated by HHonors members and collected by us from hotels in our system. These funds are applied to reimburse hotels and partners for HHonors points redemptions and to pay for program administrative expenses and marketing initiatives that support the program. The HHonors program has won many awards, including the 2013 Frequent Business Travelers GlobeRunner Award for Best Hotel Chain/Group Loyalty Program. |
| Hilton Worldwide Sales provides our portfolio of branded hotels with the advantages of scale, access, experience and regional expertise to more effectively compete for corporate, group and leisure travel business. The team includes over 700 sales professionals who conduct business in over 40 languages from 36 offices on 6 continents. These teams combine to sell directly to our customers, as well as through relationships with corporations, associations and other organizations. We also actively engage the third-party distribution market, where we continue to expand our relationships with leading online travel agencies, travel management companies and global distribution systems. |
| Hilton Reservations and Customer Care (HRCC ) provides over-the-phone reservations and customer service, serving our guests 24 hours per day, 7 days per week. HRCC is operated by over 3,000 team members with capabilities in over 10 languages. HRCC provides consistently high levels of customer satisfaction while handling over 30 million customer contacts annually. |
| Global Online Services operates our online and mobile channels. During the twelve months ended June 30, 2013, Global Online Services generated over $7 billion in gross bookings, and with new websites and additional local language capability, we continue to ensure our online channels provide a compelling and easy customer experience. Hiltons mobile applications allow guests to book on-the-go, as well as take advantage of services such as eCheck-In and customized rooms via Requests Upon Arrival. As a result, the total online channel is growing rapidly and is our fastest growing reservations channel in revenue terms. In 2013, a study by Compete, Inc. designated Hilton as #1 in online hotel bookings market share in the U.S. |
| Revenue Management provides tools to assist our hotels in optimizing room rates through the lowest cost distribution channels. Our global revenue management team works together with hotels that have their own on-property revenue management resources. For hotels without dedicated resources, Revenue Management provides a suite of fee-for-service offerings that can handle all of a hotels revenue management activities. |
| Information Technology provides integrated solutions that support seamless online and in-person customer experiences. Our global central reservation system provides a single source of inventory and rates, ensuring that all reservation channels share the same information. Our guest profile management system ensures that team members have the information necessary to deliver superior customer experiences. Our proprietary OnQ property management system links our brands and hotels together to enhance customer service, as well as maximizes operational efficiencies. These three core elements of our information technology system are interlinked and deployed across our portfolio, providing us and our hotel owners a unified, integrated view of the business. |
| Hilton Supply Management (HSM) offers procurement solutions for our portfolio of hotels and third-party customers. This global program connects leading suppliers across all hospitality categories including food and beverage, operating supplies, furniture and equipment, and works to secure competitive pricing and timely delivery. In addition, HSM also provides project management services for new hotels and renovations. HSM creates value by ensuring supply chain stability, reducing costs and driving incremental revenue by providing services to third parties and franchisees. |
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Our Businesses
We operate our business across three segments: (1) management and franchise; (2) ownership; and (3) timeshare. For more information regarding our segments, see Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 22: Business Segments in our audited consolidated financial statements included elsewhere in this prospectus.
Management and Franchise
Through our management and franchise segment we manage hotels and timeshare properties and license our brands to franchisees. This segment generates its revenue primarily from fees charged to hotel owners and to homeowners associations at timeshare properties.
Hotel and Timeshare Management
Our core management services consist of operating hotels under management agreements for the benefit of third parties, who either own or lease the hotels. Under our standard management agreement, we operate a hotel for the benefit of its owner, which either owns or leases the hotel and the associated personal property. Terms of our management agreements vary, but our fees generally consist of a base management fee based on a percentage of each hotels gross revenue, and we also may earn an incentive fee based on gross operating profits, cash flow, or a combination thereof. In general, the owner pays all operating and other expenses and reimburses our out-of-pocket expenses. In turn, our managerial discretion typically is subject to approval by the owner in certain major areas, including the approval of annual operating and capital expenditure budgets. As of June 30, 2013, we managed 479 hotels with approximately 136,600 rooms, excluding our owned and leased hotels.
The initial terms of our management agreements for full service hotels typically are 20 years. In certain cases where we have entered into a franchise agreement as well as a management agreement, we classify these hotels as managed hotels in our portfolio. Extension options for our management agreements are negotiated and vary, but typically are more prevalent in full-service hotels. These extensions typically are either for five or ten years and can be exercised once or twice at our or the other partys option or by mutual agreement.
Some of our management agreements provide early termination rights to hotel owners upon certain events, including the failure to meet certain financial or performance criteria. Performance test measures typically are based upon the hotels performance individually and/or in comparison to specified competitive hotels. We often have a cure right by paying an amount equal to the performance shortfall over a specified period, although in some cases our cure rights are limited.
In addition to the third-party owned hotels we manage, we provide management services for 41 timeshare properties owned by homeowners associations and 157 owned, leased and joint venture hotels, from which we recognize management fee revenues.
Franchising
We franchise our brand names, trade and service marks and operating systems to hotel owners under franchise agreements. We do not directly participate in the day-to-day management or operation of franchised hotels. We conduct periodic inspections to ensure that brand standards are maintained and consult with franchisees concerning certain aspects of hotel operations. We approve the location for new construction of franchised hotels, as well as certain aspects of development. In some cases, we provide franchisees with product improvement plans that must be completed in accordance with brand standards to remain in the brand system. As of June 30, 2013, there were 3,364 franchised hotels with approximately 460,100 rooms.
Each franchisee pays us a franchise application fee. Franchisees also pay a royalty fee, generally based on a percentage of the hotels total gross room revenue (and a percentage of food and beverage revenue in some
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brands). In addition to the franchise application fee and royalty fee, franchisees generally pay a monthly program fee based on a percentage of the total gross room revenue that covers the costs of advertising and marketing programs; internet, technology and reservation systems expenses; and quality assurance program costs. Franchisees also are responsible for various other fees and charges, including payments for participation in our Hilton HHonors reward program, training, consultation and procurement of certain goods and services.
Our franchise agreements typically have initial terms of approximately 20 years for new construction and approximately 10 to 20 years for properties that are converted from other brands. At the expiration of the initial term, we may relicense the hotel to the franchisee, at our or the other partys option or by mutual agreement, for an additional term ranging from 10 to 15 years. We have the right to terminate a franchise agreement upon specified events of default, including nonpayment of fees or noncompliance with brand standards. If a franchise agreement is terminated by us because of a franchisees default, the franchisee is contractually required to pay us liquidated damages.
Ownership
We are among the largest hotel owners in the world based upon the number of rooms at our owned, joint venture and leased hotels. Our diverse global portfolio of owned and leased properties includes a number of leading hotels in major gateway cities such as New York, London, San Francisco, Chicago, São Paolo, Sydney and Tokyo. The portfolio includes iconic hotels with significant underlying real estate value, including The Waldorf=Astoria New York, the Hilton Hawaiian Village and the London Hilton on Park Lane. Real estate investment was a critical component of the growth of our business in our early years. Our real estate holdings grew over time through new construction, purchases or leases of hotels, investments in joint ventures, and the acquisition of other hotel companies. In recent years, we have expanded our hotel system less through real estate investment and more by increasing the number of management and franchise agreements we have with third-party hotel owners.
We utilize our commercial services platform to enhance the revenue performance of our owned and leased hotels. We have focused on maximizing the cost efficiency and profitability of the portfolio by, among other things, implementing new labor management practices and systems and reducing fixed costs. Through our disciplined approach to asset management, we have developed and executed on strategic plans for each of our hotels to enhance the market position of each property, and at many of our hotels we have renovated guest rooms and public spaces and added or enhanced meeting and retail space to improve profitability. At certain of our hotels, we are evaluating options for the adaptive reuse of all or a portion of the property to residential, retail or timeshare uses.
As of June 30, 2013, our hotel ownership segment included a portfolio of 157 owned and leased hotels (62,498 rooms), all of which we manage. We own and invest in real estate in a variety of ways:
| Owned Hotels As of June 30, 2013, we owned 48 hotels (27,053 rooms) that we own outright or through consolidated joint ventures. For some of these properties, we lease the underlying land. Under these ground leases, we typically own the buildings and leasehold improvements and all furniture and equipment located on the leased land; we are responsible for repairs, maintenance, operating expenses, and lease rentals; and we retain nearly complete managerial discretion over operations. |
| Joint Venture Hotels As of June 30, 2013, we had 33 hotels (12,670 rooms) in which we have a partial, non-controlling financial interest through one or more entities that own or lease the properties. We manage these hotels on behalf of the joint ventures that own them. |
| Leased Hotels As of June 30, 2013, we leased 76 hotels (22,775 rooms) that we lease directly or through consolidated joint ventures. We have nearly complete control over the management and operation of our leased hotels, but significant alterations to the physical structures of the hotels may require the consent of our landlords. Leases may require the payment of fixed rent payments, variable rent payments based on a percentage of revenue or income, or both. |
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Timeshare
Our timeshare segment generates revenue from three primary sources:
| Timeshare Sales We market and sell timeshare interests owned by Hilton and third parties. |
| Resort Operations We manage the HGV Club, receiving enrollment fees, annual dues and transaction fees from member exchanges for other vacation products. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our HGV Club program. We also earn revenue from the management of retail and spa outlets at our timeshare properties. |
| Financing We provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of timeshare intervals and revenue from servicing the loans on our timeshare properties. |
HGVs primary product is generally a fee-simple timeshare interest deeded in perpetuity. This ownership interest is an interest in real estate equivalent to annual usage rights for approximately one week at the timeshare resort where the timeshare interval was purchased. Each purchaser is automatically enrolled in the HGV Club, giving the purchaser an annual allotment of Club Points that allow the purchaser to exchange his or her annual usage rights for a number of options, including: a priority reservation period to stay at his or her home resort where his or her timeshare interval is deeded, stays at any resort in the HGV system, reservations for experiential travel such as cruises, conversion to Hilton HHonors points for stays at our hotels and other options, including stays at more than 5,000 resorts included in the RCI timeshare vacation exchange network. In addition, we operate the Hilton Club, which is currently limited to the Hilton Club located in New York City, but whose members also enjoy exchange benefits with the HGV Club. As of June 30, 2013, HGV managed a global system of 41 resorts and the HGV Club and the Hilton Club had more than 200,000 members in total.
Starting in 2010, we began sourcing timeshare intervals through sales and marketing agreements with third-party developers. This allows us to sell timeshare units on behalf of third-party developers in exchange for sales, marketing and branding fees on interval sales, and to earn fees from resort operations and the servicing of consumer loans.
Properties
As of June 30, 2013, we managed, franchised, owned or leased 4,041 properties, totaling 665,667 rooms in 90 countries and territories, including:
| 3,843 managed and franchised hotels (596,765 rooms), all of which are owned by third parties, that include |
| 3,364 franchised hotels (460,102 rooms) that are operated by third parties, and |
| 479 managed hotels (136,663 rooms), all of which we operate under management agreements with third parties; |
| 157 owned and leased hotels (62,498 rooms), all of which we manage, that include |
| 48 hotels owned by us (27,053 rooms), including through three consolidated joint ventures, |
| 33 hotels owned or leased by unconsolidated joint ventures (12,670 rooms), and |
| 76 hotels leased by us (22,775 rooms), including through three consolidated joint ventures; and |
| 41 timeshare properties (6,404 units), all of which we manage. |
Our properties are supported by a number of corporate offices, including our four regional headquarters in McLean, Virginia (Americas), which also serves as our corporate headquarters, Watford, England (Europe), Dubai (Middle East & Africa) and Singapore (Asia Pacific).
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As of June 30, 2013, our system included the following properties and rooms, by type, brand, and region:
Owned / Leased (1) | Managed | Franchised | Total | |||||||||||||||||||||||||||||
Hotels | Rooms | Hotels | Rooms | Hotels | Rooms | Hotels | Rooms | |||||||||||||||||||||||||
Waldorf Astoria Hotels & Resorts |
||||||||||||||||||||||||||||||||
U.S. |
2 | 1,601 | 11 | 4,770 | 2 | 1,047 | 15 | 7,418 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 1 | 248 | 1 | 984 | 2 | 1,232 | ||||||||||||||||||||||||
Europe |
1 | 370 | 3 | 672 | | | 4 | 1,042 | ||||||||||||||||||||||||
MEA |
| | 1 | 38 | | | 1 | 38 | ||||||||||||||||||||||||
Asia Pacific |
| | 1 | 260 | | | 1 | 260 | ||||||||||||||||||||||||
Conrad Hotels & Resorts |
||||||||||||||||||||||||||||||||
U.S. |
| | 4 | 1,334 | | | 4 | 1,334 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 1 | 570 | 1 | 294 | 2 | 864 | ||||||||||||||||||||||||
Europe |
2 | 778 | 1 | 154 | | | 3 | 932 | ||||||||||||||||||||||||
MEA |
1 | 617 | 1 | 86 | | | 2 | 703 | ||||||||||||||||||||||||
Asia Pacific |
| | 11 | 3,426 | 1 | 636 | 12 | 4,062 | ||||||||||||||||||||||||
Hilton Hotels & Resorts |
||||||||||||||||||||||||||||||||
U.S. |
23 | 21,096 | 43 | 25,235 | 181 | 53,877 | 247 | 100,208 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
3 | 1,836 | 20 | 6,768 | 19 | 5,791 | 42 | 14,395 | ||||||||||||||||||||||||
Europe |
74 | 19,015 | 56 | 15,802 | 21 | 5,309 | 151 | 40,126 | ||||||||||||||||||||||||
MEA |
6 | 2,279 | 42 | 12,952 | 1 | 410 | 49 | 15,641 | ||||||||||||||||||||||||
Asia Pacific |
8 | 3,953 | 47 | 17,776 | 7 | 2,820 | 62 | 24,549 | ||||||||||||||||||||||||
DoubleTree by Hilton |
||||||||||||||||||||||||||||||||
U.S. |
13 | 4,700 | 27 | 8,033 | 229 | 57,023 | 269 | 69,756 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 4 | 737 | 8 | 1,550 | 12 | 2,287 | ||||||||||||||||||||||||
Europe |
| | 9 | 2,834 | 34 | 5,485 | 43 | 8,319 | ||||||||||||||||||||||||
MEA |
| | 2 | 299 | 3 | 431 | 5 | 730 | ||||||||||||||||||||||||
Asia Pacific |
| | 21 | 6,444 | 1 | 850 | 22 | 7,294 | ||||||||||||||||||||||||
Embassy Suites Hotels |
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U.S. |
18 | 4,561 | 40 | 10,672 | 148 | 34,021 | 206 | 49,254 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 2 | 473 | 5 | 1,270 | 7 | 1,743 | ||||||||||||||||||||||||
Hilton Garden Inn |
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U.S. |
2 | 290 | 5 | 635 | 506 | 68,579 | 513 | 69,504 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 5 | 685 | 23 | 3,575 | 28 | 4,260 | ||||||||||||||||||||||||
Europe |
| | 15 | 2,620 | 12 | 1,751 | 27 | 4,371 | ||||||||||||||||||||||||
MEA |
| | 1 | 180 | | | 1 | 180 | ||||||||||||||||||||||||
Asia Pacific |
| | 3 | 401 | | | 3 | 401 | ||||||||||||||||||||||||
Hampton Inn |
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U.S. |
1 | 130 | 51 | 6,428 | 1,786 | 171,873 | 1,838 | 178,431 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 4 | 519 | 53 | 6,642 | 57 | 7,161 | ||||||||||||||||||||||||
Europe |
| | 3 | 383 | 15 | 2,224 | 18 | 2,607 | ||||||||||||||||||||||||
Asia Pacific |
| | | | 1 | 72 | 1 | 72 | ||||||||||||||||||||||||
Homewood Suites by Hilton |
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U.S. |
| | 37 | 4,242 | 277 | 30,432 | 314 | 34,674 | ||||||||||||||||||||||||
Americas (excluding U.S.) |
| | 1 | 102 | 10 | 1,067 | 11 | 1,169 | ||||||||||||||||||||||||
Home2 Suites by Hilton |
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U.S. |
| | | | 18 | 1,873 | 18 | 1,873 | ||||||||||||||||||||||||
Other |
3 | 1,272 | 6 | 885 | 1 | 216 | 10 | 2,373 | ||||||||||||||||||||||||
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Lodging |
157 | 62,498 | 479 | 136,663 | 3,364 | 460,102 | 4,000 | 659,263 | ||||||||||||||||||||||||
Hilton Grand Vacations |
| | 41 | 6,404 | | | 41 | 6,404 | ||||||||||||||||||||||||
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Total |
157 | 62,498 | 520 | 143,067 | 3,364 | 460,102 | 4,041 | 665,667 | ||||||||||||||||||||||||
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(1) | Includes hotels owned or leased by entities in which we own a non-controlling interest. |
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Owned or Controlled Hotels
As of June 30, 2013, we owned a majority or controlling financial interest in the following 48 hotels, representing 27,053 rooms.
Property |
Location | Rooms | Ownership | |||||
Waldorf Astoria Hotels & Resorts |
||||||||
The Waldorf=Astoria New York |
New York, NY, USA | 1,413 | 100 | % | ||||
Hilton Hotels & Resorts |
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Hilton Hawaiian Village Beach Resort & Spa |
Honolulu, HI, USA | 2,860 | 100 | % | ||||
Hilton New York |
New York, NY, USA | 1,981 | 100 | % | ||||
Hilton San Francisco Union Square |
San Francisco, CA, USA | 1,908 | 100 | % | ||||
Hilton New Orleans Riverside |
New Orleans, LA, USA | 1,622 | 100 | % | ||||
Hilton Chicago |
Chicago, IL, USA | 1,544 | 100 | % | ||||
Hilton Waikoloa Village |
Waikoloa, HI, USA | 1,241 | 100 | % | ||||
Caribe Hilton |
San Juan, Puerto Rico | 915 | 100 | % | ||||
Hilton Chicago OHare Airport |
Chicago, IL, USA | 860 | 100 | % | ||||
Hilton Orlando Lake Buena Vista |
Orlando, FL, USA | 814 | 100 | % | ||||
Hilton Boston Logan Airport |
Boston, MA, USA | 599 | 100 | % | ||||
Hilton Sydney |
Sydney, Australia | 579 | 100 | % | ||||
Pointe Hilton Squaw Peak Resort |
Phoenix, AZ, USA | 563 | 100 | % | ||||
Hilton Miami Airport |
Miami, FL, USA | 508 | 100 | % | ||||
Hilton Atlanta Airport |
Atlanta, GA, USA | 507 | 100 | % | ||||
Hilton São Paulo Morumbi |
São Paulo, Brazil | 503 | 100 | % | ||||
Hilton McLean Tysons Corner |
McLean, VA, USA | 458 | 100 | % | ||||
Hilton Seattle Airport & Conference Center |
Seattle, WA, USA | 396 | 100 | % | ||||
Hilton Oakland Airport |
Oakland, CA, USA | 359 | 100 | % | ||||
Hilton Paris Orly Airport |
Paris, France | 340 | 100 | % | ||||
Hilton Durban |
Durban, South Africa | 327 | 100 | % | ||||
Hilton New Orleans Airport |
Kenner, LA, USA | 317 | 100 | % | ||||
Hilton Short Hills |
Short Hills, NJ, USA | 304 | 100 | % | ||||
Hilton Amsterdam Airport Schiphol |
Schiphol, Netherlands | 277 | 100 | % | ||||
Hilton Blackpool |
Blackpool, United Kingdom | 274 | 100 | % | ||||
Hilton Rotterdam |
Rotterdam, Netherlands | 254 | 100 | % | ||||
Hilton Suites Chicago/Oak Brook |
Oakbrook Terrace, IL, USA | 211 | 100 | % | ||||
Hilton Belfast |
Belfast, United Kingdom | 198 | 100 | % | ||||
Hilton London Islington |
London, United Kingdom | 191 | 100 | % | ||||
Hilton Edinburgh Grosvenor |
Edinburgh, United Kingdom | 184 | 100 | % | ||||
Hilton Coylumbridge |
Coylumbridge, United Kingdom | 175 | 100 | % | ||||
Hilton Bath City |
Bath, United Kingdom | 173 | 100 | % | ||||
Hilton Nuremberg |
Nuremberg, Germany | 152 | 100 | % | ||||
Hilton Milton Keynes |
Milton Keynes, United Kingdom | 138 | 100 | % | ||||
Hilton Templepatrick Hotel & Country Club |
Templepatrick, United Kingdom | 129 | 100 | % | ||||
Hilton Sheffield |
Sheffield, United Kingdom | 128 | 100 | % | ||||
Hilton Portsmouth (1) |
Portsmouth, United Kingdom | 119 | 100 | % | ||||
DoubleTree by Hilton |
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DoubleTree Hotel Crystal CityNational Airport |
Arlington, VA, USA | 631 | 100 | % | ||||
DoubleTree Hotel San Jose |
San Jose, CA, USA | 505 | 100 | % | ||||
DoubleTree Hotel Ontario Airport |
Ontario, CA, USA | 482 | 67 | % | ||||
DoubleTree Spokane-City Center |
Spokane, WA, USA | 375 | 10 | % | ||||
Fess Parkers DoubleTree Resort Santa Barbara |
Santa Barbara, CA, USA | 360 | 50 | % | ||||
Embassy Suites Hotels |
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Embassy Suites Washington D.C. |
Washington, D.C., USA | 318 | 100 | % | ||||
Embassy Suites AustinDowntown/Town Lake |
Austin, TX, USA | 259 | 100 | % | ||||
Embassy Suites PhoenixAirport at 24th Street |
Phoenix, AZ, USA | 182 | 100 | % | ||||
Hilton Garden Inn |
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Hilton Garden Inn LAX/El Segundo |
El Segundo, CA, USA | 162 | 100 | % | ||||
Hilton Garden Inn Chicago/Oak Brook |
Oakbrook Terrace, IL, USA | 128 | 100 | % | ||||
Hampton Inn |
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Hampton Inn & Suites MemphisShady Grove |
Memphis, TN, USA | 130 | 100 | % |
(1) | On October 3, 2013, we entered into an agreement to sell this property with an expected closing date in the fourth quarter of 2013. |
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Joint Venture Hotels
As of June 30, 2013, we had a minority or noncontrolling financial interest in and operated 33 properties, representing 12,670 rooms. We have a right of first refusal to purchase additional equity interests in certain of these joint ventures. We manage each of the partially owned hotels for the entity owning the hotel.
Property |
Location | Rooms | Ownership | |||||||
Waldorf Astoria Hotels & Resorts |
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The Waldorf Astoria Chicago |
Chicago, IL, USA | 188 | 15 | % | ||||||
Conrad Hotels & Resorts |
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Conrad Cairo |
Cairo, Egypt | 617 | 10 | % | ||||||
Conrad Istanbul |
Istanbul, Turkey | 587 | 25 | % | ||||||
Conrad Dublin |
Dublin, Ireland | 191 | 25 | % | ||||||
Hilton Hotels & Resorts |
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Hilton OrlandoOrange County Convention Center |
Orlando, FL | 1,417 | 20 | % | ||||||
Hilton San Diego Bayfront |
San Diego, CA, USA | 1,190 | 25 | % | ||||||
Hilton Tokyo Bay |
Urayasu-shi, Japan | 818 | 24 | % | ||||||
Hilton Berlin |
Berlin, Germany | 601 | 40 | % | ||||||
Capital Hilton |
Washington, D.C., USA | 544 | 25 | % | ||||||
Hilton Nagoya |
Nagoya, Japan | 448 | 24 | % | ||||||
Hilton La Jolla Torrey Pines |
La Jolla, CA, USA | 394 | 25 | % | ||||||
Hilton Mauritius Resort & Spa |
Flic-en-Flac, Mauritius | 193 | 20 | % | ||||||
Hilton Imperial Dubrovnik |
Dubrovnik, Croatia | 147 | 18 | % | ||||||
DoubleTree by Hilton |
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DoubleTree Hotel Wilmington (1) |
Wilmington, DE, USA | 244 | 10 | % | ||||||
DoubleTree Las Vegas Airport |
Las Vegas, NV, USA | 190 | 50 | % | ||||||
DoubleTree Guest Suites Austin |
Austin, TX, USA | 188 | 10 | % | ||||||
DoubleTree Hotel Missoula/Edgewater |
Missoula, MT, USA | 171 | 50 | % | ||||||
Embassy Suites Hotels |
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Embassy Suites Atlantaat Centennial Olympic Park |
Atlanta, GA, USA | 321 | 36 | % | ||||||
Embassy Suites AlexandriaOld Town |
Alexandria, VA, USA | 288 | 50 | % | ||||||
Embassy Suites Parsippany |
Parsippany, NJ, USA | 274 | 50 | % | ||||||
Embassy Suites Kansas CityPlaza |
Kansas City, MO, USA | 266 | 50 | % | ||||||
Embassy Suites ChicagoLombard/Oak Brook |
Lombard, IL, USA | 262 | 50 | % | ||||||
Embassy Suites SecaucusMeadowlands |
Secaucus, NJ, USA | 261 | 50 | % | ||||||
Embassy Suites San AntonioInternational Airport |
San Antonio, TX, USA | 261 | 50 | % | ||||||
Embassy Suites AustinCentral |
Austin, TX, USA | 260 | 50 | % | ||||||
Embassy Suites Baltimoreat BWI Airport |
Linthicum, MD, USA | 251 | 10 | % | ||||||
Embassy Suites SacramentoRiverfront Promenade |
Sacramento, CA, USA | 242 | 25 | % | ||||||
Embassy Suites AtlantaPerimeter Center |
Atlanta, GA, USA | 241 | 50 | % | ||||||
Embassy Suites San RafaelMarin County |
San Rafael, CA, USA | 235 | 50 | % | ||||||
Embassy Suites RaleighCrabtree |
Raleigh, NC, USA | 225 | 50 | % | ||||||
Embassy Suites San AntonioNW I-10 |
San Antonio, TX, USA | 216 | 50 | % | ||||||
Embassy Suites Kansas CityOverland Park |
Overland Park, KS, USA | 199 | 50 | % | ||||||
Other |
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Myrtle Beach Kingston Plantation (condo management company) |
Myrtle Beach, SC, USA | 740 | 50 | % |
(1) | The joint venture that held this property sold the hotel to a third party in September 2013. |
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Leased Hotels
As of June 30, 2013, we leased the following 76 hotels, representing 22,775 rooms.
Property |
Location | Rooms | ||||
Waldorf Astoria Hotels & Resorts |
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Waldorf Astoria Rome Cavalieri |
Rome, Italy | 370 | ||||
Hilton Hotels & Resorts |
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Hilton Tokyo (1) |
(Shinjuku-ku) Tokyo, Japan | 808 | ||||
Hilton Ramses |
Cairo, Egypt | 771 | ||||
Hilton London Kensington |
London, United Kingdom | 601 | ||||
Hilton Vienna |
Vienna, Austria | 579 | ||||
Hilton Tel Aviv |
Tel Aviv, Israel | 560 | ||||
Hilton Osaka (1) |
Osaka, Japan | 525 | ||||
Hilton Istanbul |
Istanbul, Turkey | 499 | ||||
Hilton Salt Lake City |
Salt Lake City, UT, USA | 499 | ||||
Hilton Munich Park |
Munich, Germany | 484 | ||||
Hilton Munich City |
Munich, Germany | 480 | ||||
London Hilton on Park Lane |
London, United Kingdom | 453 | ||||
Hilton Diagonal Mar Barcelona |
Barcelona, Spain | 433 | ||||
Hilton Mainz |
Mainz, Germany | 431 | ||||
Hilton Trinidad & Conference Centre |
Port of Spain, Trinidad | 418 | ||||
Hilton London Heathrow Airport |
London, United Kingdom | 398 | ||||
Hilton Izmir |
Izmir, Turkey | 380 | ||||
Hilton London Docklands Riverside |
London, United Kingdom | 378 | ||||
Hilton Addis Ababa |
Addis Ababa, Ethiopia | 372 | ||||
Hilton Vienna Danube |
Vienna, Austria | 367 | ||||
Hilton Frankfurt |
Frankfurt, Germany | 342 | ||||
Hilton Brighton Metropole |
Brighton, United Kingdom | 340 | ||||
Hilton Sandton |
Sandton, South Africa | 329 | ||||
Hilton Brisbane |
Brisbane, Australia | 319 | ||||
Hilton Glasgow |
Glasgow, United Kingdom | 319 | ||||
Hilton Milan |
Milan, Italy | 319 | ||||
Hilton Ankara |
Ankara, Turkey | 315 | ||||
Hilton Adana |
Adana, Turkey | 308 | ||||
Hilton Waldorf |
London, United Kingdom | 298 | ||||
Hilton Cologne |
Cologne, Germany | 296 | ||||
Hilton Slussen |
Stockholm, Sweden | 289 | ||||
Hilton Nairobi (1) |
Nairobi, Kenya | 287 | ||||
Hilton Madrid Airport |
Madrid, Spain | 284 | ||||
Hilton Parmelia Perth |
Parmelia Perth, Australia | 284 | ||||
Hilton London Canary Wharf |
London, United Kingdom | 282 | ||||
Hilton Amsterdam |
Amsterdam, Netherlands | 271 | ||||
Hilton Newcastle Gateshead |
Newcastle Upon Tyne, United Kingdom | 254 | ||||
Hilton Bonn |
Bonn, Germany | 252 | ||||
Hilton London Tower Bridge |
London, United Kingdom | 245 | ||||
Hilton London Stansted Airport |
Stansted, United Kingdom | 239 | ||||
Hilton Manchester Airport |
Manchester, United Kingdom | 230 | ||||
Hilton Vienna Plaza |
Vienna, Austria | 222 | ||||
Hilton Basel |
Basel, Switzerland | 220 | ||||
Hilton Bracknell |
Bracknell, United Kingdom | 215 | ||||
Hilton Antwerp |
Antwerp, Belgium | 210 |
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Property |
Location | Rooms | ||||
Hilton Reading |
Reading, United Kingdom | 210 | ||||
Hilton Leeds City |
Leeds, United Kingdom | 208 | ||||
Hilton Watford |
Watford, United Kingdom | 200 | ||||
Hilton Mersin |
Mersin, Turkey | 186 | ||||
Hilton Warwick/Stratford-upon-Avon |
Warwick, United Kingdom | 181 | ||||
Hilton Leicester |
Leicester, United Kingdom | 179 | ||||
Hilton Innsbruck |
Innsbruck, Austria | 176 | ||||
Hilton Nottingham |
Nottingham, United Kingdom | 176 | ||||
Hilton Odawara Resort & Spa |
Odawara City, Japan | 172 | ||||
Hilton St. Annes Manor, Bracknell |
Wokingham, United Kingdom | 170 | ||||
Hilton Croydon |
Croydon, United Kingdom | 168 | ||||
Hilton London Green Park |
London, United Kingdom | 163 | ||||
Hilton Cobham |
Cobham, United Kingdom | 158 | ||||
Hilton Paris La Defense |
Paris, France | 153 | ||||
Hilton East Midlands |
Derby, United Kingdom | 152 | ||||
Hilton Maidstone |
Maidstone, United Kingdom | 146 | ||||
Hilton Avisford Park, Arundel |
Arundel, United Kingdom | 140 | ||||
Hilton Northampton |
Northampton, United Kingdom | 139 | ||||
Hilton London Hyde Park |
London, United Kingdom | 132 | ||||
Hilton York |
York, United Kingdom | 131 | ||||
Hilton Mainz City |
Mainz, Germany | 127 | ||||
Hilton Bradford (2) |
Bradford, United Kingdom | 121 | ||||
Hilton ParkSA Istanbul |
Istanbul, Turkey | 117 | ||||
Hilton Puckrup Hall, Tewkesbury |
Tewkesbury, United Kingdom | 112 | ||||
Hilton Glasgow Grosvenor |
Glasgow, United Kingdom | 97 | ||||
DoubleTree by Hilton |
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DoubleTree Hotel Seattle Airport |
Seattle, WA, USA | 850 | ||||
DoubleTree Hotel San Diego-Mission Valley |
San Diego, CA, USA | 300 | ||||
DoubleTree Hotel Sonoma Wine Country |
Rohnert Park, CA, USA | 245 | ||||
DoubleTree Hotel Durango |
Durango, CO, USA | 159 | ||||
Other |
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Scandic Hotel Sergel Plaza |
Stockholm, Sweden | 403 | ||||
The Trafalgar London |
London, United Kingdom | 129 |
(1) | We own a majority or controlling financial interest, but less than a 100% interest, in entities that lease these properties. |
(2) | On October 7, 2013, we purchased this property from the lessor. |
Other Properties
Other non-operating real estate holdings include a centralized operations center and a centralized data center, both located in Memphis, Tennessee; and a Hilton Reservations and Customer Care office in Carrollton, Texas.
Corporate Headquarters and Regional Offices
Our corporate headquarters are located at 7930 Jones Branch Drive, McLean, Virginia 22102. These offices consist of approximately 160,596 square feet of leased space. The lease for this property initially expires on December 31, 2019, with options to renew and increase the rentable square feet.
Additionally, we lease the following properties to support our operations:
| European Regional office in Watford, United Kingdom; |
| Asia Pacific Regional office in Singapore; |
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| Middle East and Africa Regional office in Dubai, United Arab Emirates; |
| Hilton HHonors and other commercial services office in Addison, Texas; |
| Hilton Grand Vacations headquarters in Orlando, Florida; and |
| Timeshare sales offices in Honolulu, Hawaii, Las Vegas, Nevada, New York, New York, Orlando, Florida, Tumon Bay, Guam and Tokyo, Japan. |
We believe that our existing office properties are in good condition and are sufficient and suitable for the conduct of our business. In the event we need to expand our operations, we believe that suitable space will be available on commercially reasonable terms.
Corporate Responsibility
We are committed to responsible global citizenship. We also believe being a good corporate citizen is a smart business practice and creates long-term value for our stockholders, team members, hotel owners, customers and operating communities. Through our corporate responsibility platform, Travel with Purpose, we focus on four areas where we can have the greatest impact: creating opportunities for current and future team members; strengthening our local operating communities; celebrating cultures and global connections; and living sustainably through the measurement, analysis and improvement of our use of natural resources. We engage in a number of programs and partnerships that complement our global footprint and provide financial, volunteer and in-kind support to organizations and issues that are committed to our focus areas. Our commitment to responsible global citizenship includes:
| becoming one of the first global, multi-brand hospitality companies to make sustainability performance a brand standard through the creation of LightStay, our proprietary sustainability measurement tool; |
| saving an estimated $253 million in the four years since establishing our sustainability goals in 2008. Our efficiency projects across our participating hotels have delivered a 12% reduction of energy use; a 13% reduction of carbon output; a 25% reduction of waste output; and a 10% reduction of water use. In 2012 we exceeded both the waste and water reduction targets we set in 2008; |
| being one of the first multi-brand hospitality companies to receive ISO 9001 certification for Quality Management Systems and ISO 14001 certification for Environmental Management Systems across our entire hotel portfolio; |
| signing the ECPAT Tourism Child-Protection Code of Conduct in 2011. Our efforts included training more than 1,000 general managers and hotel team members on child trafficking awareness and prevention and supporting public education efforts; |
| launching our Global Team Member Volunteer Program in 2012, which has resulted in team members volunteering over 136,000 hours of service to their communities; |
| creating our Travel with Purpose Action Grants program in 2013, an initiative that offers small grants to local community partners in the areas of sustainability awareness, youth education and life skills training and human rights; and |
| pledging to hire 10,000 U.S. military veterans over the next five years as part of Operation: Opportunity , a new program we established in 2013 to help veterans and their families with job opportunities and career development in the hospitality sector. This program complements our global commitment to youth employment and creating opportunities for young people in the hospitality sector. |
Competition
We encounter active and robust competition as a hotel, residential, resort and timeshare manager, franchisor and developer. Competition in the hotel and lodging industry generally is based on the attractiveness of the facility, location, level of service, quality of accommodations, amenities, food and beverage options and outlets,
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public spaces and other guest services, consistency of service, room rate, brand reputation and the ability to earn and redeem loyalty program points through a global system. Our properties and brands compete with other hotels, resorts, motels and inns in their respective geographic markets or customer segments, including facilities owned by local interests, individuals, national and international chains, institutions, investment and pension funds and real estate investment trusts, or REITs. We believe that our position as a multi-branded owner, operator, manager and franchisor of hotels makes us one of the largest and most geographically diverse lodging companies in the world.
Our principal competitors include other branded and independent hotel operating companies, national and international hotel brands and ownership companies, including hotel REITs. While local and independent brand competitors vary, on a global scale our primary competitors are firms such as Accor S.A., Carlson Rezidor Group, Fairmont Raffles Hotels International, Hong Kong and Shanghai Hotels, Limited, Hyatt Hotels Corporation, Intercontinental Hotel Group, Marriott International, Mövenpick Hotels and Resorts, Starwood Hotels & Resorts Worldwide and Wyndham Worldwide Corporation.
In the timeshare business, we compete with other hotel and resort timeshare operators for sales of timeshare intervals based principally on location, quality of accommodations, price, financing terms, quality of service, terms of property use and opportunity for timeshare owners to exchange into time at other timeshare properties or other travel rewards. In addition, we compete based on brand name recognition and reputation, as well as with national and independent timeshare resale companies and owners reselling existing timeshare intervals, which could reduce demand or prices for sales of new timeshare intervals. Our competitors in the timeshare space include Hyatt Residence Club, Marriott Vacations Worldwide Corp., Starwood Vacation Ownership and Wyndham Vacation Resorts.
Seasonality
The hospitality industry is seasonal in nature. The periods during which our lodging properties experience higher revenues vary from property to property, depending principally upon location and the customer-base served. We generally expect our revenues to be lower in the first quarter of each year than in each of the three subsequent quarters, with the fourth quarter being the highest.
Cyclicality
The hospitality industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic indicators. There is a history of increases and decreases in demand for hotel rooms, in occupancy levels and in room rates realized by owners of hotels through economic cycles. The combination of changes in economic conditions and in the supply of hotel rooms can result in significant volatility in results for owners and managers of hotel properties. The costs of running a hotel tend to be more fixed than variable. As a result, in an environment of declining revenues the rate of decline in earnings can be higher than the rate of decline in revenues. The vacation ownership business also is cyclical as the demand for vacation ownership units is affected by the availability and cost of financing for purchases of vacation ownership units, as well as general economic conditions and the relative health of the housing market.
Intellectual Property
In the highly competitive hospitality industry in which we operate, trademarks, service marks, trade names and logos are very important to the success of our business. We have a significant number of trademarks, service marks, trade names, logos and pending registrations and expend significant resources each year on surveillance, registration and protection of our trademarks, service marks, trade names and logos, which we believe have become synonymous in the hospitality industry with a reputation for excellence in service and authentic hospitality.
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Government Regulation
Our business is subject to various foreign and U.S. federal and state laws and regulations, including: laws and regulations that govern the offer and sale of franchises, many of which impose substantive requirements on franchise agreements and require that certain materials be registered before franchises can be offered or sold in a particular state; and extensive state and federal laws and regulation relating to our timeshare business, primarily relating to the sale and marketing of timeshare intervals.
In addition, a number of states regulate the activities of hospitality properties and restaurants, including the sale of liquor at such properties, by requiring licensing, registration, disclosure statements and compliance with specific standards of conduct. Operators of hospitality properties also are subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of our properties and could otherwise adversely affect our operations.
We also manage and own hotels with casino gaming operations as part of or adjacent to the hotels. However, with the exception of casinos at certain of our properties in Puerto Rico and one property in Egypt, third parties manage and operate the casinos. We hold and maintain the casino gaming license and manage the casinos located in Puerto Rico and Egypt and employ third-party compliance consultants and service providers. As a result, our business operations at these facilities are subject to the licensing and regulatory control of the local regulatory agency responsible for gaming licenses and operations in those jurisdictions.
Finally, as an international owner, operator and franchisor of hospitality properties in 90 countries and territories, we also are subject to the local laws and regulations in each country in which we operate, including employment laws and practices, privacy laws, tax laws, which may provide for tax rates that exceed those of the United States and which may provide that our foreign earnings are subject to withholding requirements or other restrictions, unexpected changes in regulatory requirements or monetary policy and other potentially adverse tax consequences.
Environmental Matters
We are subject to certain requirements and potential liabilities under various foreign and U.S. federal, state and local environmental, health and safety laws and regulations and incur costs in complying with such requirements. These laws and regulations govern actions including air emissions, the use, storage and disposal of hazardous and toxic substances, and wastewater disposal. In addition to investigation and remediation liabilities that could arise under such laws, we may also face personal injury, property damage, fines or other claims by third parties concerning environmental compliance or contamination. In addition to our hotel accommodations, we operate a number of laundry facilities located in certain areas where we have multiple properties. We use and store hazardous and toxic substances, such as cleaning materials, pool chemicals, heating oil and fuel for back-up generators at some of our facilities, and we generate certain wastes in connection with our operations. Some of our properties include older buildings, and some may have, or may historically have had, dry-cleaning facilities and underground storage tanks for heating oil and back-up generators. We have from time to time been responsible for investigating and remediating contamination at some of our facilities, such as contamination that has been discovered when we have removed underground storage tanks, and we could be held responsible for any contamination resulting from the disposal of wastes that we generate, including at locations where such wastes have been sent for disposal. In some cases, we may be entitled to indemnification from the party that caused the contamination, or pursuant to our management or franchise agreements, but there can be no assurance that we would be able to recover all or any costs we incur in addressing such problems. From time to time, we may also be required to manage, abate, remove or contain mold, lead, asbestos-containing materials, radon gas or other hazardous conditions found in or on our properties. We have implemented an on-going operations and maintenance plan at each of our owned and operated properties that seeks to identify and remediate these conditions as appropriate. Although we have incurred, and expect that we will continue to incur, costs relating to
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the investigation, identification and remediation of hazardous materials known or discovered to exist at our properties, those costs have not had, and are not expected to have, a material adverse effect on our financial condition, results of operations or cash flow.
Insurance
We maintain insurance coverage for general liability, property including business interruption, terrorism, workers compensation and other risks with respect to our business for all of our owned hotels. Most of our insurance policies are written with self-insured retentions or deductibles that are common in the insurance market for similar risks. These policies provide coverage for claim amounts that exceed our self-insured retentions or deductibles. Our insurance provides coverage related to any claims or losses arising out of the design, development and operation of our hotels.
U.S. hotels that we manage are permitted to participate in our insurance programs by mutual agreement with our hotel owners or, if not participating, must purchase insurance programs consistent with our requirements. U.S. franchised hotels are not permitted to participate in our insurance programs but rather must purchase insurance programs consistent with our requirements. Non-U.S. managed and franchised hotels are required to participate in certain of our insurance programs. All other insurance programs purchased by hotel owners must meet our requirements. In addition, our management and franchise agreements typically include provisions requiring the owner of the hotel property to indemnify us against losses arising from the design, development and operation of our hotels.
Employees
Our talent management strategy is driven by the simple principle of hiring the best person for each job and giving them the opportunity to do great work and to grow in their career. As of June 30, 2013, approximately 147,000 people were employed at our managed, owned, leased, timeshare and corporate locations in 90 countries and territories around the world. There are an additional estimated 160,000 individuals working at our franchised locations that we do not employ or supervise.
Approximately 27% of our employees globally (or 30% of our employees in the United States) are covered by various collective bargaining agreements generally addressing pay rates, working hours, other terms and conditions of employment, certain employee benefits and orderly settlement of labor disputes.
Legal Proceedings
We are involved in various claims and lawsuits arising in the normal course of business, some of which include claims for substantial sums, including proceedings involving tort and other general liability claims, employee claims, consumer protection claims and claims related to our management of certain hotel properties. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. For those matters not covered by insurance, which include commercial matters, we recognize a liability when we believe the loss is probable and can be reasonably estimated. The ultimate results of claims and litigation cannot be predicted with certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.
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In re On-Line Travel Company (OTC)/Hotel Booking Antitrust Litigation
We are a defendant in a federal multi-district litigation, currently pending in the U.S. District Court for the Northern District of Texas, which consolidates 30 previously separate actions originally filed in federal courts between August 2012 and February 2013. The consolidated amended complaint alleges that approximately a dozen hotel and online travel company defendants engaged in an anti-competitive scheme to fix the prices of hotel rooms in violation of federal and state antitrust and consumer protection laws. The defendants have filed a joint motion to dismiss the amended complaint on the basis that, among other things, the plaintiffs have failed to demonstrate facts sufficient to support their allegations of an industry-wide conspiracy. We dispute the allegations and will defend our interests vigorously. We currently do not believe the ultimate outcome of this litigation will have a material effect on our consolidated financial position, results of operations or liquidity.
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Directors and Executive Officers
The following table sets forth the names, ages and positions of our directors and executive officers as of the date of this prospectus. We expect to add additional, independent directors prior to the completion of this offering.
Name |
Age |
Position |
||||
Christopher J. Nassetta |
51 | President, Chief Executive Officer and Director | ||||
Jonathan D. Gray |
43 | Chairman of the Board of Directors | ||||
Michael S. Chae |
45 | Director | ||||
Tyler S. Henritze |
33 | Director | ||||
Judith M. McHale |
66 | Director | ||||
John G. Schreiber |
66 | Director | ||||
Douglas M. Steenland |
62 | Director | ||||
William J. Stein |
51 | Director | ||||
Kristin A. Campbell |
52 | Executive Vice President and General Counsel | ||||
Ian R. Carter |
52 | President, Development, Architecture and Construction | ||||
Jeffrey A. Diskin |
52 | Executive Vice President, Commercial Services | ||||
James E. Holthouser |
54 | Executive Vice President, Global Brands | ||||
Kevin J. Jacobs |
40 | Executive Vice President and Chief Financial Officer | ||||
Matthew W. Schuyler |
48 | Executive Vice President and Chief Human Resources Officer | ||||
Mark D. Wang |
56 | President, Global Sales & Hilton Grand Vacations |
Christopher J. Nassetta joined Hilton Worldwide as President and Chief Executive Officer in December 2007 and has served as a director of Hilton Worldwide since that time. Previously, he was President and Chief Executive Officer of Host Hotels and Resorts, Inc., a position he held from May 2000 until October 2007. He joined Host in 1995 as Executive Vice President and was elected Chief Operating Officer in 1997. Before joining Host, Mr. Nassetta co-founded Bailey Capital Corporation, a real estate investment and advisory firm, in 1991. Prior to this, he spent seven years at The Oliver Carr Company, a commercial real estate company, where he ultimately served as Chief Development Officer. Mr. Nassetta is an Advisory Board member for the McIntire School of Commerce at the University of Virginia and is Vice Chairman of the Corporate Fund for The John F. Kennedy Center for the Performing Arts. He is a member of Federal City Council, a member of the Steering Committee of Partners for a New Beginning, and is on the boards of the International Youth Foundation, the Wolf Trap Foundation for the Performing Arts, the Economic Club of Washington, D.C. and CoStar Group, Inc. He is also a member and a past Chairman of The Real Estate Roundtable, an Executive Committee member of the World Travel & Tourism Council and has served in various positions at the Arlington Free Clinic. Mr. Nassetta graduated from the McIntire School of Commerce at the University of Virginia with a degree in Finance.
Jonathan D. Gray has served as a director of Hilton Worldwide since 2007. Mr. Gray has served as Blackstones global head of real estate since January 2012 and a member of the board of directors of Blackstone since February 2012. He also sits on Blackstones management and executive committees. Prior to being named global head of real estate at Blackstone, Mr. Gray served as a senior managing director and co-head of real estate from January 2005 to December 2011. Since joining Blackstone in 1992, Mr. Gray has helped build the largest private equity real estate platform in the world with $64 billion in investor capital under management as of June 30, 2013. Mr. Gray received a B.S. in Economics from the Wharton School, as well as a B.A. in English from the College of Arts and Sciences at the University of Pennsylvania, where he graduated magna cum laude and was elected to Phi Beta Kappa. He currently serves as a board member of the Pension Real Estate Association and Trinity School and is Chairman of the Board of Harlem Village Academies. Mr. Gray and his wife, Mindy, recently established the Basser Research Center at the University of Pennsylvania School of Medicine focused on the prevention and treatment of certain genetically caused breast and ovarian cancers.
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Michael S. Chae has served as a director of Hilton Worldwide since 2007. Mr. Chae has been a senior managing director of Blackstone since January 2005 and serves as head of international private equity at Blackstone. Since joining Blackstone, Mr. Chae has been involved in numerous private equity investments for Blackstone globally. Before joining Blackstone, he worked at The Carlyle Group, L.P. and prior to that, with Dillon, Read & Co. He serves as a member of the Board of Trustees of the Lawrenceville School. Mr. Chae graduated from Harvard College, and received an M.Phil. from Cambridge University and a J.D. from Yale Law School.
Tyler S. Henritze has served as a director of Hilton Worldwide since 2013. Mr. Henritze has been a senior managing director in the real estate group at Blackstone since January 2013 and currently focuses on investment opportunities in the lodging sector. Prior to being named a senior managing director at Blackstone, Mr. Henritze served as a managing director from January 2011 to December 2012 and as principal from January 2009 to December 2010. Since joining Blackstone in 2004, Mr. Henritze has been involved in over $50 billion of real estate investments across all property types. He played a key role in acquisitions including Motel 6, Duke Realty Office Portfolio, Valad Property Group, Extended Stay Hotels, Equity Office Properties Trust, CarrAmerica Realty, La Quinta and Wyndham International. Before joining Blackstone, Mr. Henritze worked at Merrill Lynch in the real estate investment banking group and was involved in a variety of debt, equity and M&A transactions. Mr. Henritze received a B.S. in Commerce from The McIntire School at the University of Virginia, where he graduated with distinction. He is a member of the IREFAC Council of the American Hotel and Lodging Association and is active with City Year NY, serving on its investment community board.
Judith A. McHale has served as a director of Hilton Worldwide since 2013. Ms. McHale has served as President and Chief Executive Officer of Cane Investments, LLC since August 2011. From May 2009 to July 2011, Ms. McHale served as Under Secretary of State for Public Diplomacy and Public Affairs for the U.S. Department of State. From 2006 to March 2009, Ms. McHale served as a Managing Partner in the formation of GEF/Africa Growth Fund. Prior to that, Ms. McHale served as the President and Chief Executive Officer of Discovery Communications. Ms. McHale currently serves on the board of directors of Ralph Lauren Corporation and SeaWorld Entertainment, Inc. Ms. McHale graduated from the University of Nottingham in England and Fordham University School of Law.
John G. Schreiber has served as a director of Hilton Worldwide since 2007. Mr. Schreiber has served as the President of Centaur Capital Partners since April 1991 and a Partner and Co-Founder of Blackstone Real Estate Advisors (BREA) since October 1992. As Co-Chairman of the BREA Investment Committee, Mr. Schreiber has overseen all Blackstone real estate investments since 1992. During the past 20 years, Blackstone has invested over $40 billion of equity in a wide variety of real estate transactions. Previously, Mr. Schreiber served as Chairman and CEO of JMB Urban Development Co. and Executive Vice President of JMB Realty Corp. During his twenty-year career at JMB, Mr. Schreiber was responsible for over $10 billion of firm and client real estate investments and had overall responsibility for the firms shopping center development activities. Mr. Schreiber is a past board member of Urban Shopping Centers, Inc., Host Hotels & Resorts, Inc., The Rouse Company, AMLI Residential Properties Trust and General Growth Properties and he currently serves on the board of JMB Realty Corp., Brixmor Property Group and Blackstone Mortgage Trust and is a director/trustee to the mutual funds managed by T. Rowe Price Associates. Mr. Schreiber graduated from Loyola University of Chicago and received an M.B.A. from Harvard Business School.
Douglas M. Steenland has served as a director of Hilton Worldwide since 2009. Mr. Steenland worked for Northwest Airlines Corporation from September 1991 to October 2008, serving as Chief Executive Officer from April 2004 to October 2008 and as President from February 2001 to April 2004. During his tenure at Northwest Airlines, he also served as Executive Vice President, Chief Corporate Officer and Senior Vice President and General Counsel. Mr. Steenland was Chief Executive Officer of Northwest Airlines at the time it filed for Chapter 11 bankruptcy in 2005 following a period of rising fuel prices and other challenges and oversaw its emergence from bankruptcy in 2007. Mr. Steenland retired from Northwest Airlines upon its merger with Delta Air Lines, Inc. Prior to his time at Northwest Airlines, Mr. Steenland was a senior partner at a Washington, D.C.
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law firm that is now part of DLA Piper. Mr. Steenland is currently a director of American International Group, Inc., where he serves on the finance and risk management committee and the regulatory, compliance and public policy committee; Chrysler Group LLC, where he serves on the audit committee; Digital River, Inc., where he serves on the compensation committee; and Travelport Limited, where he serves on the compensation and audit committees. In the past five years, Mr. Steenland has also served as a director of Delta Airlines, Inc. and Northwest Airlines Corporation. Mr. Steenland received a B.A. from Calvin College and is a graduate from The George Washington University Law School.
William J. Stein has served as a director of Hilton Worldwide since 2007. Mr. Stein has been a senior managing director of Blackstone since January 2006 and serves as global head of asset management in Blackstones real estate group. Since joining Blackstone in 1997, Mr. Stein has been involved in the direct asset management and asset management oversight of Blackstones global real estate assets. Before joining Blackstone, Mr. Stein was a Vice President at Heitman Real Estate Advisors and JMB Realty Corp. Mr. Stein received a B.B.A. from the University of Michigan and an M.B.A. from the University of Chicago.
Kristin A. Campbell joined Hilton Worldwide as Executive Vice President and General Counsel in June 2011. She is responsible for leading Hilton Worldwides global legal, compliance and government relations functions. Prior to Hilton Worldwide, Ms. Campbell was Senior Vice President, General Counsel and Corporate Secretary of Staples, Inc., an international office products company from May 2007 to June 2011. Before joining Staples, Inc. in 1993, Ms. Campbell worked at the law firms Goodwin Procter LLP and Rackemann, Sawyer & Brewster. Ms. Campbell graduated summa cum laude from Arizona State University and received a J.D. from Cornell University Law School.
Ian R. Carter has served as President, Development, Architecture and Construction for Hilton Worldwide since October 2012 and previously oversaw Operations since August 2009 for Hilton Worldwide. He previously served as Chief Executive Officer of Hilton International Co. prior to its re-acquisition by Hilton Worldwide in February 2006. Prior to joining Hilton International in January 2005, Mr. Carter served as Officer and President of Black & Decker Corporation, Middle East, Africa and Asia. Prior to Black & Decker, Mr. Carter spent more than a decade with General Electric Plastics, ultimately serving as President of General Electric Specialty Chemical. Mr. Carter serves as a non-Executive Director on the Board of Burberry Group plc, where he serves as chairman of the compensation committee, and is a Patron of Hospitality in Action and Chairman of the Hilton in the Community Foundation. He is also Chairman of the International Tourism Partnership. He serves on the board of the International Business Leaders Forum and the board of advisors of Boston University School of Hospitality Administration, serves as a Commissioner of the California Travel and Tourism Commission and is a fellow of the Institute of Hospitality. Mr. Carter is a graduate of the University of West London, School of Business and Management, and received an honorary doctorate from the university.
Jeffrey A. Diskin has served as Executive Vice President of Commercial Services at Hilton Worldwide since November 2012 and oversees Customer Marketing, Revenue Management, E-Commerce and Online Service divisions globally, including our Hilton HHonors guest loyalty program. From March 2009 to November 2012, Mr. Diskin was Senior Vice President of Global Customer Marketing, and prior to that role he was Senior Vice President, Brand Management. Mr. Diskin first joined Hilton in 1988 and has held numerous marketing and management positions since that time, including roles where he was responsible for developing the companys customer marketing websites and online strategies to overseeing our Hilton and luxury brands. He was also President and Chief Operating Officer of the Hilton HHonors Worldwide subsidiary from March 1997 to June 2004. Before joining Hilton, Mr. Diskin worked for MPI, a subsidiary of United Airlines, specializing in loyalty program design and implementation. Mr. Diskin is Chairman of the Room Key board, and was previously a board director for Doubletree Hotel Systems, Inc., Hilton Inns, Inc. and Promus Hotels Inc. He was elected president of the Frequent Traveler Marketing Association, and has been a recipient of three annual Best in Show awards from Hospitality Sales and Marketing Association International.
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James E. Holthouser has served as Hilton Worldwides Executive Vice President of Global Brands since November 2012. In this role, he serves as our global leader for brand management and customer marketing. Mr. Holthouser also oversees the Product Management group and the Global Brands Strategy group. The Product Management group is responsible for the development and management of products for Food & Beverage, Meetings & Events, Spa, Fitness, Guest Technology and Sustainability. The Global Brands Strategy group is responsible for developing strategies for all brand and product groups across the enterprise. With more than 20 years of experience in the lodging, restaurant and gaming industries, Mr. Holthouser has held a series of senior management positions within Hilton Worldwide in the branding, franchising and marketing arenas. Most recently, he was Global Head of Full Service Brands and Global Head of Embassy Suites Hotels from June 2009 to November 2012, overseeing all aspects of brand management. From October 2005 to June 2009, Mr. Holthouser was Senior Vice President of Brand Management for Embassy Suites. From February 1999 to October 2005, Mr. Holthouser served as Senior Vice President of Brand Management for Homewood Suites by Hilton. His career with the company began in 1989 in Market Research for Promus. Mr. Holthouser received his M.A. in Economics and Political Science from the University of Louisville and his international M.B.A. from the American Graduate School of International Management. He received undergraduate degrees from the University of Louisville in Political Science and Foreign Languages.
Kevin J. Jacobs serves as Executive Vice President and Chief Financial Officer of Hilton Worldwide and is responsible for the oversight of all of our global finance, information technology and real estate functions. He joined Hilton Worldwide as Senior Vice President, Corporate Strategy in June 2008, was elected Treasurer in May 2009, became Executive Vice President and Chief of Staff in September 2012 and assumed his current role in August 2013. Previously, from July 2007 to June 2008 he was Senior Vice President, Mergers & Acquisitions and Treasurer of Fairmont Raffles Hotels International. Prior to joining Fairmont Raffles, Mr. Jacobs spent seven years with Host Hotels & Resorts, Inc., most recently as Vice President, Corporate Finance & Investor Relations. Prior to joining Host, Mr. Jacobs held various roles in the Hospitality Consulting practice of PricewaterhouseCoopers LLP and the Hospitality Valuation Group at Cushman & Wakefield, Inc. Mr. Jacobs is a member of the Advisory Board of the Center for Hospitality Research at Cornell University and a member of the Hotel Development Council of the Urban Land Institute. He is a graduate of the Cornell University School of Hotel Administration.
Matthew W. Schuyler has served as our Executive Vice President and Chief Human Resources Officer since June 2009 and leads the companys global human resources organization. Mr. Schuyler was previously Chief Human Resources Officer at Capital One Financial Corporation from April 2002 to June 2009. Prior to Capital One, Mr. Schuyler served as Vice President of Human Resources with Cisco Systems, Inc. and as a Partner with PricewaterhouseCoopers in the Global Human Resources Group. He serves on the board of the Make-A-Wish Foundation of America, where he serves as chairman of the compensation committee, and is a member of the Penn State University Business School Board of Visitors and Penn States College of Information Sciences and Technology Advisory Board. Mr. Schuyler holds a B.S. from Penn State University and an M.B.A. from the University of Michigan.
Mark D. Wang has served as President of Hilton Worldwide Global Sales since November 2012 and Hilton Grand Vacations since March 2008. In his Global Sales role, Mr. Wang is responsible for sales operations worldwide including hotel sales, distribution, reservations and customer care. He also oversees our global timeshare operations for Hilton Grand Vacations. Mr. Wang first joined Hilton in 1999 as Managing Director for Hawaii and Asia Pacific and has held a series of senior management positions within Hilton Grand Vacations. Before joining Hilton, Mr. Wang spent nearly 20 years in sales and marketing roles serving as President & Chief Operating Officer of Pahio Resorts, President of Aloha Resorts International and Founder of Grand Ownership Resorts. Mr. Wang serves on the Board of Directors of the American Resort Development Association.
There are no family relationships among any of our directors or executive officers.
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Our Corporate Governance
We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders. Notable features of our corporate governance include:
| Blackstone has advised us that, when it ceases to own a majority of our common stock, it will ensure that its employees will no longer constitute a majority of our board of directors; |
| our board of directors is not classified and each of our directors is subject to re-election annually; |
| under our bylaws and our corporate governance guidelines, directors (other than directors designated pursuant to our stockholders agreement) who fail to receive a majority of the votes cast in uncontested elections will be required to submit their resignation to our board of directors; |
| we will have a fully independent audit committee and independent director representation on our compensation and nominating and corporate governance committees immediately at the time of the offering, and our independent directors will meet regularly in executive sessions without the presence of our corporate officers or non-independent directors; |
| we anticipate that at least one of our directors will qualify as an audit committee financial expert as defined by the SEC; |
| we do not have a stockholder rights plan, and if our board of directors were ever to adopt a stockholder rights plan in the future without prior stockholder approval, our board of directors would either submit the plan to stockholders for ratification or cause the rights plan to expire within one year; and |
| we will implement a range of other corporate governance best practices, including placing limits on the number of directorships held by our directors to prevent overboarding and implementing a robust director education program. |
Composition of the Board of Directors after this Offering
Prior to the completion of this offering, we expect that additional, independent directors will be elected to our board of directors.
Upon completion of this offering, our charter and bylaws will provide that our board of directors will consist of such number of directors as may from time to time be fixed by our board of directors. So long as our existing owners and their affiliates together continue to beneficially own at least 5% of the total shares of our common stock entitled to vote generally in the election of our directors as of the record date of such meeting, we will agree to nominate individuals designated by Blackstone for election as directors as specified in our stockholders agreement and Blackstone must consent to any change to the number of our directors. Each director will serve until our next annual meeting and until his or her successor is duly elected and qualifies or until the directors earlier death, resignation or removal. For a description of Blackstones right to require us to nominate its designees to our board of directors, see Certain Relationships and Related Person TransactionsStockholders Agreement.
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Background and Experience of Directors
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focuses primarily on each persons background and experience as reflected in the information discussed in each of the directors individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. In particular, the members of our board of directors considered the following important characteristics, among others:
| Mr. Nassettawe considered his experience as an executive in the hospitality industry, his extensive financial background and experience with real estate investments. Furthermore, we also considered how his additional role as our President and Chief Executive Officer would bring management perspective to board deliberations and provide valuable information about the status of our day-to-day operations. |
| Mr. Graywe considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, his experience in working with the management of various other companies owned by Blackstones funds, his experience with real estate investing and his extensive financial background. |
| Mr. Chaewe considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, his experience in working with the management of various other companies owned by Blackstones funds and his extensive financial background. |
| Mr. Henritzewe considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, his experience in working with the management of various other companies owned by Blackstones funds, his experience with real estate investing and his extensive financial background. |
| Ms. McHalewe considered her extensive business and management expertise, including her experience as an executive officer and director of several public companies, as well as her prior service as a high-ranking official in the U.S. Department of State. |
| Mr. Schreiberwe considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, his experience in working with the management of various other companies owned by Blackstones funds, his experience with real estate investing and his extensive financial background. |
| Mr. Steenlandwe considered his experience in managing large, complex, international institutions generally and his experience as an executive in the travel and hospitality industries in particular. |
| Mr. Steinwe considered his 16-year tenure with Blackstone involving the direct asset management and asset management oversight of Blackstones global real estate assets, his extensive financial background and experience as an asset manager focusing on real estate and hospitality investments. |
Controlled Company Exception
After the completion of this offering, affiliates of Blackstone who are party to the stockholders agreement will continue to beneficially own shares representing more than 50% of the voting power of our shares eligible to vote in the election of directors. As a result, we will be a controlled company within the meaning of corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our board of directors consist of independent directors, (2) that our board of directors have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committees purpose and responsibilities and (3) that our board of directors have a nominating and corporate governance committee that is
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comprised entirely of independent directors with a written charter addressing the committees purpose and responsibilities. For at least some period following this offering, we intend to utilize these exemptions. As a result, although we will have a fully independent audit committee and have independent director representation on our compensation and nominating and corporate governance committees upon closing this offering, immediately following this offering we do not expect the majority of our directors will be independent or that our compensation committee or nominating and corporate governance committee will be comprised entirely of independent directors. Accordingly, although we may transition to fully independent compensation and nominating and corporate governance committees prior to the time we cease to be a controlled company, for such period of time you will not have the same protections afforded to stockholders of companies that are subject to all of these corporate governance requirements. In the event that we cease to be a controlled company and our shares continue to be listed on , we will be required to comply with these provisions within the applicable transition periods.
Committees of the Board of Directors
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below. Our board of directors may also establish from time to time any other committees that it deems necessary or desirable.
Audit Committee
Upon completion of this offering, we expect our audit committee will consist of and , with serving as chair. and qualify as independent directors under governance standards and the independence requirements of Rule 10A-3 of the Exchange Act. The audit committee has oversight responsibilities regarding:
| the adequacy and integrity of our financial statements and our financial reporting and disclosure practices; |
| the soundness of our system of internal controls regarding finance and accounting compliance; |
| the annual independent audit of our consolidated financial statements; |
| the independent registered public accounting firms qualifications and independence; |
| the engagement of the independent registered public accounting firm; |
| the performance of our internal audit function and independent registered public accounting firm; |
| our compliance with legal and regulatory requirements in connection with the foregoing; and |
| compliance with our Code of Conduct. |
The audit committee shall also prepare the report of the committee required by the rules and regulations of the SEC to be included in our annual proxy statement.
Compensation Committee
Upon completion of this offering, we expect our compensation committee will consist of , and , with serving as chair. The compensation committee is authorized to discharge the boards responsibilities relating to:
| the establishment, maintenance and administration of compensation and benefit policies designed to attract, motivate and retain personnel with the requisite skills and abilities to contribute to the long term success of the Company; |
| the goals, objectives and compensation of our President and Chief Executive Officer, including evaluating the performance of the President and Chief Executive Officer in light of those goals; |
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| the compensation of our other executives and non-management directors; |
| our compliance with the compensation rules, regulations and guidelines promulgated by , the SEC and other law, as applicable; and |
| the issuance of an annual report on executive compensation for inclusion in our annual proxy statement, once required. |
Nominating and Corporate Governance Committee
Upon completion of this offering, we expect our nominating and corporate governance committee will consist of , and , with serving as chair. The nominating and corporate governance committee is authorized to:
| advise the board concerning the appropriate composition of the board and its committees; |
| identify individuals qualified to become board members; |
| recommend to the board the persons to be nominated by the board for election as directors at any meeting of stockholders; |
| recommend to the board the members of the board to serve on the various committees of the board; |
| develop and recommend to the board a set of corporate governance guidelines and assist the board in complying with them; and |
| oversee the evaluation of the board, the boards committees, and management. |
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one of our executive officers or employees. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Director Compensation
None of our directors other than Mr. Steenland received compensation for the year ended December 31, 2012. For 2012, Mr. Steenland received a quarterly stipend of $31,250 for serving on our board of directors and as chairman of our audit committee. Our employee directors and Sponsor-affiliated directors receive no additional compensation for serving on the board of directors or committees thereof. We anticipate that each outside director (other than the directors employed by our Sponsor) will be entitled to compensation arrangements to be determined.
Executive Compensation
Compensation Discussion and Analysis
Section Overview
Our executive compensation program is designed to attract and retain individuals with the skills and qualifications to manage and lead the Company effectively. The overarching goal of our programs is to motivate our leaders to contribute to the achievement of our financial goals and to focus on long-term value creation for our stockholders.
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Our named executive officers, or NEOs, for 2012 were:
Name |
Position |
|
Christopher J. Nassetta |
President and Chief Executive Officer (CEO) | |
Thomas C. Kennedy |
Former Executive Vice President and Chief Financial Officer (CFO) (1) | |
Ian R. Carter |
Executive Vice President and President, Development, Architecture & Construction | |
Mark D. Wang |
Executive Vice President, Global Sales and President, Hilton Grand Vacations (HGV) | |
Kristin A. Campbell |
Executive Vice President and General Counsel | |
Paul J. Brown |
Former Executive Vice President and President, Global Brands and Commercial Services (2) |
(1) | Mr. Kennedy served as our Executive Vice President and Chief Financial Officer from September 15, 2008 until his resignation from these positions effective August 8, 2013. Mr. Kennedy agreed to provide services to the Company following his resignation until the earlier of December 31, 2013 or the date he commences employment with a new employer. On August 8, 2013, Kevin J. Jacobs, previously our Executive Vice President and Chief of Staff, became our Executive Vice President and Chief Financial Officer. |
(2) | Mr. Brown served as our Executive Vice President and President, Global Brands and Commercial Services from November 13, 2008 until his resignation from this position effective November 1, 2012. Mr. Brown provided services to the Company as a Special Advisor to the CEO through April 30, 2013. |
Executive Summary
Compensation Philosophy and Approach . At Hilton Worldwide, we expect our executive team to possess and demonstrate strong leadership and management capabilities. To reward and retain our leaders, including our NEOs, we have designed a total compensation approach that rewards both short-term and long-term success.
Compensation Objectives . Our compensation program for executives is designed to support the following objectives:
| foster a strong relationship between stockholder value and executive compensation by having a significant portion of compensation composed of equity-based incentive awards; |
| provide annual and long-term incentive awards that emphasize performance-based compensation contingent upon achieving corporate and individual performance goals; and |
| provide overall levels of compensation that are competitive to attract, retain and motivate highly-qualified executives to continue to enhance long-term equity value. |
Program Design . Our executive compensation program has three main components: (1) base salary; (2) annual cash incentive compensation; and (3) long-term incentive awards. Each component is designed to be consistent with the Companys compensation philosophy.
To align pay with the interests of our stockholders, we strive to create competitive compensation packages for all employees that cultivate long-term growth without taking unnecessary risks. We believe that a combination of both short-term and long-term compensation creates an optimal pay-for-performance environment. We motivate and reward NEOs for successfully executing our business strategy. The compensation program for our NEOs has been designed to emphasize variable pay over fixed pay, which directly ties to our objectives to retain valuable talent, yet also create a motivated work environment that rewards long-term achievements.
Pay for Performance . In structuring our executive compensation packages, the compensation committee of our board of directors considers how each element of compensation promotes retention and motivates
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performance. We believe that, to attract and retain senior executives, we must provide them with a competitive level of predictable compensation that rewards their continued service. We also believe that performance-based compensation plays the most significant role in aligning managements interests with those of our stockholders. For this reason, performance-based compensation constitutes a substantial portion of the overall compensation for our senior executives. Our compensation packages are designed to promote hospitality, integrity, leadership, teamwork, ownership and initiative by team members whose performance and responsibilities directly impact our results of operations.
As we transition from being privately held to publicly traded, we intend to critically evaluate our executive compensation program annually, or more frequently as circumstances require, to maintain a competitive environment for talent and to ensure that our incentive programs are achieving their desired results. Consistent with prior practice, we do not intend to adhere to rigid formulas or react to short-term changes in business performance in determining the amount and mix of compensation elements. We expect to continue to emphasize pay-for-performance and long-term incentive compensation when designing our executive officers compensation.
Employment Agreements . As discussed in more detail below, we previously entered into employment agreements with Messrs. Nassetta, Kennedy, Carter and Brown to attract and retain these executives. These agreements generally have similar provisions that define the nature of each NEOs employment, compensation and benefits provided in connection with his initial employment (such as initial base salary and/or other personal benefits or perquisites), compensation and benefits upon termination and restrictive covenants relating to intellectual property, confidential information and competitive business activities. See Narrative to Summary Compensation Table and 2012 Grants of Plan-Based AwardsEmployment Agreements. The compensation committee believes that employment agreements will no longer be necessary to attract members of our executive team following the offering, and therefore, the Company and Messrs. Nassetta and Carter are expected to mutually agree to terminate their respective employment agreements in connection with this offering. Due to the changing marketplace in which we compete for talent, the compensation committee intends to regularly review this practice to help ensure that we remain competitive in our industry.
Our Annual Compensation-Setting Process
Role of Our Compensation Committee . The compensation committee is responsible for overseeing key aspects of the executive compensation program, including executive salaries, goals and payouts under the annual cash incentive plan, the size and structure of equity awards and any executive perquisites or other benefits. The compensation committee is responsible for determining the compensation of the CEO and reviews and recommends compensation of other executive officers for the board of directors to approve. At the beginning of each performance cycle, the compensation committee approves financial goals designed to align executive pay with company performance and stockholder interests, provide competitive pay opportunities dependent on performance, retain talent, create optimal stockholder value and mitigate material risk.
Role of Management . The compensation committee approves all compensation decisions with respect to our NEOs. In setting executive compensation for 2012, our CEO and our Chief Human Resources Officer (CHRO) worked closely with the compensation committee in managing the executive compensation program and attended meetings of the compensation committee. Because of his daily involvement with the executive team, the CEO made recommendations to the compensation committee regarding compensation for the executive officers other than himself.
Role of the Compensation Consultant . The compensation committee has the authority to engage its own advisors to assist in carrying out its responsibilities. In May 2012, after completing a thorough review process, the compensation committee selected Exequity, LLP, or Exequity, as its independent compensation consultant to assist the compensation committee in providing analytical data and establishing and implementing our executive and director compensation strategy in the short- and long-term. Following their selection, Exequity has advised
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us in selecting our current Peer Group (as described below), provides us with compensation data for the Peer Group and has advised on best practices when developing executive pay programs and policies. Exequity reports to and is instructed in its duties by the compensation committee and carries out its responsibilities in coordination with the Human Resources department. Exequity performs no other services for the Company.
Use of Comparative Market Data. We aim to compensate our executive officers competitively in the market for executive talent. When determining final target pay levels, the compensation committee reviews and considers individual factors, such as the knowledge, experience and capabilities of each executive.
Historically, in order to gain a general understanding of current compensation practices, the compensation committee has analyzed pay of executives serving in similar positions at peer companies with whom we compete for hiring and retaining executive talent. The external market data reviewed for 2012 included peer group proxy data, several broad industry-comparative compensation surveys that included many of the companies contained in the Peer Group as defined below, and data provided by peer group companies that participate in Equilars Annual Top 25 Survey.
Following the retention of Exequity in May 2012, the compensation committee, with the assistance of Exequity, selected a group of peer companies, which we refer to as our Peer Group. Exequity provided the compensation committee with annual (base salary and annual incentive) and long-term (equity and long-term cash incentive) compensation for the Peer Group.
The metrics used for selecting the Peer Group included the industry, annual revenue, EBITDA, market capitalization, brand recognition, global presence and number of employees. Other factors considered were performance measures such as revenue growth, net income growth, earnings per share growth, return on equity and total stockholder return.
The Peer Group currently consists of the following companies:
Avis Budget Group, Inc. |
McDonalds Corporation |
|
Darden Restaurants, Inc. |
MGM Resorts International |
|
FedEx Corporation |
Nike, Inc. |
|
General Mills, Inc. |
Starbucks Corporation |
|
Hyatt Hotels Corporation |
Starwood Hotels & Resorts Worldwide, Inc. |
|
Host Hotels & Resorts, Inc. |
United Continental Holdings, Inc. |
|
Kellogg Company |
The Walt Disney Company |
|
Las Vegas Sands Corp. |
Wyndham Worldwide Corporation |
|
Marriott International, Inc. |
Wynn Resorts, Limited |
The compensation committee generally reviewed the compensation data regarding the Peer Group and determined not to make any changes to the NEOs 2012 compensation. Going forward, the compensation committee does not intend to set compensation using a formula based solely on the Peer Group compensation data but instead intends to continue to use the Peer Group compensation data to generally inform the compensation committee regarding competitive pay levels with a focus on the median level for each pay component.
Compensation Elements
The compensation committee recognizes the need to develop a compensation program that responds to the executive talent market in such a way that we can attract individuals of the highest caliber. To accomplish this, the compensation committee considers the competitive landscape in determining the mix of compensation elements, the level of compensation and other specific terms of compensation packages. We seek to attract and retain executives by offering the opportunity to earn a competitive compensation package.
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When designing and establishing NEO pay for the year ended December 31, 2012, the compensation committee worked with management, specifically our CEO and CHRO, to design a program that rewarded performance without encouraging excessive risk-taking to achieve such performance. We directed our corporate goals toward executing on our business strategy to achieve strong financial performance and company growth in 2012 and aligned incentives accordingly.
Base Salary
We believe it is important to provide a competitive fixed level of pay to attract and retain experienced and successful executives. In determining the amount of base salary that each NEO receives, we look to the executives current compensation, time in position, any change in the executives position or responsibilities, including complexity and scope and the relation of his or her position to those of other executives within the Company and in similar positions at peer companies. Base salaries are reviewed annually or at other times when appropriate and may be increased from time to time pursuant to such review, but other than with respect to Mr. Wang, have not been adjusted since each of the NEOs commencement of employment. Mr. Wangs base salary was adjusted by $13,000 in April 2012 in connection with the elimination of his auto allowance.
Annual Cash Incentive Compensation
Our annual cash incentive program rewards NEOs for their contributions towards specific annual, short-term financial and operational goals and is designed to motivate executive officers to focus on company-wide priorities and reward them for individual results and achievements with respect to their business units or function.
For the year ended December 31, 2012, our annual cash incentive compensation plan compensated and rewarded successful achievement of both short-term financial and non-financial goals that were closely aligned with the long-term goals of the Company. The 2012 annual incentive program was based on a combination of (1) financial performance and (2) individual performance.
The financial component of our NEOs annual bonus opportunity, other than for Mr. Wang, was based on the Companys consolidated Adjusted EBITDA (calculated as set forth in the section entitled SummarySummary Historical Financial Data). Due to Mr. Wangs role as President of HGV, 20% of the financial component for his annual bonus opportunity was based on the Companys consolidated Adjusted EBITDA and 80% of the financial component was based on our timeshare segments Adjusted EBITDA (calculated as set forth in SummarySummary Historical Financial Data).
The individual performance component was measured by (A) the performance of the consolidated business unit(s) that the executive oversaw and (B), as to our NEOs other than Mr. Nassetta, the executives achievement of individual competency goals. The financial component composed 50% of the total award opportunity, and the individual performance component composed 50% of the total award opportunity, with 80% (100% in the case of Mr. Nassetta) of the individual performance component based on the achievement of performance objectives tied to the consolidated business unit(s) that the executive oversaw and 20% of the individual performance component based on the executives achievement of individual competency goals.
Each NEOs target annual bonus is expressed as a percentage of his or her base salary and ranges from 60% to 100% of base salary. The annual incentive target bonus opportunities and corresponding minimum and maximum bonus as a percentage of each executives base salary are approved annually by the compensation committee. The annual incentive target bonus opportunities were established in 2008, or, if later, the NEOs commencement of employment, and have not been adjusted since that time. For the year ended December 31,
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2012, the NEOs target and maximum bonus opportunity as a percentage of such executives base salary were as follows:
Name |
Target | Maximum | ||||||
Christopher J. Nassetta |
100.0% | 200.0 | % | |||||
Thomas C. Kennedy |
75.0% | 112.5 | % | |||||
Ian R. Carter |
60.0% | 90.0 | % | |||||
Mark D. Wang |
75.0% | 112.5 | % | |||||
Kristin A. Campbell |
75.0% | 112.5 | % | |||||
Paul J. Brown |
75.0% | 112.5 | % |
For the year ended December 31, 2012, the financial component of the bonus would be paid at 100% of target if the Companys consolidated Adjusted EBITDA was $1,903 million (and with respect to the 40% of Mr. Wangs total bonus opportunity subject to the performance of HGV, if our timeshare segments Adjusted EBITDA was $236 million). Participants were eligible to receive a threshold payout percentage, defined as 50% of the target bonus with respect to the financial component, if actual performance was 90% of target and were eligible to receive the maximum payout percentage, defined as 150% (200% with respect to Mr. Nassetta) of the target bonus with respect to the financial component, if actual performance met or exceeded 110% of target. For actual performance between the specified threshold, target and maximum levels, the resulting payout percentage would be adjusted on a linear basis.
For the year ended December 31, 2012, the Companys actual consolidated Adjusted EBITDA achieved was $1,956 million, or 103% of target, resulting in a payout percentage of 114% of target (128% for Mr. Nassetta) with respect to the company-wide financial component. The actual timeshare segment Adjusted EBITDA achieved was $252 million, or 107% of target, resulting in a payout percentage of 135% of target with respect to 40% of Mr. Wangs total bonus opportunity.
The remaining 50% portion of each NEOs annual cash incentive award, other than for Mr. Nassetta, was determined based on individual performance where 80% of the individual performance component was based on the achievement of performance objectives tied to the consolidated business unit(s) that the executive oversaw and 20% of the individual performance component was based on the executives achievement of qualitative individual competency goals.
In establishing the individual performance goals, Mr. Nassetta works with senior management to establish business priorities at the beginning of each performance year. These business priorities are used to create the individual performance objectives for our annual cash incentive program for each of the NEOs. The compensation committee then reviews and approves the individual performance objectives recommended for each NEO.
For the year ended December 31, 2012, the personal objectives of each NEO were generally focused on the core duties of his or her position. Each personal objective was given a specific weighting based on the scope, importance and overall time burden of the task. For the year ended December 31, 2012, the individual performance objectives (and the weightings assigned to each individual performance objective) for each of the NEOs were as follows:
| For Mr. Nassetta, the individual performance component of his annual compensation award was reviewed and approved by the compensation committee and was based on the Companys overall performance as well as a compilation of all of his direct reports objectives and success rates, each of which accounted for 12.5% of his individual performance component. The compensation committee considered the performance of our overarching business units, which include: Global Brands and Commercial Services; Operations and Development; Hilton Grand Vacations; Architecture, Design and Construction and Real Estate; Finance; Corporate Communications; Human Resources; and Legal. |
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| For Mr. Kennedy, in addition to the qualitative individual competency goals which account for 20% of the individual performance component, the compensation committee considered his preparation for the Companys public offering and status as a public company (16%); his implementation of global financial management information systems (16%); his success defining an optimal corporate structure (16%); his efforts improving productivity and reducing operating costs (12%); his expansion and standardization of a captive procurement organization (10%); and cost effectiveness (10%). |
| For Mr. Carter, in addition to the qualitative individual competency goals of 20%, the compensation committee considered the Companys operating margins (10%) and market share (8%); customer satisfaction (6%); his cost effectiveness (10%) and operational initiatives (10%); hotel openings (10%); hotel construction starts (10%); hotel development approvals (10%); and other development initiatives (6%). |
| For Mr. Wang, in addition to the qualitative individual competency goals of 20%, the compensation committee considered approved deals with a capital efficient structure (20%); efforts increasing industry-leading margins (20%) and maximizing synergy with Hilton Worldwide (14%); contributing to HGV member loyalty (6%); sales cost effectiveness (10%); and HGV cost effectiveness (10%). |
| For Ms. Campbell, in addition to the qualitative individual competency goals of 20%, the compensation committee considered her contribution to corporate governance policies, practices and structure (20%); efforts supporting the client base (20%), team member engagement (20%) and cost management (10%); and contribution to the Companys business plan (10%). |
| For Mr. Brown, in addition to the qualitative individual competency goals of 20%, the compensation committee considered his contribution to market share (8%); customer satisfaction (8%); IT initiatives (10%); development approvals (8%); implementation of sales and marketing initiatives (10%); other key initiatives (20%); organizational synergies (8%); and cost effectiveness (8%). |
Shortly after the completion of the year ended December 31, 2012, the compensation committee, with the help of the CEO, conducted a rigorous evaluation of each NEOs accomplishments in relation to the personal objectives set at the beginning of the year.
Actual annual cash incentive awards were calculated by multiplying each NEOs base salary by his or her target bonus potential, which was then adjusted by an achievement factor based on the combined achievement of the financial component and the individual performance objectives. Each of the NEOs earned annual cash incentive awards for the year ended December 31, 2012 as follows, which are included in the Non-Equity Incentive Plan column of the Summary Compensation Table:
Name |
2012 Year-
End Base Salary |
Target Bonus
as a Percentage of Base Salary |
Target Bonus
Potential |
Combined
Achievement Factor as a Percent of Target |
2012 Amount
Earned under Annual Cash Incentive Program* |
|||||||||||||||
Christopher J. Nassetta |
$ | 850,000 | 100 | % | $ | 850,000 | 127 | % | $ | 1,077,375 | ||||||||||
Thomas C. Kennedy |
650,000 | 75 | % | 487,500 | 117 | % | 572,569 | |||||||||||||
Ian R. Carter |
690,000 | 60 | % | 414,000 | 119 | % | 493,488 | |||||||||||||
Mark D. Wang (1) |
513,000 | 75 | % | 375,000 | 108 | % | 405,600 | |||||||||||||
Kristin A. Campbell (2) |
500,000 | 75 | % | 375,000 | 114 | % | 427,613 | |||||||||||||
Paul J. Brown |
600,000 | 75 | % | 450,000 | 110 | % | 497,025 |
* | Amounts may not total due to rounding. |
(1) | The compensation committee determined it was appropriate to award Mr. Wang an additional bonus of $94,400 in recognition of his increased duties and responsibilities overseeing Global Sales beginning October 2012. This additional discretionary bonus awarded to Mr. Wang is reported in the Bonus column of the Summary Compensation Table. Mr. Wangs bonus was calculated based on his $500,000 salary at the beginning of the year. |
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(2) | Ms. Campbell was guaranteed a bonus pursuant to her terms of employment of no less than $500,000 with respect to the year ended December 31, 2012. Therefore, Ms. Campbell received an additional bonus amount equal to $72,387, which reflects the guaranteed portion of her bonus in excess of the amount earned under the annual cash incentive program. This additional amount is reported in the Bonus column of the Summary Compensation Table. |
Long-Term Incentive Awards
Like the annual cash incentive compensation described above, long-term incentive awards are a key component of our executive compensation program.
Each NEO has been granted long-term incentive awards that provide our executives an incentive to remain in the Companys service and align executives interests with those of our equity holders and the investors in our parent company, BH Hotels Holdco LLC, which we refer to as BH Hotels or our Ultimate Parent. We believe this helps motivate performance and attracts and fosters the retention of senior executives.
Because we have been privately held, the long-term incentive compensation awarded to our NEOs primarily consisted of the opportunity to make investments in the capital interests of our Ultimate Parent, as discussed below and the grant of awards under a Tier I long-term equity-based incentive program that generally provides for the payment of cash amounts to selected participants based on the value of our Ultimate Parents equity over an extended period of time. In addition, our NEOs had the opportunity to receive Class B Units in our Ultimate Parent, which we sometimes refer to as Tier II awards. The principal terms of each of these grants are summarized immediately below and in Narrative to Summary Compensation Table and 2012 Grants of Plan-Based AwardsEquity Awards.
Tier I Awards . In December 2010, we offered certain members of our senior management team, including the NEOs employed at that time, the opportunity to participate in an equity-based incentive plan. These Tier I awards provided participants the opportunity to share in a portion of our Ultimate Parents equity value up to a specified amount based on the achievement of specified service and performance conditions. The maximum value available to be distributed in respect of all Tier I awards was approximately $230 million or 2.75% of the equity value of the Company (capped at a total equity value of $8.352 billion). The Tier I awards generally are payable in cash by us on the date that our Sponsor ceases to own 50% or more of the Class A Units in our Ultimate Parent (the Acceleration Date), so long as the participant is employed on that date. If, prior to the date on which a Tier I award becomes payable, a participants employment is terminated by us without cause or by the participant for good reason or as a result of disability or death, a portion of the award vests based on length of service (20% per year, with the vesting of a portion of the Tier I award payable to Mr. Nassetta measured from the date on which he commenced employment with the Company). The entire Tier I award is payable by us on an Acceleration Date or, if the Acceleration Date did not occur by April 2013, the program is structured to pay installments of a maximum aggregate value of $50 million per year (depending on the overall percentage of Tier I awards owned by participants) over three years, with the remaining value payable upon an Acceleration Date. Because none of our long-term incentive arrangements had resulted in any cash payments to our team between the end of 2007 and 2012, the compensation committee decided in the first quarter of 2012 to accelerate the installment payments. During the first quarter of 2012, the first installment payments for the Tier I awards were accelerated for our participating NEOs (other than Mr. Nassetta). In addition, during the fourth quarter of 2012, the second and third installment payments for the Tier I awards were accelerated and paid for our participating NEOs (other than Mr. Nassetta). With respect to Mr. Nassettas Tier I award, during the fourth quarter of 2012, our compensation committee determined to accelerate the payment of his remaining installment payments and Mr. Nassetta also received payment of an additional portion of such award as contemplated by the terms and conditions thereof. As a result of these payments as of December 31, 2012, the maximum potential remaining payment under the Tier I award was approximately $64.7 million across all Tier I recipients, including our NEOs. The amounts paid to each of the NEOs for their Tier I awards are reflected in the 2012 Option Exercises and Stock Vested table below, and the remaining value of each NEOs Tier I award is reflected in the Outstanding Equity Awards at 2012 Fiscal Year End table below.
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Tier II (Class B Units) . The Tier II units (Class B Units) of our Ultimate Parent are profits interests having economic characteristics similar to stock appreciation rights. Therefore, the Class B Units only have value to the extent there is an appreciation in the value of our business from and after the applicable date of grant. All of the Class B Units are exit-vesting units and will vest on the date when our Sponsor ceases to beneficially own more than 50% of the Class A Units, subject to the NEOs continued employment with the Company on such date. In addition, if the executives employment is terminated without cause, as a result of a constructive termination or as a result of disability or death (each as defined in the management subscription agreement for the Class B Units), then 20% of the Class B Units will be deemed to have vested ratably in equal, annual installments over five years, beginning on April 8, 2011 (or June 27, 2011 with respect to Ms. Campbell). For example, if the executive is terminated without cause on April 8, 2014, then 80% of the executives Class B Units will vest. As a further example, if a termination without cause occurs on or after April 8, 2015, then 100% of the Class B Units will vest. If the NEOs employment is terminated voluntarily by the NEO, other than as a result of a constructive termination, no unvested Class B Units will vest and, if the executive is terminated for cause, all Class B Units, whether vested or unvested, will be forfeited. The Class B Units awarded to our NEOs and outstanding as of fiscal year end are included in the Outstanding Equity Awards at 2012 Fiscal Year End table below.
The number of Class B Units granted to each NEO was determined based on each NEOs position, role and responsibilities within the organization as well as the overall market practice for privately held portfolio companies of private equity firms. No equity awards of Class B Units were made to the NEOs during the year ended December 31, 2012. The table below sets forth the total number of Class B Units previously granted to our NEOs.
Name |
Class B
Units Granted (#) |
|||
Christopher J. Nassetta |
81,028,782 | |||
Thomas C. Kennedy |
13,804,880 | |||
Ian R. Carter |
21,432,076 | |||
Mark D. Wang |
8,628,050 | |||
Kristin A. Campbell |
5,176,830 | |||
Paul J. Brown (1) |
17,256,100 |
(1) | In connection with his resignation, Mr. Brown forfeited all of his Class B Units. |
Class A Units . In addition to the Tier I awards and the Class B Units described above, Messrs. Nassetta, Kennedy, Carter, Wang and Brown also purchased for cash at fair market value Class A-2 Units in Parent, and Mr. Nassetta received a grant of 5,000,000 restricted equity units in our Ultimate Parent in connection with the commencement of his employment. On December 31, 2012, the restricted equity units vested and were converted into Class A-2 Units. The Class A-2 Units are equity interests, have economic characteristics that are similar to those of shares of common stock in a corporation and have no vesting schedule.
Perquisites and Other Benefits
Our team members, including the NEOs, are eligible for specified benefits, such as group health, dental and disability insurance and basic life insurance premiums. These benefits are intended to provide competitive and adequate protection in case of sickness, disability or death, and the NEOs participate in these plans on the same basis as all other team members.
We provide specified perquisites to our NEOs when determined to be necessary and appropriate, particularly in connection with enabling the executives and their families to transition from previous positions, which may require relocation. In addition, we provide our NEOs with the opportunity for an annual physical examination service and pay for personal hotel costs when they stay at Company-branded hotels. We also provide Mr. Nassetta with a life insurance benefit for his family and the associated taxes and Mr. Carter with
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tuition reimbursement and tax preparation services. In addition, given our wide geographic footprint, Mr. Nassetta has use of the Company aircraft for both business and personal travel. The value of these perquisites and other personal benefits are reflected in the All Other Compensation column to the Summary Compensation Table and the accompanying footnote. We believe that these benefits are competitive in our industry and consistent with our overall compensation program. The cost of these benefits is a small percentage of the overall compensation package, and the compensation committee believes that they allow the executives to work more efficiently.
Retirement Benefits
The Company maintains a tax-qualified 401(k) plan, under which the Company matches each team members contributions up to 3% dollar-for-dollar and $0.50 for every $1 for the next 2% contributed. In addition to the 401(k) plan, the Company also offers the NEOs and other senior management the opportunity to supplement their retirement and other tax-deferred savings through Hilton Worldwides Executive Deferred Compensation Plan, or EDCP. Those that are eligible to participate in the EDCP may elect to defer up to 100% of both their annual salary and bonus. The Company currently provides no contribution or match to the EDCP. Additional information about the EDCP is reflected in 2012 Non-Qualified Deferred Compensation below.
Pension Benefits
In addition to our 401(k) plan and EDCP, one of our NEOs, Mr. Carter, participated in two of our defined benefit pension plans, the Hilton U.K. Pension Plan (the U.K. Pension Plan) and the Hilton U.K. Hotels Employer-Finance Retirement Benefit Plan (the Supplemental U.K. Pension Plan) between 2005 and 2009. Mr. Carters benefit under the U.K. Pension Plan was closed to further accrual in 2009, and the Supplemental U.K. Pension Plan was frozen to all participants in 2009. See the Pension Benefits table and accompanying narrative below for a description of these defined-benefit pension plans.
Severance Benefits
The compensation committee believes that with carefully structured severance benefits, the NEOs are better able to perform their duties with respect to any potential proposed corporate transaction without concern for the impact of the transaction on their individual employment. In addition, the compensation committee believes that the interests of our stockholders are better protected and enhanced by providing greater certainty regarding executive pay obligations in the context of planning and negotiating any potential corporate transactions.
The employment agreements with Messrs. Nassetta, Kennedy, Carter and Brown provide for severance benefits in connection with a termination of employment under certain specified qualifying termination events. The severance benefits under these agreements are contingent upon the affected executives execution of a general release of claims and compliance with specified post-termination restrictive covenants. See Potential Payments Upon Termination or Change in Control which describes the payments that each of these NEOs may be entitled to under these agreements.
The Company also provides severance benefits under a broad-based protection plan (the Severance Plan). We believe the Severance Plan is necessary to attract and retain the talent necessary for our long-term success. We view the Severance Plan as a recruitment and retention device that helps secure the continued employment and dedication of team members, including when we are considering strategic alternatives. The Severance Plan provides severance benefits to eligible team members who are not entitled to severance pay under the terms of another agreement (i.e., an employment agreement) and who are involuntarily terminated by us without cause or as a result of a constructive termination, each as defined in the Severance Plan and each a qualifying termination. The severance benefits under the Severance Plan are contingent upon the executive experiencing a qualifying termination (and as such, in the case of a change of control, are double trigger arrangements) and are further contingent upon and non-revocation of a release of claims against us, and continued compliance with
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agreed upon restrictive covenants. Ms. Campbell and Mr. Wang are each entitled to severance under the Severance Plan, however, in connection with her hiring, the Company agreed to increase the amount of Ms. Campbells cash severance upon a qualifying termination. In addition, with respect to Ms. Campbell, a constructive termination has substantially the same meaning as that under the employment agreements for our other NEOs. See Potential Payments upon Termination or Change in Control, which describes the payments to which each of the NEOs may be entitled under the Severance Plan. We intend to implement a new severance plan in connection with this offering.
Where there is a termination from the Company or reduction in the executives role in connection with a change in control, the Company does not provide for tax gross-ups on any benefits but limits the payments and benefits to avoid adverse tax consequences to the Company. Specifically, each of these payments and benefits is subject to a cut-back, so that the amount payable will not be provided to the extent it would result in the loss of a tax deduction by the Company or imposition of excise taxes under the golden parachute excess parachute payment provisions of the Internal Revenue Code.
In addition to the Severance Plan and the terms of the employment agreements, any compensation and benefits to be made in connection with a separation are determined at the discretion of the compensation committee and may be based on the executive, his or her position, nature of the potential separation and such executives compliance with specified post-termination restrictive covenants. In connection with their resignations, the compensation committee determined that, in consideration for entering into a general release of claims and each serving as a Special Advisor, it was appropriate to enter into a separation agreement with each of Messrs. Brown and Kennedy, which agreements are described under Potential Payments Upon Termination or Change in Control below.
Tax and Accounting Considerations
The compensation committee recognizes the tax and regulatory factors that can influence the structure of executive compensation programs. Section 162(m) of the Internal Revenue Code will limit the Companys federal income tax deduction for compensation in excess of $1 million paid to NEOs except for the Chief Financial Officer. However, performance-based compensation can be excluded from the limitation as long as specified requirements are met.
Following this offering, we expect to be able to claim the benefit of a special exemption rule that applies to compensation paid (or compensation in respect of equity awards such as stock options or restricted stock granted) during a specified transition period. This transition period may extend until the first annual stockholders meeting that occurs after the close of the third calendar year following the calendar year in which this offering occurs, unless the transition period is terminated earlier under the Section 162(m) post-offering transition rules. At such time as we are subject to the deduction limitations of Section 162(m), we expect that the compensation committee will take the deductibility limitations of Section 162(m) into account in its compensation decisions; however, the compensation committee may, in its judgment, authorize compensation payments that are not exempt under Section 162(m) when it believes that such payments are appropriate to attract or retain talent.
The compensation committee also intends to regularly consider the accounting implications of our future equity-based awards, including the variable accounting treatment of the performance share units under the Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation .
The compensation committee is also cognizant of Section 409A of the Internal Revenue Code, the limitations of which in the case of the Company primarily relate to the deferral and payment of benefits under the Executive Deferred Compensation Plan. The compensation committee continues to consider the impact of the changes to Section 409A and in general, the evolving tax and regulatory landscape in which its compensation decisions are made.
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Committee Actions Taken in 2013
New Chief Financial Officer
On August 8, 2013, Kevin J. Jacobs, previously our Executive Vice President and Chief of Staff, was appointed as Executive Vice President and Chief Financial Officer of our Company. It is expected that the compensation committee will increase Mr. Jacobss base salary and annual bonus target and grant Mr. Jacobs a long-term incentive award commensurate with his new role. Consistent with our overall approach to our compensation programs following this offering, we do not intend to enter into an employment agreement with Mr. Jacobs. Mr. Jacobs will be eligible to participate in our broad-based severance plan.
Actions Taken in Connection with This Offering
Following this offering, as the Company transitions from being privately held to being publicly traded, we intend to critically evaluate our executive compensation program annually, or more frequently as circumstances require, to maintain a competitive environment for talent and ensure that our incentive programs are achieving their desired results. In 2013, the Company spent considerable time reviewing and preparing a compensation framework to align our pay practices with stockholders, the marketplace, and government requirements. After reviewing best practices and the approach taken by our peer companies and industry competitors, the compensation committee has agreed upon a general framework for our ongoing executive compensation programs.
New Long-Term Incentive Program
In connection with and prior to this offering, we expect that our Board of Directors will adopt, and our stockholders will approve, an Omnibus Incentive Plan. Following this offering, we will award our executives equity-based awards and we expect all such equity-based awards to be granted under the Omnibus Incentive Plan. For long-term awards, the compensation committee agreed that long-term incentive awards will be granted based on annual market data assessments of pay components for each NEO relative to their respective role. We expect the awards will consist of performance shares, restricted stock and stock options. See Omnibus Incentive Plan.
Ownership Guidelines
In connection with and prior to this offering, we expect that our Board of Directors will adopt an executive stock ownership program for our NEOs and other executives that will take effect following this offering. Each of our NEOs will be required to own shares of our Company in the following amounts by the later of August 7, 2018, or five years from the executives date of hire.
Chief Executive Officer |
5 times base salary | |
All other executive officers |
3 times base salary |
Clawback Policy
In connection with this offering, we expect to adopt a clawback policy that will take effect immediately following this offering. Consistent with the Companys core values, the compensation committee determined that it may be appropriate to recover annual and/or long-term incentive compensation in specified situations. Specifically, the Company may recoup incentive compensation from any current or former executive officer if: (1) he or she engages in intentional misconduct pertaining to any financial reporting requirement under the Federal securities laws resulting in the Company being required to prepare and file an accounting restatement with the SEC as a result of such misconduct; (2) there is a material negative revision of a financial or operating measure on the basis of which incentive compensation was awarded or paid to the executive officer; or (3) he or she engages in any fraud, theft, misappropriation, embezzlement or dishonesty to the material detriment of the
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Companys financial results as reflected in financial statements filed with the SEC. If the compensation committee determines that under the clawback policy, circumstances warrant clawback of any payments to an executive officer, then to the fullest extent permitted by law, the Company may require the executive officer to reimburse the Company for all or a portion of any cash, stock and stock options received as incentive compensation during the three years prior to the accounting restatement. If an executive officer engages in conduct that is not in good faith, and which disrupts, damages, impairs or interferes with the business, reputation or employees of the Company, the compensation committee may also seek to recoup any economic gain that the executive officer receives as a result of such conduct.
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Summary Compensation Table
The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of our NEOs for services rendered in all capacities for the fiscal year ended December 31, 2012.
Name and Principal Position |
Salary (1) | Bonus |
Stock
Awards |
Option
Awards |
Non-Equity
Incentive Plan Compensation |
Change in
Pension Value and Nonqualified Deferred Compensation Earnings (6) |
All Other
Compensation (7) |
Total | ||||||||||||||||||||||||
Christopher J. Nassetta |
$ | 850,000 | $ | | $ | | $ | | $ | 1,077,375 | $ | | $ | 114,330 | $ | 2,041,705 | ||||||||||||||||
(President & Chief Executive Officer) |
||||||||||||||||||||||||||||||||
Thomas C. Kennedy (2) |
650,000 | | | | 572,569 | | 17,285 | 1,239,854 | ||||||||||||||||||||||||
(Former Executive Vice President and Chief Financial Officer) |
||||||||||||||||||||||||||||||||
Ian R. Carter |
690,000 | | | | 493,488 | 82,700 | 239,452 | 1,505,640 | ||||||||||||||||||||||||
(Executive Vice President and President, Development, Architecture & Construction) |
||||||||||||||||||||||||||||||||
Mark D. Wang |
508,500 | 94,400 | (3) | | | 405,600 | | 14,577 | 1,023,077 | |||||||||||||||||||||||
(Executive Vice President, Global Sales and President, Hilton Grand Vacations) |
||||||||||||||||||||||||||||||||
Kristin A. Campbell |
500,000 | 72,387 | (4) | | | 427,613 | | 12,742 | 1,012,742 | |||||||||||||||||||||||
(Executive Vice President and General Counsel) |
||||||||||||||||||||||||||||||||
Paul J. Brown (5) |
600,000 | | | | 497,025 | | 8,748,268 | 9,845,293 | ||||||||||||||||||||||||
(Former Executive Vice President and President, Global Brands and Commercial Services) |
(1) | Amounts in this column reflect the salary earned during the fiscal year, whether paid or deferred under the Companys employee benefit plans. |
(2) | Mr. Kennedy served as our Executive Vice President and Chief Financial Officer from September 2008 until his resignation effective August 8, 2013. Mr. Kennedy agreed to provide services to the Company following his resignation until the earlier of December 31, 2013 or the date he commences employment with a new employer. In connection with his resignation, Mr. Kennedy forfeited all of his remaining Tier I award and all of his Class B Units. On August 8, 2013, Kevin J. Jacobs became our Executive Vice President and Chief Financial Officer. |
(3) | Amount reported represents the discretionary bonus paid to Mr. Wang. See Compensation Discussion and AnalysisCompensation ElementsAnnual Cash Incentive Compensation. |
(4) | Amount reported represents the guaranteed portion of Ms. Campbells bonus in excess of the amount earned under the annual cash incentive program. See Compensation Discussion and AnalysisCompensation ElementsAnnual Cash Incentive Compensation. |
(5) | Mr. Brown served as our Executive Vice President and President, Global Head of Brands and Commercial Services from November 2008 until his resignation effective November 1, 2012. Mr. Brown provided services to the Company as a Special Advisor to the CEO through April 30, 2013. In connection with his resignation, Mr. Brown forfeited all of his remaining Tier I award and all of his Class B Units. |
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(6) | Amounts reported represent the aggregate increase in the actuarial present value of Mr. Carters accumulated benefit under the defined-benefit pension plans during the year ended December 31, 2012. See the Pension Benefits table and the accompanying narrative below. The present value is calculated by the Trustee of the U.K. Pension Plan and represents the present value of the retirement pension due based on assumptions described below. This value is the sum that would be payable should Mr. Carter choose to transfer his benefits from the U.K. Pension Plan in full as of December 31, 2012 and 2011. The key financial assumptions used in the calculation of the present value included discount rates of 4.5% and 4.55% for 2012 and 2011, respectively, CPI inflation of 1.15% and 1.75% for 2012 and 2011, respectively and pension inflation of 1.2% and 1.45% for 2012 and 2011, respectively. |
(7) | All other compensation for 2012 includes: |
Name |
Company
401(k) Match |
Personal Use
of Company Aircraft (a) |
Reimbursements
for Taxes Incurred for Specified Perquisites (b) |
Severance
Benefits (c) |
Other (d) | Total | ||||||||||||||||||
Christopher J. Nassetta |
$ | 9,800 | $ | 11,277 | $ | 41,567 | $ | | $ | 51,686 | $ | 114,330 | ||||||||||||
Thomas C. Kennedy |
10,000 | | | | 7,285 | 17,285 | ||||||||||||||||||
Ian R. Carter |
| | | | 239,452 | 239,452 | ||||||||||||||||||
Mark D. Wang |
9,800 | | | | 4,777 | 14,577 | ||||||||||||||||||
Kristin A. Campbell |
10,000 | | | | 2,742 | 12,742 | ||||||||||||||||||
Paul J. Brown |
9,800 | | | 8,737,957 | 511 | 8,748,268 |
(a) | Amounts reported reflect the incremental costs associated with guests accompanying Mr. Nassetta on the Company aircraft during the year ended December 31, 2012. For purposes of the Summary Compensation Table, we value the incremental cost associated with these accompanying guests by using a method that takes into account the variable costs. Since the aircraft is used primarily for business travel, the calculation does not include the fixed costs that do not change based on usage, such as crew salaries, hangar storage costs and cost of maintenance not related to trips. |
(b) | Reflects for Mr. Nassetta, $9,645 of employer-paid taxes owed with respect to personal use of the Company aircraft, $26,968 of employer-paid taxes owed with respect to Mr. Nassettas personal use of Company-branded hotels and $4,954 of employer-paid taxes owed in connection with his employer-paid executive life insurance policy. |
(c) | Reflects amounts paid or accrued during the year ended December 31, 2012 pursuant to the terms of Mr. Browns separation agreement as follows: an $8.5 million separation payment paid to Mr. Brown on November 13, 2012, $55,000 of which represents the gain on his Class A Units in our Ultimate Parent repurchased by the Company in 2012, $50,000 paid for executive consulting services, $40,000 accrued with respect to a lump sum payment to be paid as soon as practicable following the Separation Date (as defined in the separation agreement) representing the portion of the monthly premiums for group health coverage for Mr. Brown and his family paid by the Company, multiplied by 24, $80,769 for all accrued but unused vacation time through the Separation Date and $12,188 paid for reimbursement of legal fees incurred in connection with his separation agreement. |
(d) | For Mr. Nassetta, this amount includes $40,962 employer-paid expenses incurred at Company-branded hotels while on personal travel, the cost of his executive physical and premiums for life insurance policies. |
For Mr. Kennedy, this amount includes employer-paid expenses incurred at Company-branded hotels while on personal travel and premiums for a life insurance policy.
For Mr. Carter, this amount includes a $207,000 payment for a retirement benefit pursuant to the terms of his employment agreement, $30,000 for tuition reimbursement pursuant to the terms of his employment agreement, tax preparation services, reimbursement for the cost of his executive physical and premiums for a life insurance policy.
For Mr. Wang, this amount represents the employer-paid auto-allowance, which he received through April 2012, and premiums for a life insurance policy.
For Ms. Campbell, this amount represents a one-time payment for her 2011 relocation to McLean, Virginia and premiums for a life insurance policy.
For Mr. Brown, this amount represents the employer-paid life insurance premium.
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2012 Grants of Plan-Based Awards
The following table sets forth information concerning grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2012.
Estimated Possible Payouts under Non-Equity
Incentive Plan Awards (1) |
||||||||||||
Name |
Threshold | Target | Maximum | |||||||||
Christopher J. Nassetta |
$ | 26,563 | $ | 850,000 | $ | 1,700,000 | ||||||
Thomas C. Kennedy |
12,188 | 487,500 | 731,250 | |||||||||
Ian R. Carter |
6,210 | 414,000 | 621,000 | |||||||||
Mark D. Wang |
5,771 | 375,000 | 562,500 | |||||||||
Kristin A. Campbell (2) |
9,375 | 375,000 | 562,500 | |||||||||
Paul J. Brown |
9,000 | 450,000 | 675,000 |
(1) | Reflects the possible payouts of cash incentive compensation under the 2012 Annual Incentive Program. Amounts reported in the Threshold column assumes that there is no payout under the financial component of the annual cash incentive program and that the NEO only earns the minimum payout for the one individual performance objective that has been assigned the lowest weighting. The actual amounts paid are described in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
(2) | Ms. Campbell was guaranteed a bonus for the year ended December 31, 2012 of no less than $500,000. Since Ms. Campbells bonus payout under the annual cash incentive program was less than $500,000, Ms. Campbell received an additional bonus amount which represented the guaranteed portion of her bonus in excess of the amount earned under the annual cash incentive program. This additional amount is reported in the Bonus column of the Summary Compensation Table. |
Narrative to Summary Compensation Table and 2012 Grants of Plan-Based Awards
Employment Agreements
Upon their commencement of employment, some of our NEOs entered into employment agreements, each of which contain substantially similar terms. Each of the employment agreements provides for a five-year initial employment term that extends automatically for additional one-year periods unless either we or the executive elects not to extend the term. Under the employment agreements, each executive is eligible to receive a minimum base salary, as set forth in the applicable agreement, and annual cash incentive compensation based on the achievement of specified financial and individual goals as defined by the compensation committee each year. If these goals are achieved, each executive may receive a cash bonus based on a target percentage of his or her base salary as described below. Each NEO is also entitled to participate in all employee benefit plans, programs and arrangements made available to other executive officers generally.
Following are the material individual provisions of the NEOs employment agreements, except with respect to potential payments and other benefits upon specified terminations, which are summarized below in Potential Payments Upon Termination or Change in Control.
Mr. Nassettas Employment Agreement. Mr. Nassettas employment agreement dated as of January 4, 2011 provides that he is to serve as Hilton Worldwides President and Chief Executive Officer, and is eligible to receive a base salary of $850,000, subject to periodic adjustments as may be approved by the Board. Mr. Nassetta is also eligible to receive a target bonus of 100% of his annual base salary at the end of the fiscal year if targets established by the Board are achieved, 50% of his base salary if minimum performance objectives are achieved and 200% of his base salary if high performance objectives are achieved. Mr. Nassettas agreement also provides for the reasonable payment of premiums for his existing life insurance policy and provides that Mr. Nassetta may use the Company airplane for business and personal travel.
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Mr. Kennedys Employment Agreement. Mr. Kennedys employment agreement dated as of September 15, 2008 provides that he was to serve as Hilton Worldwides Executive Vice President and Chief Financial Officer and was eligible to receive a base salary of $650,000, subject to periodic adjustments as approved by our Board. Mr. Kennedy was also eligible to receive a target bonus of 75% of his annual base salary at the end of the fiscal year if performance objectives and targets established by the Board were achieved.
Mr. Kennedy resigned as Executive Vice President and Chief Financial Officer as of August 8, 2013, but will continue his employment as a Special Advisor to the CEO through December 31, 2013.
Mr. Carters Employment Agreement. Mr. Carters employment agreement dated as of January 1, 2010, provides that he is to serve as Hilton Worldwides President, Global Operations, or a commensurate role, and is eligible to receive a base salary of $690,000, subject to periodic adjustments as may be approved by our Board. Mr. Carter is also eligible to receive a target bonus of 60% of his base salary if targets established by the Board are achieved and 90% of his base salary if high performance objectives are achieved. Mr. Carters agreement did not provide a threshold award percentage if minimum performance objectives were achieved.
Mr. Browns Employment Agreement. Mr. Browns employment agreement dated November 13, 2008 provided that he was to serve as Hilton Worldwides Executive Vice President and President, Global Brands and Commercial Services and was eligible to receive a base salary of $600,000, subject to periodic adjustments as may be approved by our Board. Mr. Brown was also eligible to receive a target bonus of 75% of his annual base salary at the end of the fiscal year if targets established by the Board were achieved.
Mr. Brown resigned as Executive Vice President and President, Global Brands and Commercial Services as of November 1, 2012, but continued his employment through April 30, 2013. On October 31, 2012, we entered into a separation agreement with Mr. Brown. The material terms of the separation agreement are summarized below under Potential Payments upon Termination or Change in Control.
In addition, each employment agreement, other than that for Mr. Carter, provides for the following:
| Reimbursement by us for specified expenses, such as business travel; and |
| Reimbursements at Company-branded hotels for the executive and his family. |
Each employment agreement provides for reimbursement by us on a grossed up basis for all taxes incurred in connection with certain specific benefits and payments provided by the respective agreements.
Each employment agreement may be terminated by us with or without cause, or by the executive as a result of constructive termination, each as defined in the respective employment agreement. We refer to a termination without cause or by the executive as a result of constructive termination collectively as a qualifying termination.
The employment agreements define cause generally as willful misconduct in connection an executives role with our Company. The employment agreements define constructive termination generally as a diminution of the material conditions of the executives employment with the company including pay, responsibilities and place of employment.
Each of the employment agreements also contains restrictive covenants, including an indefinite covenant on confidentiality of information and covenants related to non-competition and non-solicitation of employees and customers of the Company and its affiliates at all times during the executives employment, and for one year after any termination of his employment. If a termination occurs after our Sponsor ceases to beneficially own 25% of the voting power of the Company, however, the entire non-competition covenant lapses.
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Equity Awards
As a condition to receiving the Class B Units, each NEO was required to enter into a subscription agreement with our Ultimate Parent to become a party to our Ultimate Parents limited liability company agreement as well as an equity holders agreement. These agreements generally govern the NEOs rights with respect to their Class B Units.
The Class B Units are profits interests having economic characteristics similar to stock appreciation rights and represent the right to share in any increase in the equity value of our Ultimate Parent. Therefore, the Class B Units only have value to the extent there is an appreciation in the value of our business from and after the applicable date of grant. All of the Class B Units are exit-vesting units and have the vesting terms described in Compensation Discussion and AnalysisCompensation ElementsLong-Term Incentive Awards above and in Potential Payments Upon Termination or Change in Control below.
In addition to the Class B Units, in November 2010, our Ultimate Parent offered some members of our senior management team, including the NEOs (other than Ms. Campbell who joined the Company in 2011), the opportunity to participate in a Tier I award. The Tier I awards have such vesting terms described in Compensation Discussion and AnalysisCompensation ElementsLong-Term Incentive Awards above. As discussed above, the installment payments for the Tier I awards were accelerated in the year ended December 31, 2012. There was no incremental fair value recognized in connection with these accelerations, and therefore no amounts are reflected in the Summary Compensation Table or the 2012 Grants of Plan-Based Awards table above. The amounts paid to each of the participating NEOs for their Tier I awards are reflected in the 2012 Option Exercises and Stock Vested table below.
The subscription agreements also contain restrictive covenants that are substantially similar to the restrictive covenants contained in the employment agreements with the NEOs, including an indefinite covenant on confidentiality of information and covenants related to non-competition and non-solicitation of employees and customers of the Company and its affiliates at all times during the executives employment, and for one year after any termination of his or her employment. If a termination occurs after our Sponsor ceases to beneficially 25% of the voting power of the Company, however, the non-competition lapses.
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Outstanding Equity Awards at 2012 Fiscal Year-End
The following table sets forth information regarding outstanding equity awards made to our NEOs as of December 31, 2012.
Grant
Date |
Number of
Shares of Units of Stock That Have Not Vested |
Market
Value of Shares of Units of Stock That Have Not Vested |
Stock Awards | |||||||||||||||||
Name |
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
Equity Incentive
Plan Awards: Market Value of Shares, Units or Other Rights That Have Not Vested |
||||||||||||||||||
(#) | ($) | (#) | ($) | |||||||||||||||||
Christopher J. Nassetta |
12/03/2010 | 81,028,782 | (1) | 36,608,804 | | | ||||||||||||||
12/03/2010 | | 18,710,074 | (3) | | | |||||||||||||||
Thomas C. Kennedy |
12/03/2010 | 13,804,880 | (1) | 6,237,045 | (2) | |||||||||||||||
12/03/2010 | 3,187,363 | (3) | ||||||||||||||||||
Ian R. Carter |
12/03/2010 | 21,432,076 | (1) | 9,683,012 | (2) | | | |||||||||||||
12/03/2010 | | 4,948,381 | (3) | | | |||||||||||||||
Mark D. Wang |
12/03/2010 | 8,628,050 | (1) | 3,898,153 | (2) | | | |||||||||||||
12/03/2010 | | 1,992,102 | (3) | | | |||||||||||||||
Kristin A. Campbell |
06/27/2011 | 5,176,830 | (1) | 2,338,892 | (2) | | | |||||||||||||
Paul J. Brown (4) |
| | | | |
(1) | Reflects the number of Class B Units, all of which are exit-vesting and vest on the date when our Sponsor ceases to beneficially own 50% or more of the Class A Units in our Ultimate Parent, subject to the NEOs continued employment on such date. In addition, if the executives employment is terminated without cause, as a result of a constructive termination or as a result of disability or death (each as defined in the management subscription agreement for the Class B Units), then the executive will vest in a percentage of Class B Units based on a vesting schedule where 20% of the Class B Units will be deemed to have vested ratably in equal, annual installments over five years, beginning on April 8, 2011 (or June 27, 2011 with respect to Ms. Campbell). Additional terms of the Class B Units are described under Compensation Discussion and AnalysisCompensation ElementsLong-Term Incentive Program above and Potential Payments Upon Termination or Change in Control below. |
(2) | Based on the appreciation in the value of our business from and after the date of grant through December 31, 2012. |
(3) | Reflects the remaining value of each NEOs Tier I award. The Tier I awards originally granted were represented as a percentage of the total dollar amount available to be awarded and were not expressed as a number of units. The amount in the table reflects the cash value to be realized on vesting. Vesting of the outstanding Tier I awards occurs on the date that our Sponsor ceases to own 50% or more of the Class A Units in our Ultimate Parent. |
(4) | In connection with his resignation, Mr. Brown forfeited all of his Class B Units and his outstanding Tier I awards. |
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2012 Option Exercises and Stock Vested
The following table provides information regarding the number of Tier I Units held by our NEOs that vested during 2012.
Option Awards | Stock Awards (1) | |||||||||||||||
Name |
Number of Shares
Acquired on Exercise (#) |
Value Realized
on Exercise ($) |
Number of Shares
Acquired on Vesting (#) |
Value Realized
on Vesting ($) |
||||||||||||
Christopher J. Nassetta |
| | 5,000,000 | 41,617,450 | ||||||||||||
Thomas C. Kennedy |
| | | 6,000,000 | ||||||||||||
Ian R. Carter |
| | | 9,315,000 | ||||||||||||
Mark D. Wang |
| | | 3,750,000 | ||||||||||||
Kristin A. Campbell |
| | | | ||||||||||||
Paul J. Brown |
| | | 2,500,000 |
(1) | Reflects the amounts paid to the NEOs for their Tier I award installment payments that were accelerated during the year ended December 31, 2012. The amount of Tier I awards originally granted were represented as a percentage of the total dollar amount available to be awarded and were not expressed as a number of units. The amount in the table reflects the cash value realized on vesting. The amount for Mr. Nassetta also reflects the additional portion of his Tier I award paid to him in December 2012 as well as $6.4 million, which was the value realized upon the vesting of the 5,000,000 restricted equity units originally granted in our Ultimate Parent in 2008 pursuant to the terms of Mr. Nassettas employment agreement. These restricted equity units vested and were converted into Class A-2 Units of our Ultimate Parent on December 31, 2012. |
2012 Pension Benefits
Name |
Plan Name |
Number of
Years Credited Service (#) |
Present Value
of Accumulated Benefit ($) (1) |
Payments
During Last Fiscal Year ($) |
||||||||||
Christopher J. Nassetta |
| | | |||||||||||
Thomas C. Kennedy |
| | | |||||||||||
Ian R. Carter |
Hilton UK Pension Plan (2) |
4 | 459,739 | | ||||||||||
Hilton UK Hotels Employer-Finance Retirement Benefit (3) | 3 | 691,822 | | |||||||||||
Mark D. Wang |
| | | |||||||||||
Kristin A. Campbell |
| | | |||||||||||
Paul J. Brown |
| | |
(1) | The present value is calculated by the Trustee of the U.K. Pension Plan and represents the present value of the retirement pension due based on assumptions described below. This value is the sum that would be payable should Mr. Carter choose to transfer his benefits from the U.K. Pension Plan in full as of December 31, 2012. The key financial assumptions used in the calculation of the present value included discount rates of 4.5% and 4.55% for 2012 and 2011, respectively, CPI inflation of 1.15% and 1.75% for 2012 and 2011, respectively, and pension inflation of 1.2% and 1.45% for 2012 and 2011, respectively. |
(2) |
The U.K. Pension Plan is a defined benefit pension plan in the U.K., for which benefit payments are payable monthly from retirement age (age 60 in accordance with the terms of the plan). The pension value is determined based on years of service, final salary of active membership (final salary in the final year of the membership in the plan minus applicable restrictions of earning offsets) in the plan and an accrual ratio. The funds are invested through a trustee, who has full investment discretion. For Mr. Carter, the U.K. Pension Plan has been frozen since 2009, and neither the Company, nor Mr. Carter have contributed to the plan since that time. The purpose of the U.K. Pension Plan is to provide a retirement benefit based on U.K. market |
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practice. The U.K. Pension Plan does not provide special policies such as granting extra years of credited service, however, it provides tax advantages such as tax relief on employee contributions and a tax-free cash payment at retirement. |
(3) | The Supplemental U.K. Pension Plan is a supplement to the U.K. Pension Plan and provides an additional retirement benefit to top management of the Company in the U.K. Mr. Carter participated in the Supplemental U.K. Pension Plan from 2006 to 2009, after which the Company ceased contributing to the plan and the plan was frozen. The funds in the Supplemental U.K. Pension Plan have been invested based on Mr. Carters elected investment portfolio. The terms of the U.K. Pension Plan provide that the funds be paid in lump sum upon retirement, or age 60 in accordance with the terms of the plan. The annual amount the Company contributed was calculated based on a percentage of Mr. Carters base salary above the annual earnings cap under the U.K. Pension Plan. The Supplemental U.K. Pension Plan does not provide any special tax treatment, and payment under this plan is triggered upon Mr. Carters retirement. |
2012 Non-Qualified Deferred Compensation
The Company offers to its executives, including all of the NEOs, the opportunity to participate in the Executive Deferred Compensation Plan (EDCP). The table below provides information as of December 31, 2012, for those NEOs who chose to participate in this plan.
Name |
Executive
Contributions in Last FY (1) |
Registrant
Contributions in the Last FY |
Aggregate
Earnings in Last FY (2) |
Aggregate
Withdrawals/ Distributions |
Aggregate
Balance at Last FYE |
|||||||||||||||
Christopher J. Nassetta |
$ | | $ | | $ | 12,251 | $ | | $ | 175,853 | ||||||||||
Thomas C. Kennedy |
| | | | | |||||||||||||||
Ian R. Carter |
| | | | | |||||||||||||||
Mark D. Wang |
93,308 | | 75,811 | | 783,521 | |||||||||||||||
Kristin A. Campbell |
| | | | | |||||||||||||||
Paul J. Brown |
| | | | |
(1) | The amount in this column is included in the Salary column for 2012 in the Summary Compensation Table above. |
(2) | Amounts in this column are not reported as compensation for fiscal year 2012 in the Summary Compensation Table since they do not reflect above-market or preferential earnings. |
Narrative to Non-Qualified Deferred Compensation Table
Pursuant to our EDCP, specified eligible employees, including our NEOs, may defer up to 100% of either or both their annual salary and bonus. Deferral elections are made by eligible employees in the calendar year preceding the year compensation is otherwise payable. Contributions to the EDCP consist solely of participants elective deferral contributions with no matching or other employer contributions. Eligible employees are permitted to make individual investment elections that will determine the rate of return on their deferral amounts under the elective nonqualified deferred compensation plan. Participants may change their investment elections at any time. Deferrals are only deemed to be invested in the investment options selected. Participants have no ownership interest in any of the funds as investment elections are used only as an index for crediting gains or losses to participants accounts. The investment options consist of a variety of well-known mutual funds including certain non-publicly traded mutual funds available through variable insurance products. Investment gains or losses in the funds are credited to the participants accounts daily, net of investment option related expenses. The EDCP does not provide any above-market returns or preferential earnings to participants, and the deferrals and their earnings are always 100% vested.
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The table below shows the funds available under the EDCP, and their annual rate of return for the calendar year ended December 31, 2012:
Name of Investment Fund |
1-Year Rate of Return
% (as of 12/31/12) |
|||
Oakmark Equity and IncomeClass I Shares |
9.05 | % | ||
MFS Emerging Markets EquityA Shares |
18.69 | % | ||
(MSF) BlackRock Money MarketClass A |
0.00 | % | ||
Vanguard Intermediate-Term TreasuryAdmiral Shares |
2.78 | % | ||
PIMCO Total ReturnAdmin Class |
10.09 | % | ||
MFS ValueR4 Shares |
16.42 | % | ||
MainStay Large Cap GrowthClass R1 |
13.09 | % | ||
Perkins Mid Cap ValueClass T Shares |
10.32 | % | ||
Columbia AcornClass Z |
17.93 | % | ||
AllianzGI NFJ Small-Cap ValueClass A |
10.33 | % | ||
Neuberger Berman GenesisInstl Class |
10.10 | % | ||
American Funds Capital World Growth and IncomeR5 Shares |
19.50 | % | ||
American Funds EuroPacific GrowthR5 Shares |
19.57 | % | ||
Henssler EquityInvestor Class |
7.65 | % | ||
Vanguard 500 IndexAdmiral Shares |
15.96 | % | ||
Investco Small Cap DiscoveryClass A |
16.77 | % | ||
Oppenheimer Real EstateA Shares |
15.65 | % | ||
Janus Global TechnologyClass T Shares |
19.28 | % | ||
Gateway FundClass |
4.76 | % |
NEOs may elect to receive in-service distributions of such amounts at the time they make their deferral elections. In addition, upon a showing of financial hardship due to death, illness, accident or similar extraordinary or unforeseeable circumstances, an executive may be allowed to access funds in his or her deferred compensation account before he otherwise would have been eligible. The participant must make two payout elections, one in the case of termination and one in the case of retirement. Benefits can generally be received either as a lump sum payment or in installments over a period not to exceed 20 years in the case of retirement, 5 years in the case of termination and 5 years for in-service distributions. In the event of a change in control, 100% of the value of the eligible employees deferred compensation account will be distributed.
Potential Payments upon Termination or Change in Control
The following table describes the potential payments and benefits that would have been payable to our NEOs under existing plans assuming (1) a termination of employment and/or (2) a change in control (CIC) occurred, in each case, on December 31, 2012. The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the NEOs. These include certain accrued rights (such as earned but unpaid salary or bonus), distributions of plan balances under our 401(k) savings plan and distributions of plan balances under the pension plans and the non-qualified deferred compensation plan. For purposes of the table below, a qualifying termination for Messrs. Nassetta, Kennedy and Carter has the same meaning as described in Narrative to Summary Compensation Table and 2012 Grants of Plan-Based Awards TableEmployment Agreements and, for Ms. Campbell and Mr. Wang, has the meaning described in Compensation Discussion and AnalysisCompensation ElementsSeverance Benefits. Because the disclosures in the table assume the occurrence of a termination or CIC as of a particular date and under a particular set of circumstances and therefore make a number of important assumptions, the actual amounts to be paid to each of our named executive officers upon a termination or CIC may vary significantly from the amounts included herein. Factors that could affect these amounts include the timing during the year of any such event, the continued availability of benefit policies at similar prices and the type of termination event that occurs (as set forth in the first column in the table below).
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Name |
Cash
Severance ($) (1) |
Continuation
of Health Benefits ($) (2) |
Value of
Accelerated Equity ($) (3) |
Accrued but
Unused Vacation ($) (4) |
Total
($) |
|||||||||||||||
Christopher J. Nassetta |
||||||||||||||||||||
Qualifying Termination |
850,000 | 36,883 | 14,643,521 | 130,769 | 15,661,173 | |||||||||||||||
Qualifying Termination after CIC |
850,000 | 36,883 | 55,318,878 | 130,769 | 56,336,530 | |||||||||||||||
CIC without Termination |
| | 55,318,878 | | 55,318,878 | |||||||||||||||
Death or Disability (5) |
850,000 | 36,883 | 14,643,521 | 130,769 | 15,661,173 | |||||||||||||||
Thomas C. Kennedy |
||||||||||||||||||||
Qualifying Termination prior to CIC |
650,000 | 36,521 | 2,494,818 | 87,500 | 3,268,839 | |||||||||||||||
Qualifying Termination after CIC |
650,000 | 36,521 | 9,424,408 | 87,500 | 10,198,429 | |||||||||||||||
CIC without Termination |
| | 9,424,408 | | 9,424,408 | |||||||||||||||
Death or Disability (5) |
650,000 | 36,521 | 2,494,818 | 87,500 | 3,268,839 | |||||||||||||||
Ian R. Carter |
||||||||||||||||||||
Qualifying Termination prior to CIC |
414,000 | 36,883 | 3,873,205 | 66,346 | 4,390,434 | |||||||||||||||
Qualifying Termination after CIC |
414,000 | 36,883 | 14,631,393 | 66,346 | 15,148,622 | |||||||||||||||
CIC without Termination |
| | 14,631,393 | | 14,631,393 | |||||||||||||||
Death or Disability (5) |
414,000 | 36,883 | 3,873,205 | 66,346 | 4,390,434 | |||||||||||||||
Mark D. Wang |
||||||||||||||||||||
Qualifying Termination |
| 33,141 | 1,559,261 | 106,546 | 1,698,948 | |||||||||||||||
Qualifying Termination after CIC |
| 33,141 | 5,890,255 | 106,546 | 6,029,942 | |||||||||||||||
CIC without Termination |
| | 5,890,255 | | 5,890,255 | |||||||||||||||
Death or Disability (5) |
| 33,141 | 1,559,261 | 106,546 | 1,698,948 | |||||||||||||||
Kristin A. Campbell |
||||||||||||||||||||
Qualifying Termination |
2,000,000 | 26,210 | 467,778 | 57,656 | 2,551,644 | |||||||||||||||
Qualifying Termination after CIC |
2,000,000 | 26,210 | 2,338,892 | 57,656 | 4,422,758 | |||||||||||||||
CIC without Termination |
| | 2,338,892 | | 2,338,892 | |||||||||||||||
Death or Disability (5) |
| 26,210 | 467,778 | 57,656 | 551,644 |
(1) | Under his employment agreement, each of Messrs. Nassetta, Kennedy and Carter would have been entitled to receive a cash severance amount consisting of: |
(A) | in the case of a qualifying termination, an annual bonus payable at the target percentage of base salary (100% of base salary as to Mr. Kennedy) in effect at the date of termination and pro-rated based on the number of days during the fiscal year that such executive was employed prior to the termination date (the prorated bonus); and |
(B) | in the case of a qualifying termination prior to a change in control, Messrs. Kennedy and Carter would have been entitled to receive, in addition to the prorated bonus, an amount equal to the excess, if any, of (x) the Applicable Severance Amount over (y) the value of the Tier I awards and the Class B Units granted to the named executive officer. The Applicable Severance Amount for each executive is an amount equal to 200% (for Mr. Kennedy) or 100% (for Mr. Carter) of the sum of (x) the executives base salary, and (y) annual bonus (if any) payable in respect of the fiscal year immediately prior to the termination date. |
The amounts reported under Qualifying Termination for Mr. Nassetta and Qualifying Termination prior to CIC for Messrs. Nassetta, Kennedy and Carter reflect each NEOs target annual (100% of base salary as to Mr. Kennedy) bonus for the year ended December 31, 2012. In addition, the amounts reported under Qualifying Termination prior to CIC for Messrs. Kennedy and Carter, assume, based on the cash value of the outstanding Tier I awards and the market value of the Class B Units as of December 31, 2012, that, if a qualifying termination had occurred on December 31, 2012 and prior to a change in control, the Applicable Severance Amount for each of Messrs. Kennedy and Carter would not have exceeded the value of their respective Tier I awards and the Class B Units and, therefore, that no additional cash severance for such named executive officers would have been paid under their employment agreements.
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Under the Severance Plan, in connection with a qualifying termination, Mr. Wang would have been entitled to receive a cash severance amount equal to the sum of (x) twelve months of base salary plus (y) an amount equal to the actual bonus paid in respect of the previous fiscal year, provided that the total cash payment is reduced by the value of such executives Tier I awards and Class B Units. The amounts reported for Mr. Wang under Qualifying Termination and Qualifying Termination after CIC assume, based on the cash value of the outstanding Tier I Awards and the market value of the Class B Units as of December 31, 2012, that, if a qualifying termination had occurred on December 31, 2012, the severance benefits payable under the Severance Plan would not have exceeded the value of the Tier I awards and the Class B Units and, therefore, that no additional cash severance would have been paid to Mr. Wang.
Pursuant to the terms of her employment, in connection with a qualifying termination, Ms. Campbell would have been entitled to receive a cash severance amount equal to the sum of (x) two times her then current annualized base salary and (y) two times her most recent annualized bonus payment (or guaranteed annualized minimum if no payment had been made). The amounts reported for Ms. Campbell under Qualifying Termination and Qualifying Termination after CIC reflect the sum of (x) two times her annualized base salary of $500,000 and (y) two times her guaranteed annualized minimum bonus of $500,000 for fiscal 2012.
If the employment of Messrs. Nassetta, Kennedy or Carter was terminated for death or disability, such executive would have been entitled to receive his prorated bonus. Amounts reported under Death or Disability for Messrs. Nassetta, Kennedy and Carter reflect each NEOs target annual bonus for the year ended December 31, 2012.
(2) | Reflects the cost of providing the NEO and his or her eligible dependents continued group health insurance for 24 months following the date of termination pursuant to the Companys historical practice, assuming 2013 rates. |
(3) | Upon a change in control in which our Sponsor ceases to beneficially own more than 50% of the Class A Units in our Ultimate Parent, the remaining outstanding Tier I awards will become payable and all the Class B Units will vest. Upon a qualifying termination, death or disability, the Class B Units will vest in a percentage of based on a vesting schedule where 20% of the Class B Units will be deemed to have vested ratably in equal, annual installments over five years, beginning on April 8, 2011 (or June 27, 2011 with respect to Ms. Campbell). The amounts reported are based on the cash value of the outstanding Tier I awards and, with respect to the Class B Units, the appreciation in the value of our Ultimate Parents equity from and after the applicable date of grant through December 31, 2012. |
(4) | Amounts shown represent the following number of accrued but unused vacation days: Mr. Nassetta 40 days; Mr. Kennedy, 35 days; Mr. Carter, 25 days; Mr. Wang, 54 days; Ms. Campbell, 31 days; and Mr. Brown, 35 days. |
(5) | In the event of death of an NEO, in addition to amounts reported in the table above, each NEO will receive benefits from third-party payors under our employer-paid premium life insurance plans. All of our team members are eligible for one times regular annual eligible wages at death (up to $1,500,000). In addition, the Company has provided Mr. Nassetta with additional executive life insurance with a $10,500,000 death benefit. Therefore, if such benefits were triggered for the NEOs on December 31, 2012 under our life insurance plans the legally designated beneficiary(ies) of each NEO would have received the following amounts: Mr. Nassetta ($12,000,000); Mr. Kennedy ($1,159,000); Mr. Carter ($1,500,000); Mr. Wang ($839,000); and Ms. Campbell ($500,000). |
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Paul J. Brown Separation Agreement
On October 31, 2012, we entered into a separation agreement with Mr. Brown, the Companys former Executive Vice President and President, Global Brands and Commercial Services, with respect to Mr. Browns resignation of employment with the Company. Pursuant to the separation agreement, beginning November 1, 2012, Mr. Brown agreed to provide services to the Company as a Special Advisor to the CEO until the earlier of April 30, 2013 or the date he commenced employment with a new employer, such date, referred to as the Brown Separation Date. In consideration for Mr. Brown providing a general release of claims against the Company, we agreed to provide Mr. Brown with the following payments and benefits:
| payment of his current base salary rate through April 30, 2013; |
| his annual bonus in respect of the year ended December 31, 2012 assuming he remained employed as President, Global Brands and Commercial Services through the applicable payment date, which amount was $497,025; |
| cash separation payments consisting of: |
| an $8.5 million lump-sum payment payable as soon as practicable following the effective date of the separation agreement; |
| $2.0 million payment payable as soon as practicable following the earlier of (1) his commencement of employment with a new employer, but no earlier than January 1, 2013, or (2) October 31, 2013 conditional upon adherence to the agreement; |
| $2.0 million payment payable as soon as practicable following the earlier of (1) the one year anniversary of the commencement of his employment with a new employer, but no earlier than January 1, 2014, or (2) April 30, 2014, conditional upon adherence to the agreement; |
| $80,769 for all accrued but unused vacation time through the Brown Separation Date; |
| executive consulting services, which amounted to $50,000; |
| $12,188 for the cost of legal fees incurred in connection with his separation agreement; and |
| a lump sum payment of $40,000 to be paid as soon as practicable following the Brown Separation Date representing the portion of the monthly premiums for group health coverage for Mr. Brown and his family paid by the Company, multiplied by 24. |
In addition, in connection with his separation, Mr. Brown forfeited his outstanding Tier I award and all of his Class B Units and the Company agreed to repurchase his equity investment in Class A Units of $220,000 for an amount equal to $275,000, less any and all applicable U.S. federal, state and local withholding taxes.
Mr. Browns cash separation payments are contingent on his continued compliance with certain restrictive covenants, including an indefinite covenant on confidentiality of information and covenants related to non-competition and non-solicitation of employees and customers of the Company and its affiliates for one year after the Brown Separation Date.
Thomas C. Kennedy Separation Agreement
On September 24, 2013, we entered into a separation agreement with Mr. Kennedy, our former Executive Vice President and Chief Financial Officer, with respect to Mr. Kennedys termination of employment with the Company. Pursuant to the separation agreement, beginning August 8, 2013, Mr. Kennedy agreed to continue his employment with the Company as a Special Advisor to the CEO until December 31, 2013 or until he commenced employment with a new employer, such date referred to as the Kennedy Separation Date. In consideration for Mr. Kennedy providing a general release of claims against the Company, we agreed to provide Mr. Kennedy with the following payments and benefits:
| his current base salary and continuation of his current benefits through the Kennedy Separation Date; |
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| his annual bonus in respect of the year ended December 31, 2013 assuming he remained employed as Executive Vice President and Chief Financial Officer through the applicable payment date and with any discretionary targets established for Mr. Kennedy fixed at the maximum payout value; |
| $1,058,500 annually (representing approximately his current base salary and target annual incentive compensation) for a period of three years as soon as practicable following each of the first, second and third anniversaries of the Kennedy Separation Date; |
| a $2,275,000 lump-sum cash severance payment (representing approximately two times his current base salary and target annual incentive compensation) payable as soon as practicable following December 31, 2014; |
| $87,500 for all accrued but unused vacation through the Kennedy Separation Date; |
| up to $75,000 for the cost of reasonable legal fees incurred in connection with the separation agreement; and |
| a lump sum payment of $50,000 to be paid as soon as practicable following the Kennedy Separation Date representing twenty-four months of estimated before tax health care insurance premiums that Mr. Kennedy would incur for group health coverage for him and his family. |
In addition, in connection with his separation, the Company agreed to pay Mr. Kennedy a cash payment of $3,187,363 representing his Tier I award and a cash payment of $6,699,938 for the cancellation of his Class B Units. The Company also agreed to repurchase Mr. Kennedys equity investment in Class A Units of $1,107,780 for an amount equal to $1,772,448.
The foregoing payments and benefits are contingent on Mr. Kennedys continued compliance with certain restrictive covenants, including an indefinite confidentiality of information covenant, a covenant related to non-competition for three years after the Kennedy Separation Date and a covenant related to non-solicitation of employees and customers of the Company and its affiliates for one year after the Kennedy Separation Date.
Omnibus Incentive Plan
In connection with this offering, our board of directors expects to adopt, and our stockholders expect to approve, the Omnibus Incentive Plan prior to the completion of the offering.
Purpose
The purpose of the Omnibus Incentive Plan is to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our stockholders.
Administration
The Omnibus Incentive Plan will be administered by the compensation committee of our board of directors or such other committee of our board of directors to which it has delegated power, or if no such committee or subcommittee thereof exists, the board of directors (as applicable, the Committee). The Committee has the sole and plenary authority to establish the terms and conditions of any award consistent with the provisions of the Omnibus Incentive Plan. The Committee is authorized to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Omnibus Incentive Plan and any instrument or agreement
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relating to, or any award granted under, the Omnibus Incentive Plan; establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee deems appropriate for the proper administration of the Omnibus Incentive Plan; and to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Omnibus Incentive Plan. Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it in accordance with the terms of the Omnibus Incentive Plan. Any such allocation or delegation may be revoked by the Committee at any time. Unless otherwise expressly provided in the Omnibus Incentive Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Omnibus Incentive Plan or any award or any documents evidencing awards granted pursuant to the Omnibus Incentive Plan are within the sole discretion of the Committee, may be made at any time and are final, conclusive and binding upon all persons or entities, including, without limitation, us, any holder or beneficiary of any award, and any of our stockholders.
Shares Subject to the Omnibus Incentive Plan
The Omnibus Incentive Plan provides that the total number of shares of common stock that may be issued under the Omnibus Incentive Plan is . Of this amount, the maximum number of shares for which incentive stock options may be granted is ; the maximum number of shares for which options or stock appreciation right may be granted to any individual participant during any single fiscal year is ; the maximum number of shares for which performance compensation awards denominated in shares may be granted to any individual participant in respect of a single fiscal year is (or if any such awards are settled in cash, the maximum amount may not exceed the fair market value of such shares on the last day of the performance period to which such award relates); the maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, shall not exceed $ in total value; and the maximum amount that may be paid to any individual for a single fiscal year under a performance compensation award denominated in cash is $ . Except for substitute awards (as described below), in the event any award terminates, lapses, or is settled without the payment of the full number of shares subject to such award, including as a result of net settlement of the award or as a result of the award being settled in cash, the undelivered shares may be granted again under the Omnibus Incentive Plan, unless the shares are surrendered after the termination of the Omnibus Incentive Plan, and only if stockholder approval is not required under the then-applicable rules of the exchange on which the shares of common stock are listed. Awards may, in the sole discretion of the Committee, be granted in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by us or with which we combine (referred to as substitute awards), and such substitute awards shall not be counted against the total number of shares that may be issued under the Omnibus Incentive Plan, except that substitute awards intended to qualify as incentive stock options shall count against the limit on incentive stock options described above. No award may be granted under the Omnibus Incentive Plan after the tenth anniversary of the effective date (as defined therein), but awards theretofore granted may extend beyond that date.
Options
The Committee may grant non-qualified stock options and incentive stock options under the Omnibus Incentive Plan, with terms and conditions determined by the Committee that are not inconsistent with the Omnibus Incentive Plan; provided that all stock options granted under the Omnibus Incentive Plan are required to have a per share exercise price that is not less than 100% of the fair market value of our common stock underlying such stock options on the date an option is granted (other than in the case of options that are substitute awards), and all stock options that are intended to qualify as incentive stock options must be granted pursuant to an award agreement expressly stating that the option is intended to qualify as an incentive stock option, and will be subject to the terms and conditions that comply with the rules as may be prescribed by Section 422 of the Code. The maximum term for stock options granted under the Omnibus Incentive Plan will be ten years from the initial date of grant, or with respect to any stock options intended to qualify as incentive stock options, such
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shorter period as prescribed by Section 422 of the Code. However, if a non-qualified stock option would expire at a time when trading of shares of common stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), the term will automatically be extended to the 30th day following the end of such period. The purchase price for the shares as to which a stock option is exercised may be paid to us, to the extent permitted by law (1) in cash or its equivalent at the time the stock option is exercised, (2) in shares having a fair market value equal to the aggregate exercise price for the shares being purchased and satisfying any requirements that may be imposed by the Committee, or (3) by such other method as the Committee may permit in its sole discretion, including without limitation (A) in other property having a fair market value on the date of exercise equal to the purchase price, (B) if there is a public market for the shares at such time, through the delivery of irrevocable instructions to a broker to sell the shares being acquired upon the exercise of the stock option and to deliver to us the amount of the proceeds of such sale equal to the aggregate exercise price for the shares being purchased, or (C) through a net exercise procedure effected by withholding the minimum number of shares needed to pay the exercise price and all applicable required withholding taxes. Any fractional shares of common stock will be settled in cash.
Stock Appreciation Rights
The Committee may grant stock appreciation rights, with terms and conditions determined by the Committee that are not inconsistent with the Omnibus Incentive Plan. Generally, each stock appreciation right will entitle the participant upon exercise to an amount (in cash, shares or a combination of cash and shares, as determined by the Committee) equal to the product of (1) the excess of (A) the fair market value on the exercise date of one share of common stock, over (B) the strike price per share, times (2) the numbers of shares of common stock covered by the stock appreciation right. The strike price per share of a stock appreciation right will be determined by the Committee at the time of grant but in no event may such amount be less than the fair market value of a share of common stock on the date the stock appreciation right is granted (other than in the case of stock appreciation rights granted in substitution of previously granted awards). The Committee may in its sole discretion substitute, without the consent of the holder or beneficiary of such stock appreciation rights, stock appreciation rights settled in shares of common stock (or settled in shares or cash in the sole discretion of the Committee) for nonqualified stock options.
Restricted Shares and Restricted Stock Units
The Committee may grant restricted shares of our common stock or restricted stock units, representing the right to receive, upon the expiration of the applicable restricted period, one share of common stock for each restricted stock unit, or, in its sole discretion of the Committee, the cash value thereof (or any combination thereof). As to restricted shares of our common stock, subject to the other provisions of the Omnibus Incentive Plan, the holder will generally have the rights and privileges of a stockholder as to such restricted shares of common stock, including without limitation the right to vote such restricted shares of common stock (except, that if the lapsing of restrictions with respect to such restricted shares of common stock is contingent on satisfaction of performance conditions other than or in addition to the passage of time, any dividends payable on such restricted shares of common stock will be retained and delivered without interest to the holder of such shares when the restrictions on such shares lapse). To the extent provided in the applicable award agreement, the holder of outstanding restricted stock units will be entitled to be credited with dividend equivalent payments (upon the payment by us of dividends on shares of common stock) either in cash or, at the sole discretion of the Committee, in shares of common stock having a value equal to the amount of such dividends (and interest may, at the sole discretion of the Committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the Committee), which will be payable at the same time as the underlying restricted stock units are settled following the release of restrictions on such restricted stock units.
Other Stock-Based Awards
The Committee may issue unrestricted common stock, rights to receive grants of awards at a future date, or other awards denominated in shares of common stock (including, without limitation, performance shares or performance units), under the Omnibus Incentive Plan, including performance-based awards.
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Performance Compensation Awards
The Committee may also designate any award as a performance compensation award intended to qualify as performance-based compensation under Section 162(m) of the Code. The Committee also has the authority to make an award of a cash bonus to any participant and designate such award as a performance compensation award under the Omnibus Incentive Plan. The Committee has sole discretion to select the length of any applicable performance periods, the types of performance compensation awards to be issued, the applicable performance criteria and performance goals, and the kinds and/or levels of performance goals that are to apply. The performance criteria that will be used to establish the performance goals may be based on the attainment of specific levels of performance of the Company (and/or one or more affiliates, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, or any combination of the foregoing) and are limited to the following: (1) net earnings or net income (before or after taxes); (2) basic or diluted earnings per share (before or after taxes); (3) net revenue or net revenue growth; (4) gross revenue or gross revenue growth, gross profit or gross profit growth; (5) net operating profit (before or after taxes); (6) return measures (including, but not limited to, return on investment, assets, capital, employed capital, invested capital, equity, or sales); (7) cash flow measures (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital), which may but are not required to be measured on a per share basis; (8) earnings before or after taxes, interest, depreciation and/or amortization (including EBIT and EBITDA); (9) gross or net operating margins; (10) productivity ratios; (11) share price (including, but not limited to, growth measures and total stockholder return); (12) expense targets or cost reduction goals, general and administrative expense savings; (13) operating efficiency; (14) objective measures of customer satisfaction; (15) working capital targets; (16) measures of economic value added or other value creation metrics; (17) enterprise value; (18) sales; (19) stockholder return; (20) client retention; (21) competitive market metrics; (22) employee retention; (23) objective measures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business operations and meeting divisional or project budgets); (24) comparisons of continuing operations to other operations; (25) market share; (26) cost of capital, debt leverage year-end cash position or book value; (27) strategic objectives and related revenue, sales targets; or (28) any combination of the foregoing. Any one or more of the performance criteria may be stated as a percentage of another performance criteria, or used on an absolute or relative basis to measure our performance as a whole or any of our divisions or operational and/or business units, product lines, brands, business segments, administrative departments or any combination thereof, as the Committee may deem appropriate, or any of the above performance criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. Unless otherwise determined by the Committee at the time a performance compensation award is granted, the Committee shall, during the first 90 days of a performance period (or, within any other maximum period allowed under Section 162(m) of the Code), or at any time thereafter to the extent the exercise of such authority at such time would not cause the performance compensation awards granted to any participant for such performance period to fail to qualify as performance-based compensation under Section 162(m) of the Code, specify adjustments or modifications to be made to the calculation of a performance goal for such performance period, based on and to appropriately reflect the following events: (1) asset write-downs; (2) litigation or claim judgments or settlements; (3) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (4) any reorganization and restructuring programs; (5) extraordinary nonrecurring items as described in Accounting Standards Codification Topic 225-20 (or any successor pronouncement thereto) and/or in managements discussion and analysis of financial condition and results of operations appearing in our annual report to stockholders for the applicable year; (6) acquisitions or divestitures; (7) any other specific, unusual or nonrecurring events, or objectively determinable category thereof; (8) foreign exchange gains and losses; (9) discontinued operations and nonrecurring charges; and (10) a change in our fiscal year.
Following the completion of a performance period, the Committee will review and certify in writing whether, and to what extent, the performance goals for the performance period have been achieved and, if so,
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calculate and certify in writing that amount of the performance compensation awards earned for the period based upon the performance formula. In determining the actual amount of an individual participants performance compensation award for a performance period, the Committee has the discretion to reduce or eliminate the amount of the performance compensation award consistent with Section 162(m) of the Code. Unless otherwise provided in the applicable award agreement, the Committee does not have the discretion to (A) grant or provide payment in respect of performance compensation awards for a performance period if the performance goals for such performance period have not been attained; or (B) increase a performance compensation award above the applicable limitations set forth in the Omnibus Incentive Plan.
Effect of Certain Events on Omnibus Incentive Plan and Awards
In the event of (a) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, shares of common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of our shares of common stock or other securities, issuance of warrants or other rights to acquire our shares of common stock or other securities, or other similar corporate transaction or event (including, without limitation, a change in control, as defined in the Omnibus Incentive Plan) that affects the shares of common stock, or (b) unusual or nonrecurring events (including, without limitation, a change in control) affecting us, any affiliate, or the financial statements of us or any affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee must make any such adjustments in such manner as it may deem equitable, including without limitation, any or all of: (i) adjusting any or all of (A) the share limits applicable under the Omnibus Incentive Plan with respect to the number of awards which may be granted hereunder, (B) the number of our shares of common stock or other securities which may be delivered in respect of awards or with respect to which awards may be granted under the Omnibus Incentive Plan and (C) the terms of any outstanding award, including, without limitation, (1) the number of shares of common stock subject to outstanding awards or to which outstanding awards relate (with any increase requiring the approval of our board of directors), (2) the exercise price or strike price with respect to any award or (3) any applicable performance measures; (ii) providing for a substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on, or termination of, awards or providing for a period of time for participants to exercise outstanding awards prior to the occurrence of such event; and (iii) cancelling any one or more outstanding awards and causing to be paid to the holders holding vested awards (including any awards that would vest as a result of the occurrence of such event but for such cancellation) the value of such awards, if any, as determined by the Committee (which if applicable may be based upon the price per share of common stock received or to be received by other stockholders of the Company in such event), including without limitation, in the case of options and stock appreciation rights, a cash payment equal to the excess, if any, of the fair market value of the shares of common stock subject to the option or stock appreciation right over the aggregate exercise price thereof. For the avoidance of doubt, the Committee may cancel any stock option or stock appreciation right for no consideration if the fair market value of the shares subject to such option or stock appreciation right is less than or equal to the aggregate exercise price or strike price of such stock option or stock appreciation right.
Nontransferability of Awards
An award will not be transferable or assignable by a participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against us or any affiliate. However, the Committee may, in its sole discretion, permit awards (other than incentive stock options) to be transferred, including transfers to a participants family members, any trust established solely for the benefit of participant or such participants family members, any partnership or limited liability company of which participant, or participant and participants family members, are the sole member(s), and a beneficiary to whom donations are eligible to be treated as charitable contributions for tax purposes.
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Amendment and Termination
The board of directors may amend, alter, suspend, discontinue, or terminate the Omnibus Incentive Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuation or termination may be made without stockholder approval if (1) such approval is necessary to comply with any regulatory requirement applicable to the Omnibus Incentive Plan or for changes in GAAP to new accounting standards, (2) it would materially increase the number of securities which may be issued under the Omnibus Incentive Plan (except for adjustments in connection with certain corporate events), or (3) it would materially modify the requirements for participation in the Omnibus Incentive Plan; provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any participant or any holder or beneficiary of any award shall not to that extent be effective without such individuals consent. The Committee may also, to the extent consistent with the terms of any applicable award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any award granted or the associated award agreement, prospectively or retroactively, subject to the consent of the affected participant if any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination would materially and adversely affect the rights of any participant with respect to such award; provided, further, that without stockholder approval, except as otherwise permitted in the Omnibus Incentive Plan, (1) no amendment or modification may reduce the exercise price of any option or the strike price of any stock appreciation right, (2) the Committee may not cancel any outstanding option or stock appreciation right and replace it with a new option or stock appreciation right (with a lower exercise price or strike price, as the case may be) or other award or cash payment that is greater than the value of the cancelled option or stock appreciation right, and (3) the Committee may not take any other action which is considered a repricing for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which our securities are listed or quoted.
Dividends and Dividend Equivalents
The Committee in its sole discretion may provide part of an award with dividends or dividend equivalents, on such terms and conditions as may be determined by the Committee in its sole discretion; provided, that no dividend equivalents shall be payable in respect of outstanding (1) options or stock appreciation rights or (2) unearned performance compensation awards or other unearned awards subject to performance conditions (other than or in addition to the passage of time) (although dividend equivalents may be accumulated in respect of unearned awards and paid within 15 days after such awards are earned and become earned, payable or distributable).
Clawback/Forfeiture
An award agreement may provide that the Committee may in its sole discretion cancel such award if the participant, while employed by or providing services to us or any affiliate or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement or otherwise has engaged in or engages in other detrimental activity that is in conflict with or adverse to our interests or the interests of any affiliate, including fraud or conduct contributing to any financial restatements or irregularities, as determined by the Committee in its sole discretion. The Committee may also provide in an award agreement that if the participant otherwise has engaged in or engages in any activity referred to in the preceding sentence, the participant will forfeit any gain realized on the vesting or exercise of such award, and must repay the gain to us. The Committee may also provide in an award agreement that if the participant receives any amount in excess of what the participant should have received under the terms of the award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), then the participant shall be required to repay any such excess amount to us. Without limiting the foregoing, all awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Stockholders Agreement
In connection with this offering, we intend to enter into a stockholders agreement with Blackstone. This agreement will require us to nominate a number of individuals designated by Blackstone for election as our directors at any meeting of our stockholders, each a Sponsor Director, such that, upon the election of each such individual and each other individual nominated by or at the direction of our board of directors or a duly-authorized committee of the board, as a director of our company, the number of Sponsor Directors serving as directors of our company will be equal to: (1) if our existing owners and their affiliates together continue to beneficially own at least 50% of the shares of our common stock entitled to vote generally in the election of our directors as of the record date for such meeting, the lowest whole number that is greater than 50% of the total number of directors comprising our board of directors; (2) if our existing owners and their affiliates together continue to beneficially own at least 40% (but less than 50%) of the shares of our common stock entitled to vote generally in the election of our directors as of the record date for such meeting, the lowest whole number that is at least 40% of the total number of directors comprising our board of directors; (3) if our existing owners and their affiliates together continue to beneficially own at least 30% (but less than 40%) of the total shares of our common stock entitled to vote generally in the election of our directors as of the record date for such meeting, the lowest whole number that is at least 30% of the total number of directors comprising our board of directors; (4) if our existing owners and their affiliates together continue to beneficially own at least 20% (but less than 30%) of the total shares of our common stock entitled to vote generally in the election of our directors as of the record date for such meeting, the lowest whole number that is at least 20% of the total number of directors comprising our board of directors; and (5) if our existing owners and their affiliates together continue to beneficially own at least 5% (but less than 20%) of the total shares of our common stock entitled to vote generally in the election of our directors as of the record date for such meeting, the lowest whole number that is at least 10% of the total number of directors comprising our board of directors. For so long as the stockholders agreement remains in effect, Sponsor Directors may be removed only with the consent of Blackstone. In the case of a vacancy on our board created by the removal or resignation of a Sponsor Director, the stockholders agreement will require us to nominate an individual designated by our Sponsor for election to fill the vacancy.
The stockholders agreement will remain in effect until our Sponsor is no longer entitled to nominate a Sponsor Director pursuant to the stockholders agreement, unless our Sponsor requests that it terminate at an earlier date.
Registration Rights Agreement
In connection with this offering, we intend to enter into a registration rights agreement that will provide Blackstone an unlimited number of demand registrations and customary piggyback registration rights. The registration rights agreement will also provide that we will pay certain expenses relating to such registrations and indemnify the registration rights holders against certain liabilities which may arise under the Securities Act.
Management, Franchise and Timeshare Products and Services
Affiliates of Blackstone directly and indirectly own hotels that we manage or franchise and receive fees in connection with those management and franchise agreements. We recognized management and franchise fee revenue of $29 million, $23 million and $16 million, respectively, for the years ended December 31, 2012, 2011 and 2010 related to these hotels. We recognized reimbursements and reimbursable costs for these hotels, primarily related to payroll and marketing expenses, of $135 million, $101 million, and $93 million for the years ended December 31, 2012, 2011, and 2010, respectively. As of December 31, 2012 and 2011, we had accounts receivable due from these hotels related to these management and franchise fees and reimbursements of $28 million and $19 million, respectively. In addition, in certain cases, we incur costs to acquire management and franchise contracts with hotels owned by affiliates of Blackstone. We incurred acquisition costs of $5 million for the year ended December 31, 2011 related to these contracts. There were no acquisition costs for the years ended December 31, 2012 and 2010 related to these contracts.
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We may also enter into timeshare-related arrangements with affiliates of Blackstone which may involve, among other things, our sale of certain owned properties to affiliates of Blackstone for their development into timeshare properties and our selling and marketing related timeshare intervals and providing management and other services to operate the homeowners associations, rental programs, resort recreational programs and retail outlets at these properties.
Products and Services
From time to time, we have purchased products and services from entities affiliated with or owned by Blackstone.
Entities affiliated with Travelport Limited, or Travelport, in which certain affiliates of Blackstone have an interest, provide computerized reservations and ticketing and other services to travel agencies and others in the travel industry. We are party to a hotel reservations sales agreement with Travelport whereby we agree to pay specified fees per hotel booking and to purchase certain advertising services. Our payments for services from Travelport totaled $23 million, $20 million and $19 million for the fiscal years ended December 31, 2012, 2011 and 2010, respectively.
Equity Healthcare LLC, or Equity Healthcare, which is owned by Blackstone, provides us certain negotiating, monitoring and other services in connection with our health benefit plans pursuant to an employer health program agreement we have entered into with Equity Healthcare. In consideration for Equity Healthcares services, we pay Equity Healthcare fees based on the number of participating employees in our health benefit plans. Our payments to Equity Healthcare totaled $0.6 million and $0.3 million, respectively, for the fiscal years ended December 31, 2012 and 2011. We did not make any payments to Equity Healthcare during the fiscal year ended December 31, 2010.
Service Contract Guarantees
In 2010, in connection with the settlement of a lawsuit, we entered into a guarantee that requires us to pay any shortfalls under certain service contracts that affiliates of our Sponsor entered into with the plaintiff. The initial maximum exposure under the guarantee was $75 million, which has subsequently been reduced to approximately $52 million as of June 30, 2013 as a result of the plaintiffs receipt of payments from the counterparties of such service contracts.
Statement of Policy Regarding Transactions with Related Persons
Prior to the completion of this offering, our board of directors will adopt a written statement of policy regarding transactions with related persons, which we refer to as our related person policy. Our related person policy requires that a related person (as defined as in Item 404(a) of Regulation S-K, which includes security holders who beneficially own more than 5% of our common stock, including our Sponsor) must promptly disclose to our General Counsel any related person transaction (defined as any transaction that is anticipated would be reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The General Counsel will then promptly communicate that information to our board of directors. No related person transaction will be executed without the approval or ratification of our board of directors or a duly authorized committee of our board of directors. It is our policy that directors interested in a related person transaction will recuse themselves from any vote on a related person transaction in which they have an interest.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of shares of our common stock immediately after this offering by (1) each person known to us to beneficially own more than 5% of our outstanding common stock, (2) each of our directors and named executive officers and (3) all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
Number of
Shares Beneficially Owned |
Percentage of Shares
Beneficially Owned |
|||||
Name of Beneficial Owner |
Prior to this
Offering |
After this
Offering |
||||
Blackstone (1) |
||||||
Christopher J. Nassetta |
||||||
Jonathan D. Gray (2) |
||||||
Michael S. Chae (2) |
||||||
Tyler S. Henritze (2) |
||||||
Judith M. McHale |
||||||
John G. Schreiber (3) |
||||||
Douglas M. Steenland |
||||||
William J. Stein (2) |
||||||
Kevin J. Jacobs |
||||||
Thomas C. Kennedy |
||||||
Ian R. Carter |
||||||
Mark D. Wang |
||||||
Kristin A. Campbell |
||||||
Paul J. Brown |
||||||
Directors and executive officers as a group (15 persons) |
* | Represents less than 1%. |
(1) | Reflects shares of our common stock directly held by Hilton Global Holdings LLC. The managing member of Hilton Global Holdings LLC is Hilton Hotels Holdings LLC. The sole member of Hilton Hotels Holdings LLC is BH Hotels Holdco LLC (BH Hotels). The managing members of BH Hotels are Blackstone Real Estate Partners VI L.P. and Blackstone Capital Partners V L.P. The general partner of Blackstone Capital Partners V L.P. is Blackstone Management Associates V L.L.C. The sole member of Blackstone Management Associates V L.L.C is BMA V L.L.C. The general partner of Blackstone Real Estate Partners VI L.P. is Blackstone Real Estate Associates VI L.P. The general partner of Blackstone Real Estate Associates VI L.P. is BREA VI L.L.C. The managing member of each of BREA VI L.L.C. and BMA V L.L.C. is Blackstone Holdings III L.P. The general partner of Blackstone Holdings III L.P. is Blackstone Holdings III GP L.P. The general partner of Blackstone Holdings III GP L.P. is Blackstone Holdings III GP Management L.L.C. The sole member of Blackstone Holdings III GP Management L.L.C. is The Blackstone Group L.P. The general partner of The Blackstone Group L.P. is Blackstone Group Management L.L.C. Blackstone Group Management L.L.C. is wholly-owned by Blackstones senior managing directors and controlled by its founder, Steven A. Schwarzman. Each of such Blackstone entities (other than Hilton Global Holdings LLC to the extent of its direct holdings) and Mr. Schwarzman may be deemed to beneficially own the shares beneficially owned by Hilton Global Holdings LLC directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such shares. John G. Schreiber may be deemed to share dispositive power over the shares of common stock held by the Hilton Global Holdings LLC but disclaims beneficial ownership of such shares. The address of each of Mr. Schwarzman and each of the entities listed in this footnote is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154. |
(2) | Messrs. Gray, Chae, Henritze and Stein are each employees of Blackstone, but each disclaims beneficial ownership of the shares beneficially owned by Blackstone. |
(3) | Mr. Schreiber is a partner and co-founder of Blackstone Real Estate Advisors, which is affiliated with Blackstone. Mr. Schreiber disclaims beneficial ownership of the shares beneficially owned by Blackstone. |
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description is a summary of the material terms of (1) our new senior secured credit facilities, (2) our new senior notes and first priority senior secured notes and (3) existing material indebtedness that will remain outstanding after giving effect to the Refinancing Transactions. See SummaryRefinancing Transactions. In addition, as of June 30, 2013, our consolidated VIEs recorded non-recourse debt and capital lease obligations of $319 million.
Senior Secured Credit Facilities
Prior to the consummation of this offering, we expect to enter into a credit agreement with Deutsche Bank AG New York Branch, as administrative agent, collateral agent, swing line lender and L/C issuer, Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc. and Goldman Sachs Lending Partners LLC, as joint lead arrangers and joint bookrunners, Wells Fargo Securities, LLC, as joint bookrunner and the other agents and lenders from time to time party thereto.
We expect that the credit agreement will provide for senior secured credit facilities consisting of:
| a $7.6 billion senior secured term loan facility, or term loans, which will mature seven years from the closing date of the senior secured credit facilities; and |
| a $1.0 billion senior secured revolving credit facility, or revolving credit facility, $150 million of which will be available in the form of letters of credit, which will mature five years from the closing date of the senior secured credit facilities. |
Our wholly owned subsidiary, Hilton Worldwide Finance LLC, or borrower, will be the borrower under the senior secured credit facilities. The revolving credit facility will include borrowing capacity available for letters of credit and for short-term borrowings referred to as the swing line borrowings. In addition, we expect that the senior secured credit facilities will also provide us with the option to raise incremental credit facilities (including an uncommitted incremental facility that allows us the option to increase the amount available under the term loan facilities and/or the revolving credit facility by an aggregate of up to $1.5 billion, subject to additional increases upon satisfaction of certain leverage-based tests), refinance the loans with debt incurred outside the credit agreement and extend the maturity date of the revolving loans and term loans, subject to certain limitations. We also expect the senior secured credit facilities to include the terms below.
Interest Rate and Fees
Borrowings under the term loans will bear interest, at our option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the administrative agents prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the LIBOR rate for a one-month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing. The margin for the term loans will be 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to one step-down of 0.25% upon the achievement of a first lien net leverage ratio of less than or equal to 3.85 to 1.00 and subject to one step down of 0.25% following a qualifying initial public offering, subject to a base rate floor of 2.00%, and a LIBOR floor of 1.00%.
Borrowings under the revolving credit facility will bear interest, at our option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the administrative agents prime lending rate, (2) the federal funds effective rate plus 1/2 of 1% and (3) the LIBOR rate for a one-month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing. The margins for the revolving credit facility will be 1.50%, in the case of base rate loans, and 2.50%, in the case of LIBOR rate loans, subject to two step-downs of 0.25% upon the achievement of a first lien net leverage ratio of less than or equal to 3.85 to 1.00 and 3.25 to 1.00, respectively, and subject to one step down of 0.25% following a qualifying initial public offering.
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In addition to paying interest on outstanding principal under the senior secured credit facilities, we will be required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The commitment fee rate, will be 0.500% per annum subject to a step-down to 0.375%, upon achievement of a first lien net leverage ratio less than or equal to 3.85 to 1.00. We will also be required to pay customary letter of credit fees.
Prepayments
The senior secured credit facilities will require us to prepay outstanding term loans, subject to certain exceptions, with:
| 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to our attaining certain first lien net leverage ratios) of our annual excess cash flow, calculated in accordance with the credit agreement; |
| 100% of the net cash proceeds (including insurance and condemnation proceeds) of all non-ordinary course asset sales or other dispositions of property by the borrower and its restricted subsidiaries, subject to de minimis thresholds, if we do not reinvest those net cash proceeds in assets to be used in our business or to make certain other permitted investments (a) within 12 months of the receipt of such net cash proceeds or (b) if we commit to reinvest such net cash proceeds within 12 months of the receipt thereof, within 180 days of the date of such commitment (although in connection with any such prepayment, we may also repay other first lien debt to the extent we are so required); and |
| 100% of the net proceeds of any incurrence of debt by the borrower or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under the senior secured credit facilities. |
Notwithstanding any of the foregoing, each lender of term loans will have the right to reject its pro rata share of mandatory prepayments described above, in which case we may retain the amounts so rejected.
The foregoing mandatory prepayments will be applied pro rata to installments of term loans in direct order of maturity.
We will have the ability to voluntarily repay outstanding loans at any time without premium or penalty, other than prepayment premium on voluntary prepayment of term loans in connection with a repricing transaction on or prior to the date that is six months after the closing date of the senior secured credit facilities and customary breakage costs with respect to LIBOR loans.
Amortization
We will be required to repay installments on the term loans in quarterly installments equal to 0.25% of the original principal amount of the term loans, with the remaining amount payable on the applicable maturity date with respect to such term loans.
Guarantees
The obligations under the senior secured credit facilities will be unconditionally and irrevocably guaranteed by each of Hilton Worldwide Holdings Inc., Hilton Worldwide Finance Corp., a finance subsidiary that co-issued our senior notes due 2021, any subsidiary of Hilton Worldwide Holdings Inc. that directly or indirectly owns 100% of the issued and outstanding equity interests of the borrower, and, subject to certain exceptions, each of the borrowers existing and future material domestic wholly owned subsidiaries (collectively referred to as the guarantors). In addition, the senior secured credit facilities will be collateralized by first priority or equivalent security interests in (i) all the capital stock of, or other equity interests in, the borrower and each of the borrowers and guarantors material direct or indirect wholly owned restricted domestic subsidiaries and 65% of the capital stock of, or other equity interests in, each of the borrowers or any guarantors direct wholly owned first-tier restricted foreign subsidiaries, and (ii) certain tangible and intangible assets of the borrower and those of the guarantors (subject to certain exceptions and qualifications).
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As of the closing date for the senior secured credit facilities, none of our foreign subsidiaries, our non-wholly owned domestic subsidiaries that are restricted subsidiaries, our subsidiaries that are prohibited from providing guarantees as a result of the agreements governing our revolving non-recourse timeshare notes credit facility and/or or 2.28% notes backed by a portion of our timeshare financing receivables, or our unrestricted subsidiaries (which consist of our U.S. real estate subsidiaries that hold U.S. owned real estate that will secure our new commercial mortgage-backed securities loans and our mortgage loan secured by our Waldorf=Astoria New York property) will guarantee the senior secured credit facilities.
Certain Covenants and Events of Default
The senior secured credit facilities will contain a number of significant affirmative and negative covenants and customary events of default. Such covenants, among other things, will limit or restrict, subject to certain exceptions, the ability of the borrower and its restricted subsidiaries to:
| incur additional indebtedness, make guarantees and enter into hedging arrangements; |
| create liens on assets; |
| enter into sale and leaseback transactions; |
| engage in mergers or consolidations; |
| sell assets; |
| make fundamental changes; |
| pay dividends and distributions or repurchase our capital stock; |
| make investments, loans and advances, including acquisitions; |
| engage in certain transactions with affiliates; |
| make changes in the nature of their business; and |
| make prepayments of junior debt. |
In addition, if, on the last day of any period of four consecutive quarters on or after the date to be specified in the new credit agreement, the aggregate principal amount of revolving credit loans, swing line loans and/or letters of credit (excluding up to $50 million of letters of credit and certain other letters of credit that have been cash collateralized or back-stopped) that are issued and/or outstanding is greater than 25% of the revolving credit facility, the new credit agreement will require us to maintain a consolidated first lien net leverage ratio not to exceed 7.9 to 1.0.
During the period in which our corporate issuer rating is equal to or higher than Baa3 (or the equivalent) according to Moodys Investors Service, Inc. or BBB- (or the equivalent) according to Standard & Poors Ratings Services and no default has occurred and is continuing, the restrictions in the senior secured credit facilities regarding incurring additional indebtedness, dividends and distributions or repurchases of our capital stock and transactions with affiliates will not apply to the borrower and its restricted subsidiaries during such period.
Our senior secured credit facilities will also contain certain customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
5.625% Senior Notes due 2021
On October 4, 2013, Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp., as co-issuers, issued $1.5 billion aggregate principal amount of their 5.625% Senior Notes due 2021, or senior notes, under an
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indenture dated as of October 4, 2013. Interest on the senior notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2014. The senior notes are guaranteed on a senior unsecured basis by Hilton Worldwide Holdings Inc. and each of our wholly owned domestic restricted subsidiaries that guarantee any of our indebtedness under our new senior secured credit facilities.
We deposited the gross proceeds of the senior notes, together with additional cash, in an escrow account. The funds held in the escrow account will be released upon satisfaction of certain escrow conditions, including our entering into the new senior secured credit facilities, the commercial mortgage-backed securities loan and the mortgage loan secured by our Waldorf=Astoria New York property. If the escrow conditions are not met on or prior to February 1, 2014, the senior notes will be subject to a special mandatory redemption at a redemption price equal to 100% of the principal amount of the senior notes, plus accrued and unpaid interest to the redemption date. Assuming the escrow conditions are met, we plan to use the net proceeds from the senior notes, together with the net proceeds from our other Refinancing Transactions, together with available cash and additional borrowings under our revolving non-recourse timeshare notes credit facility, to repay certain of our indebtedness.
We may redeem the notes, in whole or in part, at any time prior to October 15, 2016, at a price equal to 100% of the principal amount, plus an applicable make-whole premium and accrued and unpaid interest. Beginning on October 15, 2016, we may redeem some or all of the notes at a redemption price of 102.813% of the principal amount of senior notes to be redeemed, plus any accrued and unpaid interest to the date of redemption. The redemption price decreases to 101.406% and 100.000% of the principal amount of senior notes to be redeemed on October 15, 2017 and 2018, respectively. In addition, at any time prior to October 15, 2016, we may, at our option, redeem up to 40% of the aggregate principal amount of the senior notes with the net cash proceeds from certain equity offerings at the redemption price of 105.625%, plus accrued and unpaid interest.
The indenture governing the senior notes contains covenants that, among other things, limit the co-issuers ability and the ability of their restricted subsidiaries, subject to certain exceptions, to:
| incur or guarantee additional debt or issue disqualified stock or certain preferred stock; |
| pay dividends and make other distributions on, or redeem or repurchase, capital stock; |
| make certain investments; |
| incur certain liens; |
| enter into transactions with affiliates; |
| merge or consolidate; |
| enter into agreements that restrict the ability of restricted subsidiaries to make dividends or other payments to the issuers; |
| designate restricted subsidiaries as unrestricted subsidiaries; and |
| transfer or sell certain assets. |
The indenture governing the senior notes contains change of control triggering event provisions and certain customary affirmative covenants and events of default.
Subject to certain exceptions, the indenture governing senior notes permits us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.
CMBS Loan
Prior to the consummation of this offering, we expect that JPMorgan Chase Bank, National Association, German American Capital Corporation, Bank of America, N.A., Morgan Stanley Mortgage Capital Holdings,
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LLC and GS Commercial Real Estate LP will extend to certain of our U.S. real estate subsidiaries that hold U.S. owned real estate, collectively referred to as the CMBS borrowers, a $3.5 billion commercial mortgage-backed securities loan, or CMBS loan, or such lesser amount to achieve a loan to value of 62.5% or a minimum debt yield (determined as the net operating income for the last 12 months over the outstanding loan balance) of 11.4%. We expect that the CMBS loan will be secured by 23 hotels owned by the CMBS borrowers, including the New York Hilton, Hilton Hawaiian Village, Hilton Waikoloa Village and Hilton New Orleans. We expect that the CMBS loan will have two components: (1) a fixed-rate component in the amount of $2.625 billion and (2) a floating rate component in the amount of $0.875 billion.
Term
We expect that the fixed rate component of the CMBS loan will have a term of five years.
We expect that the floating rate component will have an initial term, at the CMBS borrowers election, of either (1) two years with three extension options of 12 months each, or (2) three years with two extension options of 12 months each. The CMBS borrowers will have the right to exercise any extension period so long as no event of default exists, and they purchase an extension of the applicable interest rate hedge agreements described below which caps one-month LIBOR for the principal amount of the CMBS loan at the greater of 6.0% and the rate that, when added to the spread on the floating rate component of the CMBS loan, results in a weighted average debt service coverage ratio together with the fixed rate component of at least 1.25:1.00. In addition, in order to exercise the final extension period, the CMBS borrowers must pay an increase in the spread applicable to the floating rate component of 0.25%.
Interest and Fees
We expect that the interest rate payable on the fixed rate component of the CMBS loan will be equal to the sum of (1) the 5-year swap yield on the closing date of the CMBS loan or the date on which the CMBS borrowers elect a forward rate lock plus (2) 2.845% (with a floor of 4.465%) per annum.
We expect that the interest rate payable on the floating rate component will be equal to the sum of (1) one-month LIBOR plus (2) 2.65% per annum. The CMBS borrowers will be required to enter into, and pledge as security for the CMBS loan, one or more interest rate hedge agreements in the notional amount of the floating rate component which cap one-month LIBOR at 6.0% for the initial term of the floating rate component.
In addition to paying interest on the CMBS loan, we will be required to pay an origination fee of 1.00% of the CMBS loan at closing of the loan.
Amortization
We expect that the CMBS loan will have no amortization payments.
Prepayments
We expect that the CMBS borrowers will be permitted to voluntarily prepay all or any portion of the floating rate component without prepayment penalty or premium at any time. In addition we expect that the CMBS borrowers will be permitted to prepay (1) up to 50% of the fixed rate component, subject to payment of a yield maintenance premium to the extent repaid during the first 12 payment dates and (2) the remaining 50% of the fixed rate component, subject to payment of a yield maintenance premium to the extent repaid during the first 24 payment dates.
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In addition to the above, we expect that any prepayments of the CMBS loan, whether in whole in part, will also be subject to (1) the payment of actual LIBOR breakage costs incurred by the lenders and (2) the payment of all interest scheduled to accrue through to the end of the applicable interest period.
Mandatory prepayments will be required in connection with certain casualties or condemnations of a property.
Once repaid, no further borrowings will be permitted under the CMBS loan.
Guarantee
We expect that certain obligations of the CMBS borrowers with respect to the CMBS loan will be guaranteed by certain of our U.S. real estate subsidiaries that hold U.S. owned real estate entities and that are considered unrestricted subsidiaries for purposes of our new senior secured credit facilities and our senior notes, or U.S. owned real estate guarantors. Under the CMBS guarantee, it is expected that (1) the U.S. owned real estate guarantors will agree to indemnify CMBS loan lenders for losses with respect to customary bad-boy acts of the CMBS borrowers and their affiliates and (2) that the CMBS loan will become fully recourse to such guarantors upon a voluntary or collusive involuntary bankruptcy of the CMBS borrowers. Notwithstanding the foregoing, the aggregate liability of the U.S. owned real estate guarantors as a result of clause (1) and (2) above will be capped at 10% of the then outstanding principal balance of the CMBS loan.
The U.S. owned real estate guarantors will be subject to a net worth covenant requiring that they maintain a minimum ongoing net worth of $500.0 million (exclusive of the collateral securing the CMBS loan). If the U.S. owned real estate guarantors fail to meet the net worth requirement, we expect that the CMBS borrowers will be required to either provide a replacement guarantee, or cash collateral or a letter of credit in the amount of $175.0 million.
Covenants and Other Matters
We expect that the CMBS loan will include certain customary affirmative and negative covenants and events of default. Such covenants, among other things, will restrict, subject to certain exceptions, the ability of the CMBS borrowers to, among other things: incur additional debt; create liens on assets; transfer, pledge or assign certain equity interests; pay any dividends or make any distributions to its direct or indirect owners if an event of default exists or if the debt yield under the CMBS loan (calculated based on the outstanding balance of the CMBS loan) is below 8.25% for two consecutive quarters; make certain investments, loans and advances; consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person; enter into certain transactions with affiliates; engage in any business other than the ownership of the properties and business activities ancillary thereto; and amend or modify the CMBS borrowers articles or certificate of incorporation, by-laws and certain agreements. We also expect that the CMBS loan will include affirmative covenants requiring the CMBS borrowers to, among other things, exist as special purpose entities, maintain, while a low debt yield trigger exists, certain reserve funds in respect of furniture, fixtures and equipment, taxes and insurance, and rents due under ground leases (unless such amounts have been paid or are being collected by the property manager), and comply with other customary obligations for commercial mortgage-backed securities loan financings.
In addition, we expect that revenues will be required to be deposited into certain segregated accounts, to be used by the property manager to make certain payments relating to the properties securing the CMBS loan. So long as there is no event of default under the loan and the debt yield for the CMBS loan (calculated based on the outstanding principal balance of the CMBS loan) does not fall below 8.25% for two consecutive quarters, then any excess cash in those accounts would be available to the CMBS borrowers for any purpose, including the payment of dividends or distributions to their direct or indirect owners.
Waldorf=Astoria Loan
Prior to the consummation of this offering, we expect that HSBC Bank USA, N.A., DekaBank Deutsche Girozentrale and certain lenders selected by them, as lead arrangers, will extend to a subsidiary of ours, or the
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Waldorf borrower, a mortgage loan secured by the Waldorf=Astoria New York property, or Waldorf=Astoria loan, in an aggregate principal amount of $525 million, or such lesser amount to achieve a loan to value of 50% or a minimum debt yield (determined as the net operating income for the last 12 months over the loan amount) of 8.4%. The Waldorf=Astoria loan will mature five years from the closing date of the Waldorf=Astoria loan.
Interest and Fees
We expect that the interest rate payable on the Waldorf=Astoria loan will be equal to the sum of one-month LIBOR plus 2.15%. The Waldorf Borrower will be required to enter into, and pledge as security for the Waldorf=Astoria loan, an interest rate hedge agreement in the notional amount of the Waldorf=Astoria loan which will have the effect of capping one-month LIBOR at 4.0% for the first 24 months. Thereafter, the Waldorf Borrower will be required to renew the interest rate hedge agreement annual, except that each renewal will have the effect of capping one-month LIBOR at the greater of 4.0% and the rate that a results in a debt service coverage ratio that is at least 1.35:1.00).
In addition to paying interest on the Waldorf=Astoria loan, we will be required to pay an upfront fee of 0.65% of the Waldorf Loan amount at closing of the loan.
Amortization
We expect that the Waldorf=Astoria loan will have no amortization payments.
Prepayments
We expect that the Waldorf Borrower will be permitted to voluntarily prepay amounts outstanding under the Waldorf=Astoria loan, subject to (1) if the prepayment is during the first six months following the closing date for the Waldorf=Astoria loan, the payment of a spread maintenance amount (generally determined as the spread that would have been received through the end of the six months spread maintenance period) and (2) the payment of accrued interest and any customary breakage costs incurred by the lenders. Once repaid, no further borrowings will be permitted under the Waldorf=Astoria loan.
Mandatory prepayments will be required in connection with certain casualties or condemnations of the property.
Guarantee
We expect that certain obligations of the Waldorf borrower with respect to the Waldorf=Astoria loan will be guaranteed by the U.S. owned real estate guarantors. Under the Waldorf guarantee, it is expected that (1) the U.S. owned real estate guarantors will agree to indemnify Waldorf loan lenders for losses with respect to customary bad-boy acts of the Waldorf borrower and their affiliates and (2) that the Waldorf=Astoria loan will become fully recourse to such guarantors upon a voluntary or collusive involuntary bankruptcy of the Waldorf borrower. Notwithstanding the foregoing, the aggregate liability of the U.S. owned real estate guarantors as a result of clause (i) and (ii) above will be capped at 15% of the then outstanding principal balance of the Waldorf=Astoria loan.
Covenants and Other Matters
We expect that the Waldorf=Astoria loan will include certain customary affirmative and negative covenants and events of default. Such covenants, among other things, will restrict, subject to certain exceptions, the ability of the Waldorf Borrower to, among other things: incur additional debt (other than certain trade payables); create liens on assets; transfer, pledge or assign certain equity interests; pay any dividends or make any distributions to its direct or indirect owners if an event of default exists or if the debt yield (calculated based on the outstanding amount of the Waldorf=Astoria loan) has been less than 7.5% for two consecutive quarters; and make material changes to the organizational documents of the Waldorf borrower that would have a material adverse effect on its
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ability to perform its obligations under the Waldorf loan. We expect that the Waldorf=Astoria loan will include affirmative covenants requiring the Waldorf borrower to, among other things, exist as special purpose entities, maintain while a debt yield trigger period exists certain reserve funds in respect of taxes and insurance, ongoing capital expenditures and such other purposes as determined by the agent of the lenders (unless such amounts have been paid or are being collected by the property manager), and comply with other customary obligations for real estate financings.
In addition, we expect that revenues will be required to be deposited into certain segregated accounts, to be used by the property management to make certain payments relating to the properties securing the Waldorf=Astoria loan. So long as there is no event of default under the loan and the debt yield for the loan (calculated based on the outstanding amount of the Waldorf=Astoria loan) does not fall below 7.5% for two consecutive quarters, then any excess cash in those accounts would be available to the Waldorf Borrower for any purpose, including the payment of dividends or distributions to their direct or indirect owners.
Timeshare Facility
On May 9, 2013, Hilton Grand Vacations Trust I LLC, our wholly owned subsidiary, entered into a loan agreement with Wells Fargo Bank, National Association, as paying agent, a commercial paper conduit lender, Deutsche Bank AG, New York Branch and Bank of America, N.A., as committed lenders, and Deutsche Bank Securities Inc., as administrative agent, pursuant to which the lenders have committed to lend up to $400 million. In connection with the Refinancing Transactions, we expect to enter into an amendment which will increase commitments by $50 million to $450 million in aggregate. The loans are secured by timeshare loans secured by first mortgages or deeds of trust on timeshare interests in one or more residential units at timeshare resorts developed by Hilton Resorts Corporation, our wholly owned subsidiary, or HRC, or a subsidiary of HRC. The timeshare loans are required to satisfy certain eligibility criteria. Borrowings under the loan agreement are subject to availability under a borrowing base. The advance rate is generally 90% of the outstanding principal amounts of the eligible timeshare loans.
Interest on the loans is payable at a variable interest rate which, in the case of a commercial paper conduit lender, is such lenders cost of funds in the commercial paper market plus a usage fee or, in the case of any other lender (including a committed lender funding through its backstop funding commitments), one-month LIBOR plus a usage fee, and, in the case of any other lender, is daily one-month LIBOR plus a usage fee. The usage fee is 1.25% per annum, increasing to 1.75% per annum after the end of the commitment term. Interest is payable monthly. The commitment term ends on May 9, 2015, subject to extension in accordance with the terms of the loan agreement. All loans will become due and payable 12 months after the end of the commitment term.
The borrower under the loan agreement is a special purpose bankruptcy-remote direct subsidiary of HRC which was established to purchase the timeshare loans on a periodic basis from HRC, and the loans are non-recourse obligations of the borrower. Grand Vacations Services LLC, our wholly owned subsidiary, acts as the servicer of the timeshare loans pursuant to a servicing agreement, which contains customary representations, warranties and covenants. The servicer is entitled to receive a monthly fee from the borrower for servicing the timeshare loans. HRC has provided a performance guaranty to the lenders ensuring the performance and obligations (including the payment obligations) of the servicer under the servicing agreement.
The loan agreement contains customary affirmative covenants, including, among other things, maintenance of existence, further assurances and filing financing statements, maintenance of books and records, audit rights, notice of certain events, payment of taxes and compliance with laws and regulations. The loan agreement also contains customary negative covenants that generally limit the borrowers ability to incur any debt other than as contemplated by the loan agreement, create liens other than under the loan agreement, guarantee obligations of any other person subject to certain exceptions, enter into transactions with affiliates subject to certain exceptions, engage in asset sales, mergers, consolidations or dispositions, pay dividends or make other payments in respect of equity interests after the occurrence of certain events and make certain petitions in bankruptcy against the commercial paper conduit lenders.
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The loan agreement also contains certain customary events of default, including a change of control, breach of certain HRC financial covenants and certain timeshare loan performance measures.
Timeshare ABS
On August 8, 2013, HGV Depositor LLC, our wholly owned subsidiary, or Depositor, offered $250 million in aggregate principal amount of 2.28% notes backed by timeshare financing receivables, or asset-backed notes, issued by Hilton Grand Vacations Trust 2013-A, a Delaware statutory trust, or Trust, in a private transaction that was not subject to the registration requirements of the Securities Act. The asset-backed notes were sold pursuant to a note purchase agreement dated August 1, 2013, by and among HRC, the Depositor, and Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial purchasers. The asset-backed notes are backed by a pledge of assets of the Trust, consisting primarily of a pool of timeshare loans secured by first mortgages or deeds of trust on timeshare interests in one or more residential units at timeshare resorts developed by HRC, or a subsidiary of HRC. The asset-backed notes bear interest at a fixed rate of 2.28% per annum and have a stated maturity of January 25, 2026. The asset-backed notes are non-recourse obligations of the Trust and are payable solely from the pool of timeshare loans and related assets. A portion of the net proceeds from the asset-backed notes were used to pay a portion of the revolving non-recourse timeshare notes credit facility.
The asset-backed notes were issued pursuant to an indenture, which includes customary representations, warranties and covenants. In addition, the amended and restated trust agreement pursuant to which the Trust was established includes customary representations, warranties and covenants. The timeshare loans are serviced by Grand Vacations Services LLC, our wholly owned subsidiary, or Servicer, pursuant to a servicing agreement, which contains customary representations, warranties and covenants. The Servicer performs certain servicing and administrative functions with respect to the timeshare loans and is entitled to receive a monthly fee from the Trust for servicing the timeshare loans. HRC has guaranteed the performance of the Servicers obligations under the servicing agreement pursuant to a performance guaranty. HRC acts as the administrator of the Trust under an administration agreement, which includes customary representations, warranties and covenants.
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In connection with this offering, we will amend and restate our certificate of incorporation and our bylaws. The following is a description of the material terms of, and is qualified in its entirety by, our amended and restated certificate of incorporation and amended and restated bylaws, each of which will be in effect upon the consummation of this offering, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part. Under Description of Capital Stock, we, us, our and our company refer to Hilton Worldwide Holdings Inc. and not to any of its subsidiaries.
Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware, or DGCL. Upon the consummation of this offering, our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and shares of preferred stock, par value $0.01 per share. Unless our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
Common Stock
Holders of shares of our common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. The holders of our common stock do not have cumulative voting rights in the election of directors.
Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common stock will be entitled to receive pro rata our remaining assets available for distribution. All shares of our common stock that will be outstanding at the time of the completion of the offering will be fully paid and non-assessable. The common stock will not be subject to further calls or assessment by us. Holders of our common stock do not have preemptive, subscription, redemption or conversion rights. There will be no redemption or sinking fund provisions applicable to the common stock. The rights, powers, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may authorize and issue in the future.
Preferred Stock
No shares of preferred stock will be issued or outstanding immediately after the public offering contemplated by this prospectus. Our amended and restated certificate of incorporation authorizes our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by the holders of our common stock. Our board of directors is able to determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including, without limitation:
| the designation of the series; |
| the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding); |
| whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series; |
| the dates at which dividends, if any, will be payable; |
| the redemption rights and price or prices, if any, for shares of the series; |
| the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series; |
| the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company; |
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| whether the shares of the series will be convertible into shares of any other class or series, or any other security, of the Company or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made; |
| restrictions on the issuance of shares of the same series or of any other class or series; and |
| the voting rights, if any, of the holders of the series. |
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium over the market price of the common stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.
Dividends
The DGCL permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Surplus is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by its board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, remaining capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. Declaration and payment of any dividend will be subject to the discretion of our board of directors.
Stockholder Meetings
Our amended and restated certificate of incorporation and our amended and restated bylaws provide that annual stockholder meetings will be held at a date, time and place, if any, as exclusively selected by our board of directors. Our amended and restated bylaws provide that special meetings of the stockholders may be called only by or at the direction of the board of directors, the chairman of our board or the chief executive officer or upon the request of holders of not less than a majority of the total voting power of all the then outstanding shares of our capital stock. To the extent permitted under applicable law, we may conduct meetings by remote communications, including by webcast.
Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock will make it possible for our board of directors to issue preferred stock with super majority voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us or otherwise effect a change in control of us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
We do not have a stockholder rights plan or any series of preferred stock designated in connection with such a plan, and if our board of directors were ever to adopt a stockholder rights plan in the future without prior
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stockholder approval, our board of directors would either submit the plan to stockholders for ratification or cause the rights plan to expire within one year.
Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. For any matter to be properly brought before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Additionally, vacancies and newly created directorships may be filled only by a vote of a majority of the directors then in office, even though less than a quorum, and not by the stockholders. Our amended and restated bylaws allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to influence or obtain control of our company.
Our certificate of incorporation provides that the board of directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 80% or more of all of the outstanding shares of our capital stock entitled to vote.
No Cumulative Voting
The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not provide for cumulative voting.
Stockholder Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted, unless the companys amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation provides that from and after the date on which the parties to our stockholders agreement cease to beneficially own at least 40% of the total voting power of all the then outstanding shares of our capital stock any action, any action required or permitted to be taken by our stockholders may not be effected by consent in writing by stockholders unless such action is recommended by all directors then in office.
Delaware Anti-Takeover Statute
We have opted out of Section 203 of the DGCL. Section 203 provides that, subject to certain exceptions specified in the law, a publicly-held Delaware corporation shall not engage in certain business combinations with any interested stockholder for a three-year period after the date of the transaction in which the person became an interested stockholder. These provisions generally prohibit or delay the accomplishment of mergers, assets or stock sales or other takeover or change-in-control attempts that are not approved by a companys board of directors.
However, our amended and restated certificate of incorporation and bylaws provide that in the event the parties to our stockholders agreement cease to beneficially own at least 5% of the then outstanding shares of our common stock, we will automatically become subject to Section 203 of the DGCL. In general, Section 203
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prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:
| prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporations outstanding voting stock.
Under certain circumstances, Section 203 makes it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. Accordingly, Section 203 could have an anti-takeover effect with respect to certain transactions our board of directors does not approve in advance. The provisions of Section 203 may encourage companies interested in acquiring the Company to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. However, Section 203 also could discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders. These provisions also may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Dissenters Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation of our company. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholders stock thereafter devolved by operation of law.
Exclusive Forum
Our amended and restated certificate of incorporation will provide that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for
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any (i) derivative action or proceeding brought on behalf, to the fullest extent permitted by law, of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director or officer of our company to our company or our companys stockholders, creditors or other constituents, (iii) action asserting a claim against our company or any director or officer of our company arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws, or (iv) action asserting a claim against our company or any director or officer of our company governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of our company shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. However, it is possible that a court could find our forum selection provision to be inapplicable or unenforceable.
Conflicts of Interest
Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our amended and restated certificate of incorporation will, to the maximum extent permitted from time to time by Delaware law, renounce any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are our or our subsidiaries employees. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of Blackstone or any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us or our affiliates. In addition, to the fullest extent permitted by law, in the event that Blackstone or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our amended and restated certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of the Company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted to undertake the opportunity under our amended and restated certificate of incorporation, we have sufficient financial resources to undertake the opportunity and the opportunity would be in line with our business.
Limitations on Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors fiduciary duties, subject to certain exceptions. Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions is to eliminate the rights of us and our stockholders, through stockholders derivative suits on our behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from his or her actions as a director.
Our amended and restated bylaws provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We also are expressly authorized to carry directors
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and officers liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability, indemnification and advancement provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Transfer Agent and Registrar
The transfer agent and registrar for shares of our common stock will be .
Listing
We intend to apply to have our common stock approved for listing on under the symbol .
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the effect, if any, future sales of shares of common stock, or the availability for future sale of shares of common stock, will have on the market price of shares of our common stock prevailing from time to time. The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate. See Risk FactorsRisks Related to this Offering and Ownership of Our Common StockIf we or our existing investors sell additional shares of our common stock after this offering, the market price of our common stock could decline.
Upon completion of this offering we will have a total of shares of our common stock outstanding (or shares if the underwriters exercise in full their option to purchase additional shares). Of the outstanding shares, the shares sold in this offering (or shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described below. The remaining outstanding shares of common stock held by our existing owners after this offering will be deemed restricted securities under Rule 144 and may be sold in the public market only if registered or if they qualify for an exemption from registration, including the exemptions pursuant to Rule 144 which we summarize below.
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our Omnibus Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market. We expect that the initial registration statement on Form S-8 will cover shares.
Registration Rights
In connection with this offering, we intend to enter into a registration rights agreement that will provide Blackstone an unlimited number of demand registrations and customary piggyback registration rights. The registration rights agreement also provides that we will pay certain expenses relating to such registrations and indemnify the registration rights holders against certain liabilities which may arise under the Securities Act. Securities registered under any such registration statement will be available for sale in the open market unless restrictions apply. See Certain Relationships and Related Person TransactionsRegistration Rights Agreement.
Lock-Up Agreements
We have agreed, subject to certain customary exceptions, that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of the representatives of the underwriters for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the lock-up period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, then in either case the expiration of the lock-up will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representatives of the underwriters waive, in writing, such an extension.
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Our officers, directors, Blackstone and certain other existing owners have agreed, subject to certain customary exceptions, that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the representatives of the underwriters for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the lock-up period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, then in either case the expiration of the lock-up will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representatives of the underwriters waive, in writing, such an extension.
Rule 144
In general, under Rule 144, as currently in effect, a person who is not deemed to be our affiliate for purposes of Rule 144 or to have been one of our affiliates at any time during the three months preceding a sale and who has beneficially owned the shares of common stock proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares of common stock without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares of common stock proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares of common stock without complying with any of the requirements of Rule 144. In general, under Rule 144, as currently in effect, our affiliates or persons selling shares of common stock on behalf of our affiliates are entitled to sell, within any three-month period, a number of shares of common stock that does not exceed the greater of (1) 1% of the number of shares of common stock then outstanding and (2) the average weekly trading volume of the shares of common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. Sales under Rule 144 by our affiliates or persons selling shares of common stock on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a summary of the material U.S. federal income and estate tax consequences to a non-U.S. holder (as defined below) of the purchase, ownership and disposition of our common stock as of the date hereof. Except where noted, this summary deals only with common stock that is held as a capital asset.
A non-U.S. holder means a person (other than a partnership) that is not for U.S. federal income tax purposes any of the following:
| an individual citizen or resident of the United States; |
| a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. |
This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the Code), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of U.S. federal income and estate taxes and does not deal with foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances. In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws (including if you are a U.S. expatriate, controlled foreign corporation, passive foreign investment company or a partnership or other pass-through entity for U.S. federal income tax purposes). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock, you should consult your tax advisors.
If you are considering the purchase of our common stock, you should consult your own tax advisors concerning the particular U.S. federal income and estate tax consequences to you of the ownership of the common stock, as well as the consequences to you arising under the laws of any other taxing jurisdiction.
Dividends
Dividends paid to a non-U.S. holder of our common stock generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment) are not subject to withholding, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A non-U.S. holder of our common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to complete Internal Revenue
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Service Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if our common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations.
A non-U.S. holder of our common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the Internal Revenue Service.
Gain on Disposition of Common Stock
Any gain realized on the disposition of our common stock generally will not be subject to U.S. federal income tax unless:
| the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder); |
| the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or |
| we are or have been a United States real property holding corporation for U.S. federal income tax purposes. |
A non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates applicable to such holder if it were a United States person as defined under the Code. In addition, if a non-U.S. holder described in the first bullet point immediately above is a corporation for U.S. federal income tax purposes, it may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.
An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States.
We believe we are not and do not anticipate becoming a United States real property holding corporation for U.S. federal income tax purposes. If we are or become a United States real property holding corporation, so long as our common stock continues to be regularly traded on an established securities market, a non-U.S. holder who holds or held directly, indirectly or constructively (at any time during the shorter of the five year period preceding the date of disposition or the holders holding period) more than 5% of our common stock will be subject to U.S. federal income tax on the disposition of our common stock in the same manner as gain that is effectively connected with a trade or business of the non-U.S. holder in the United States, except that the branch profits tax generally will not apply.
Federal Estate Tax
Common stock held by an individual non-U.S. holder at the time of death will be included in such holders gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in other countries under the provisions of an applicable income tax treaty.
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A non-U.S. holder will be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of our common stock within the United States or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holders U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Additional Withholding Requirements
Under legislation enacted in 2010, regulations and administrative guidance, a 30% United States federal withholding tax may apply to any dividends paid after June 30, 2014, and to the gross proceeds from a disposition of our common stock occurring after December 31, 2016, in each case paid to (i) a foreign financial institution (as specifically defined in the legislation), whether such foreign financial institution is the beneficial owner or an intermediary, unless such foreign financial institution agrees to verify, report and disclose its United States account holders (as specifically defined in the legislation) and meets certain other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign entity is the beneficial owner or an intermediary, unless such entity provides a certification that the beneficial owner of the payment does not have any substantial United States owners or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other specified requirements are met. In certain cases, the relevant foreign financial institution or non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. You should consult your own tax advisor regarding this legislation and whether it may be relevant to your ownership and disposition of our common stock.
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and are acting as representatives of each of the underwriters named below. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have severally agreed to purchase from us the following respective number of shares of common stock at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:
Underwriter |
Number of
Shares |
|
Deutsche Bank Securities Inc. |
||
Goldman, Sachs & Co. |
||
Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
||
Morgan Stanley & Co. LLC |
||
|
||
Total |
||
|
The underwriting agreement provides that the underwriters obligation to purchase shares of common stock depends on the satisfaction of the conditions contained in the underwriting agreement including:
| the obligation to purchase all of the shares of common stock offered hereby (other than those shares of common stock covered by their option to purchase additional shares as described below), if any of the shares are purchased; |
| the representations and warranties made by us to the underwriters are true; |
| there is no material change in our business or the financial markets; and |
| we deliver customary closing documents to the underwriters. |
The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
Commissions and Expenses
The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares. The underwriting fee is the difference between the initial offering price to the public and the amount the underwriters pay us for the shares.
Per Share | Total | |||||||
No
Exercise |
Full
Exercise |
No
Exercise |
Full
Exercise |
|||||
Public offering price |
||||||||
Underwriting discounts and commissions |
||||||||
Proceeds, before expenses, to Hilton Worldwide Holdings Inc. |
The representatives of the underwriters have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $ per share. The underwriters may allow, and the selected dealers may re-allow, a discount from the concession not in excess of $ per share to brokers and dealers. After the offering, the representatives may change the offering price and other selling terms.
The expenses of the offering that are payable by us are estimated to be approximately $ (excluding underwriting discounts and commissions), including approximately $ in connection with the qualification of the offering with FINRA by counsel to the underwriters.
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Option to Purchase Additional Shares
We have granted the underwriters an option exercisable for 30 days after the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of shares at the public offering price less underwriting discounts and commissions. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to that underwriters initial commitment as indicated in the preceding table, and we will be obligated to sell the additional shares of common stock to the underwriters.
No Sales of Similar Securities
We, our executive officers and directors and certain of our other existing security holders have agreed, subject to certain customary exceptions, not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of the representatives of the underwriters. Specifically, we and these other persons have agreed, with certain limited exceptions, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any common stock, or any options or warrants to purchase any common stock, or any securities convertible into, exchangeable for or that represent the right to receive common stock, whether now owned or hereinafter acquired, owned directly by us or these other persons (including holding as a custodian) or with respect to which we or such other persons has beneficial ownership within the rules and regulations of the SEC. We and such other persons have agreed that these restrictions expressly preclude us and such other persons from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of our or such other persons common stock if such common stock would be disposed of by someone other than us or such other persons. Prohibited hedging or other transactions includes any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of our or such other persons common stock or with respect to any security that includes, relates to, or derives any significant part of its value from such common stock.
In the event that either (x) during the last 17 days of the lock-up period referred to above, we issue an earnings release or material news or a material event relating to us occurs or (y) prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the lock-up period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless the representatives of the underwriters waive, in writing, such extension.
Offering Price Determination
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between us and the representatives. In determining the initial public offering price of our common stock, the representatives will consider:
| the history and prospects for the industry in which we compete; |
| our financial information; |
| the ability of our management, present stage of development and our business potential and earning prospects; |
| the prevailing securities markets at the time of this offering; and |
| the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. |
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Indemnification
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, liabilities arising from breaches of the representations and warranties contained in the underwriting agreement and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
The underwriters may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock, in accordance with Regulation M under the Exchange Act.
| Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
| A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares, in whole or in part, and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
| Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed to cover syndicate short positions. |
| Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, certain of the underwriters may facilitate Internet distribution for this offering to certain of its Internet subscription customers. Such underwriters may allocate a limited
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number of shares for sale to its online brokerage customers. A prospectus in electronic format is being made available on Internet web sites maintained by one or more of the bookrunners of this offering and may be made available on web sites maintained by other underwriters. Other than the prospectus in electronic format, the information on any underwriters web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which the prospectus forms a part.
Listing
We have applied to list our common stock on the under the symbol .
Discretionary Sales
The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares offered by them.
Stamp Taxes
Purchasers of the shares of our common stock offered in this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus. Accordingly, we urge you to consult a tax advisor with respect to whether you may be required to pay those taxes or charges, as well as any other tax consequences that may arise under the laws of the country of purchase.
Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they may receive customary fees and expenses. In particular, Deutsche Bank Securities Inc. is the administrative agent, collateral agent swing line lender and letter of credit issuer under our $7.6 billion senior secured term loan and $1.0 billion senior secured revolving facility. In addition, Deutsche Bank Securities Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and affiliates of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. were joint lead arrangers and joint bookrunners in connection with, and are expected to be lenders under, our new $7.6 billion senior secured term loan and $1.0 billion senior secured revolving facility. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. LLC were joint book-running managers in connection with our offering of $1.5 billion aggregate principal amount of 5.625% senior notes due 2021. Affiliates of Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are expected to be lenders under our $3.5 billion commercial mortgage-backed securities loan secured by 23 hotels owned by certain of our subsidiaries. Deutsche Bank Securities Inc. is the administrative agent under the $400 million non-recourse timeshare notes credit facility of one of our subsidiaries; affiliates of Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, are also lenders thereunder. Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated were also initial purchasers in connection with the offering by one of our subsidiaries of $250 million aggregate principal amount of 2.28% notes backed by timeshare financing receivables. In addition, as of October 18, 2013, affiliates of Goldman, Sachs & Co. and Morgan Stanley & Co. LLC hold, directly or indirectly, limited liability company interests in Hilton Global Holdings LLC, the immediate parent company of Hilton Worldwide Holdings Inc.
In addition, in the ordinary course of business, the underwriters and their respective affiliates may make or hold a broad array of investments including serving as counterparties to certain derivative and hedging arrangements and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such
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investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares may be made to the public in that Relevant Member State other than:
A. | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
B. | to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or |
C. | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. |
Each person in a Relevant Member State (other than a Relevant Member State where there is a Permitted Public Offer) who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that (A) it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive, and (B) in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors as defined in the Prospectus Directive, or in circumstances in which the prior consent of the Subscribers has been given to the offer or resale. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement.
This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the underwriters to publish a prospectus for such offer.
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For the purpose of the above provisions, the expression an offer to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
Notice to Prospective Investors in the United Kingdom
Each underwriter agrees that:
(a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Company; and |
(b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the
194
SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each Underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
195
Notice to Prospective Investors in Switzerland
We have not and will not register with the Swiss Financial Market Supervisory Authority (FINMA) as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended (CISA), and accordingly the securities being offered pursuant to this prospectus have not and will not be approved, and may not be licenseable, with FINMA. Therefore, the securities have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the securities offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The securities may solely be offered to qualified investors, as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended (CISO), such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the securities are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described herein and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations. We have not applied for a listing of the securities on the SIX Swiss Exchange or any other regulated securities market in Switzerland, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.
196
The validity of the shares of common stock will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York. An investment vehicle comprised of selected partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others owns an interest representing less than 1% of the capital commitments of funds affiliated with The Blackstone Group L.P.
The consolidated financial statements of Hilton Worldwide Holdings Inc. at December 31, 2012 and 2011, and for each of the three years in the period ended December 31, 2012, appearing in this prospectus and the registration statement of which this prospectus forms a part have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and in each instance we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement. Anyone may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act, and will be required to file reports and other information with the SEC. You will be able to inspect and copy these reports and other information at the public reference facilities maintained by the SEC at the address noted above. You also will be able to obtain copies of this material from the Public Reference Room of the SEC as described above, or inspect them without charge at the SECs website. We intend to make available to our common stockholders annual reports containing consolidated financial statements audited by an independent registered public accounting firm.
197
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder of
Hilton Worldwide Holdings Inc.
We have audited the accompanying consolidated balance sheets of Hilton Worldwide Holdings Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilton Worldwide Holdings Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
McLean, Virginia
September 6, 2013
F-2
Hilton Worldwide Holdings Inc.
Consolidated Balance Sheets
(in millions, except share data)
December 31, | ||||||||
2012 | 2011 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 755 | $ | 781 | ||||
Restricted cash and cash equivalents |
550 | 658 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $39 and $39 |
719 | 638 | ||||||
Inventories |
415 | 552 | ||||||
Deferred income tax assets |
76 | 74 | ||||||
Current portion of financing receivables, net |
119 | 103 | ||||||
Prepaid expenses |
153 | 136 | ||||||
Other |
40 | 91 | ||||||
|
|
|
|
|||||
Total current assets (variable interest entities - $49 and $53) |
2,827 | 3,033 | ||||||
|
|
|
|
|||||
Property, Investments, and Other Assets: |
||||||||
Property and equipment, net |
9,197 | 9,117 | ||||||
Financing receivables, net |
815 | 770 | ||||||
Investments in affiliates |
291 | 334 | ||||||
Goodwill |
6,197 | 6,175 | ||||||
Brands |
5,029 | 5,025 | ||||||
Management and franchise contracts, net |
1,600 | 1,748 | ||||||
Other intangible assets, net |
744 | 703 | ||||||
Deferred income tax assets |
104 | 112 | ||||||
Other |
262 | 295 | ||||||
|
|
|
|
|||||
Total property, investments, and other assets (variable interest entities - $168 and $194) |
24,239 | 24,279 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 27,066 | $ | 27,312 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable, accrued expenses, and other |
$ | 1,922 | $ | 1,806 | ||||
Current maturities of long-term debt |
392 | 342 | ||||||
Current maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities |
15 | 42 | ||||||
Income taxes payable |
20 | 17 | ||||||
|
|
|
|
|||||
Total current liabilities (variable interest entities - $51 and $77) |
2,349 | 2,207 | ||||||
Long-term debt |
15,183 | 15,969 | ||||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities |
405 | 439 | ||||||
Deferred income tax liabilities |
4,948 | 5,006 | ||||||
Liability for guest loyalty program |
503 | 512 | ||||||
Other |
1,523 | 1,477 | ||||||
|
|
|
|
|||||
Total liabilities (variable interest entities - $485 and $534) |
24,911 | 25,610 | ||||||
Commitments and contingencies - see Note 23 |
||||||||
Equity: |
||||||||
Common stock, $0.01 par value, 2012 and 2011 - 1,000 shares authorized; 100 issued and outstanding |
1 | 1 | ||||||
Additional paid-in capital |
8,452 | 8,454 | ||||||
Accumulated deficit |
(5,746) | (6,098) | ||||||
Accumulated other comprehensive loss |
(406) | (489) | ||||||
|
|
|
|
|||||
Total Hilton stockholders equity |
2,301 | 1,868 | ||||||
Noncontrolling interests |
(146) | (166) | ||||||
|
|
|
|
|||||
Total equity |
2,155 | 1,702 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND EQUITY |
$ | 27,066 | $ | 27,312 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-3
Hilton Worldwide Holdings Inc.
Consolidated Statements of Operations
(in millions)
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Revenues |
||||||||||||
Owned and leased hotels |
$ | 3,979 | $ | 3,898 | $ | 3,667 | ||||||
Management and franchise fees and other |
1,088 | 1,014 | 901 | |||||||||
Timeshare |
1,085 | 944 | 863 | |||||||||
|
|
|
|
|
|
|||||||
6,152 | 5,856 | 5,431 | ||||||||||
Other revenues from managed and franchised properties |
3,124 | 2,927 | 2,637 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
9,276 | 8,783 | 8,068 | |||||||||
Expenses |
||||||||||||
Owned and leased hotels |
3,230 | 3,213 | 3,009 | |||||||||
Timeshare |
758 | 668 | 634 | |||||||||
Depreciation and amortization |
550 | 564 | 574 | |||||||||
Impairment losses |
54 | 20 | 24 | |||||||||
General, administrative, and other |
460 | 416 | 637 | |||||||||
|
|
|
|
|
|
|||||||
5,052 | 4,881 | 4,878 | ||||||||||
Other expenses from managed and franchised properties |
3,124 | 2,927 | 2,637 | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
8,176 | 7,808 | 7,515 | |||||||||
Operating income |
1,100 | 975 | 553 | |||||||||
Interest income |
15 | 11 | 9 | |||||||||
Interest expense |
(569) | (643) | (946) | |||||||||
Equity in losses from unconsolidated affiliates |
(11) | (145) | (12) | |||||||||
Gain (loss) on foreign currency transactions |
23 | (21) | 18 | |||||||||
Gain on debt restructuring |
| | 789 | |||||||||
Other gain, net |
15 | 19 | 8 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
573 | 196 | 419 | |||||||||
Income tax benefit (expense) |
(214) | 59 | (308) | |||||||||
|
|
|
|
|
|
|||||||
Net income |
359 | 255 | 111 | |||||||||
Net loss (income) attributable to noncontrolling interests |
(7) | (2) | 17 | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to Hilton stockholder |
$ | 352 | $ | 253 | $ | 128 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
Hilton Worldwide Holdings Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in millions)
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net income |
$ | 359 | $ | 255 | $ | 111 | ||||||
Other comprehensive income (loss), net of tax benefit (expense): |
||||||||||||
Currency translation adjustment: |
||||||||||||
Currency translation adjustment, net of tax of $102, $(2), and $(87) |
138 | (82) | (151) | |||||||||
Loss on net investment hedges, net of tax of $, $, and $(22) |
| | 36 | |||||||||
|
|
|
|
|
|
|||||||
Total currency translation adjustment |
138 | (82) | (115) | |||||||||
Pension liability adjustment: |
||||||||||||
Net actuarial gain (loss), net of tax of $20, $10, and $(10) |
(35) | (21) | 23 | |||||||||
Prior service credit (cost), net of tax of $4, $(2), and $2 |
(8) | 3 | (6) | |||||||||
Amortization of net gain, net of tax of $(1), $(2), and $(4) |
2 | 5 | 10 | |||||||||
|
|
|
|
|
|
|||||||
Total pension liability adjustment |
(41) | (13) | 27 | |||||||||
Cash flow hedge adjustment: |
||||||||||||
Unrealized gains, net of tax of $, $, and $(63) |
| | 101 | |||||||||
Reclassification into earnings, net of tax of $, $(1), and $(3) |
| 1 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Total cash flow hedge adjustment |
| 1 | 105 | |||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income (loss) |
97 | (94) | 17 | |||||||||
|
|
|
|
|
|
|||||||
Comprehensive income |
456 | 161 | 128 | |||||||||
Comprehensive loss (income) attributable to noncontrolling interests |
(21) | 1 | 37 | |||||||||
|
|
|
|
|
|
|||||||
Comprehensive income attributable to Hilton stockholder |
$ | 435 | $ | 162 | $ | 165 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
Hilton Worldwide Holdings Inc.
Consolidated Statements of Cash Flows
(in millions)
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Operating Activities: |
||||||||||||
Net income |
$ | 359 | $ | 255 | $ | 111 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Impairment losses |
54 | 20 | 24 | |||||||||
Depreciation and amortization |
550 | 564 | 574 | |||||||||
Equity in losses from unconsolidated affiliates |
11 | 145 | 12 | |||||||||
Loss (gain) on foreign currency transactions |
(23) | 21 | (18) | |||||||||
Gain on debt restructuring |
| | (789) | |||||||||
Other gain, net |
(15) | (19) | (8) | |||||||||
Share-based compensation |
50 | 19 | 56 | |||||||||
Amortization of deferred financing costs and other |
(5) | 6 | 31 | |||||||||
Distributions from unconsolidated affiliates |
31 | 13 | 18 | |||||||||
Deferred income taxes |
73 | (187) | 18 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable, net |
(82) | (43) | (40) | |||||||||
Inventories |
137 | 119 | 155 | |||||||||
Prepaid expenses |
(15) | (7) | 4 | |||||||||
Other current assets |
51 | (29) | (21) | |||||||||
Accounts payable, accrued expenses, and other |
71 | 151 | (69) | |||||||||
Income taxes payable |
3 | | (1) | |||||||||
Change in restricted cash and cash equivalents |
(79) | (14) | 25 | |||||||||
Change in timeshare notes receivable |
(68) | (53) | (55) | |||||||||
Change in liability for guest loyalty program |
6 | 128 | 92 | |||||||||
Change in other liabilities |
(56) | 83 | 709 | |||||||||
Other |
57 | (5) | 5 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
1,110 | 1,167 | 833 | |||||||||
|
|
|
|
|
|
|||||||
Investing Activities: |
||||||||||||
Capital expenditures |
(433) | (389) | (148) | |||||||||
Acquisitions |
| (12) | (216) | |||||||||
Payments received on other financing receivables |
8 | 7 | 4 | |||||||||
Issuance of other financing receivables |
(4) | | (2) | |||||||||
Additional investments in affiliates |
(3) | (11) | (4) | |||||||||
Proceeds from asset dispositions |
8 | 88 | | |||||||||
Contract acquisition costs |
(31) | (53) | (6) | |||||||||
Software capitalization costs |
(103) | (93) | (20) | |||||||||
Proceeds from settlement of derivative instruments |
| | 324 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(558) | (463) | (68) | |||||||||
|
|
|
|
|
|
|||||||
Financing Activities: |
||||||||||||
Borrowings |
96 | 40 | 18 | |||||||||
Repayment of debt |
(854) | (726) | (278) | |||||||||
Cash paid in debt restructuring |
| | (895) | |||||||||
Debt restructuring costs |
| | (35) | |||||||||
Change in restricted cash and cash equivalents |
187 | (25) | (249) | |||||||||
Equity contribution from Parent |
| | 819 | |||||||||
Contribution from noncontrolling interests |
| | 33 | |||||||||
Distributions to noncontrolling interests |
(4) | (3) | (9) | |||||||||
Acquisition of noncontrolling interests |
(1) | | (107) | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
(576) | (714) | (703) | |||||||||
|
|
|
|
|
|
|||||||
Effect of exchange rate changes on cash and cash equivalents |
(2) | (5) | (4) | |||||||||
Net increase (decrease) in cash and cash equivalents |
(26) | (15) | 58 | |||||||||
Cash and cash equivalents, beginning of period |
781 | 796 | 738 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 755 | $ | 781 | $ | 796 | ||||||
|
|
|
|
|
|
For supplemental disclosures, see Note 25: Supplemental Disclosures of Cash Flow Information.
See notes to consolidated financial statements.
F-6
Hilton Worldwide Holdings Inc.
Consolidated Statements of Equity (Deficit)
(in millions)
Equity (Deficit) Attributable to Hilton Stockholder | ||||||||||||||||||||||||
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive Loss |
Noncontrolling
Interests |
Total | |||||||||||||||||||
Balance as of December 31, 2009 |
$ | 1 | $ | 5,431 | $ | (6,460) | $ | (435) | $ | (7) | $ | (1,470) | ||||||||||||
Impact of adoption of new accounting standard |
| | (19) | | (114) | (133) | ||||||||||||||||||
Equity contribution from parent entities |
| 919 | | | | 919 | ||||||||||||||||||
Fair value of contribution by affiliate in excess of the carrying value of debt exchanged |
| 78 | | | | 78 | ||||||||||||||||||
Share-based compensation |
| (2) | | | | (2) | ||||||||||||||||||
Debt extinguishment by parent entity |
| 2,078 | | | | 2,078 | ||||||||||||||||||
Acquisition of noncontrolling interest |
| (50) | | | (28) | (78) | ||||||||||||||||||
Net income (loss) |
| | 128 | | (17) | 111 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||
Currency translation adjustment |
| | | (95) | (20) | (115) | ||||||||||||||||||
Pension liability adjustment |
| | | 27 | | 27 | ||||||||||||||||||
Cash flow hedge adjustment |
| | | 105 | | 105 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income (loss) |
| | | 37 | (20) | 17 | ||||||||||||||||||
Contributions |
| | | | 33 | 33 | ||||||||||||||||||
Distributions |
| | | | (9) | (9) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of December 31, 2010 |
$ | 1 | $ | 8,454 | $ | (6,351) | $ | (398) | $ | (162) | $ | 1,544 | ||||||||||||
Net income |
| | 253 | | 2 | 255 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||
Currency translation adjustment |
| | | (79) | (3) | (82) | ||||||||||||||||||
Pension liability adjustment |
| | | (13) | | (13) | ||||||||||||||||||
Cash flow hedge adjustment |
| | | 1 | | 1 | ||||||||||||||||||
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Other comprehensive loss |
| | | (91) | (3) | (94) | ||||||||||||||||||
Distributions |
| | | | (3) | (3) | ||||||||||||||||||
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Balance as of December 31, 2011 |
$ | 1 | $ | 8,454 | $ | (6,098) | $ | (489) | $ | (166) | $ | 1,702 | ||||||||||||
Share-based compensation |
| 2 | | | | 2 | ||||||||||||||||||
Acquisition of noncontrolling interest |
| (4) | | | 3 | (1) | ||||||||||||||||||
Net income |
| | 352 | | 7 | 359 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: |
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Currency translation adjustment |
| | | 124 | 14 | 138 | ||||||||||||||||||
Pension liability adjustment |
| | | (41) | | (41) | ||||||||||||||||||
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Other comprehensive income |
| | | 83 | 14 | 97 | ||||||||||||||||||
Distributions |
| | | | (4) | (4) | ||||||||||||||||||
Balance as of December 31, 2012 |
$ | 1 | $ | 8,452 | $ | (5,746) | $ | (406) | $ | (146) | $ | 2,155 | ||||||||||||
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See notes to consolidated financial statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization
Hilton Worldwide Holdings Inc. (Hilton together with its subsidiaries, we, us, our, or the Company) was formed on March 18, 2010 to hold, directly or indirectly, all of the equity of Hilton Worldwide, Inc. (HWI). Hilton Worldwide Holdings Inc. is incorporated in the state of Delaware and has no operations other than its ownership of HWI, which occurred on April 7, 2010. The accompanying financial statements for the year ended December 31, 2010 combine the consolidated results of HWI for the period January 1, 2010 through April 6, 2010 with the consolidated results of Hilton Worldwide Holdings Inc. from the date of formation through December 31, 2010, which includes the consolidation of HWI from April 7, 2010 through December 31, 2010.
Hilton is one of the largest and most recognized hospitality companies in the world based upon the number of hotel rooms and timeshare units under our ten distinct brands. We are engaged in owning, leasing, managing, developing, and franchising hotels, resorts, and timeshare properties. As of December 31, 2012, we owned, leased, managed, or franchised 3,926 hotel and resort properties, totaling 646,676 rooms in 90 countries and territories, as well as 40 timeshare properties comprised of 6,281 units.
On October 24, 2007, HWI became a wholly owned subsidiary of BH Hotels Holdco, LLC (BH Hotels or our Ultimate Parent), an affiliate of The Blackstone Group (Blackstone), following the completion of a merger (the Merger). BH Hotels and its subsidiaries subsequently formed Hilton Global Holdings LLC, (HGH or our Parent), which has directly owned 100 percent of our stock since our formation.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the accounts of Hilton, our wholly owned subsidiaries, and entities in which we have a controlling financial interest, including variable interest entities (VIEs) where we are the primary beneficiary. Entities in which we have a controlling financial interest generally comprise majority owned real estate ownership and management enterprises.
The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other ownership interests. If the entity is considered to be a VIE, we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or have a controlling general partner interest of a partnership, assuming the absence of other factors determining control, including the ability of minority owners to participate in or block certain decisions. As of December 31, 2012, we consolidated six non-wholly owned entities in which we own more than 50 percent of the voting shares of the entities or we have determined we are the primary beneficiary of a VIE.
All material intercompany transactions and balances have been eliminated in consolidation. References in these financial statements to net income (loss) attributable to Hilton stockholder and Hilton stockholders equity (deficit) do not include noncontrolling interests, which represent the outside ownership interests of our six consolidated, non-wholly owned entities and are reported separately.
Use of Estimates
The preparation of financial statements in conformity with United States of America (U.S.) generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates.
F-8
Summary of Significant Accounting Policies
Revenue Recognition
Revenues are primarily derived from the following sources and are generally recognized as services are rendered and when collectability is reasonably assured:
| Owned and leased hotel revenues primarily consist of room rentals and food and beverage sales from owned, leased, and consolidated non-wholly owned hotel properties. Revenues are recorded when rooms are occupied or goods and services have been rendered. |
| Management fees represent fees earned from hotels and timeshare properties that we manage, usually under long-term contracts with the property owner. Management fees from hotels usually include a base fee, which is generally a percentage of hotel revenues, and an incentive fee, which is generally based on a fixed or variable percentage of hotel profits and in some cases may be subject to a stated return threshold to the owner, normally over a one-calendar year period. Additionally, we receive one-time upfront fees upon execution of certain management contracts. We recognize base fees as revenue when earned in accordance with the terms of the management agreement. For incentive fees, we recognize those amounts that would be due if the contract was terminated at the financial statement date. One-time, upfront fees are recognized when all conditions have been substantially performed or satisfied by us. Management fees from timeshare properties are generally a fixed amount as stated in the management agreement and are recognized as the services are performed. |
| Franchise fees represent fees earned in connection with the licensing of one of our hotel brands, usually under long-term contracts with the hotel owner. We charge a monthly franchise royalty fee, generally based on a percentage of room revenue, as well as application and initiation fees for new hotels entering the system. Royalty fees for our full service brands may also include a percentage of gross food and beverage revenues and other revenues, where applicable. We recognize franchise fee revenue as the fees are earned, which is when all material services or conditions have been performed or satisfied. |
| Other revenues include revenues generated by the incidental support of hotel operations for owned, leased, managed, and franchised hotels, and other rental income. This includes any revenues received for vendor rebate arrangements we participate in as a manager of hotel and timeshare properties. |
| Timeshare revenues consist of revenues generated from our Hilton Grand Vacations timeshare business. Timeshare revenues are principally generated from the sale and financing of timeshare intervals. Revenue from a deeded timeshare sale is recognized when the customer has executed a binding sales contract, a minimum ten percent down payment has been received, certain minimum sales thresholds for a timeshare project have been attained, the purchasers period to cancel for a refund has expired, and the related receivable is deemed to be collectible. We defer revenue recognition for sales that do not meet these criteria. During periods of construction, revenue from timeshare sales is recognized under the percentage-of-completion method. One of our timeshare products is accounted for as a long-term lease with a reversionary interest, rather than the sale of a deeded interest in real estate. In this case, sales revenue is recognized on a straight-line basis over the term of the lease. Revenue from the financing of timeshare sales is recognized on the accrual method as earned based on the outstanding principal, interest rate, and terms stated in each individual financing agreement. See Financing Receivables section below for further discussion of the policies applicable to our timeshare notes receivable. Additionally, we receive sales commissions from certain third-party developers that we assist in selling their timeshare inventory. We recognize revenue from commissions on these sales as intervals are sold and we fulfill the service requirements under the respective sales agreements with the developers. We also generate revenues from enrollment and other fees, rentals of timeshare units, food and beverage sales, and other ancillary services at our timeshare properties that are recognized when units are rented or goods and services are rendered. |
F-9
| Other revenues from managed and franchised properties represent payroll and related costs, certain other operating costs of the managed and franchised hotels operations, marketing expenses, and other expenses associated with our brands and shared services that are contractually reimbursed to us by the hotel owners or paid from fees collected in advance from these hotels. The corresponding expenses are presented as other expenses from managed and franchised properties in our consolidated statements of operations, resulting in no impact to operating income (loss) or net income (loss). |
We are required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. We have a legal obligation to act as a collection agent. We do not retain these taxes and fees and, therefore, they are not included in revenues. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents include cash balances established as security for certain guarantees, lender reserves, ground rent and property tax escrows, reserves statutorily required to be held by our captive insurance subsidiary, and advance deposits received on timeshare sales that are held in escrow until the contract is closed. For purposes of our consolidated statements of cash flows, changes in restricted cash and cash equivalents caused by changes in required legal reserves are shown as operating activities. The remaining changes in restricted cash and cash equivalents are the direct result of restrictions under our loan agreements, and, as such, are reflected in financing activities.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided on accounts receivable when losses are probable based on historical collection activity and current business conditions.
Inventories
Inventories comprise unsold timeshare intervals at our timeshare properties, as well as hotel inventories consisting of operating supplies that have a period of consumption of one year or less, guest room items, and food and beverage items.
Timeshare inventory is carried at the lower of cost or market, based on the relative sales value or net realizable value. Capital expenditures associated with our non-lease timeshare products are reflected as inventory until the timeshare intervals are sold. Consistent with industry practice, timeshare inventory is classified as a current asset despite an operating cycle that exceeds 12 months. The majority of sales and marketing costs incurred to sell timeshare intervals are expensed when incurred. Certain direct and incremental marketing and selling costs are deferred on a contract until 100 percent of the revenue has been recognized.
In accordance with the accounting standards for costs and the initial rental operations of real estate projects, we use the relative sales value method of costing our timeshare sales and relieving inventory. In addition, we continually assess our timeshare inventory and, if necessary, impose pricing adjustments to accelerate sales pace. It is possible that any future changes in our development and sales strategies could have a material impact on the carrying value of certain projects and inventory. We monitor our projects and inventory on an ongoing basis and complete an evaluation each reporting period to ensure that the inventory is stated at the lower of cost or market.
Hotel inventories are generally valued at the lower of cost (using first-in, first-out, or FIFO) or market.
F-10
Property and Equipment
Property and equipment are recorded at cost and interest applicable to major construction or development projects is capitalized. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.
Depreciation is recorded using the straight-line method over the assets estimated useful lives, which are generally as follows: buildings and improvements (8 to 40 years), furniture and equipment (3 to 8 years), and computer equipment and acquired software (3 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the lives estimates above, or the lease term.
Gains or losses on the sales of assets are included in net income (loss) when the assets are disposed, provided there is more than reasonable certainty of the collectability of the sales price and any future activities required to be performed by us relating to the disposal of the assets are complete or insignificant.
We evaluate the carrying value of our property and equipment if there are indicators of potential impairment. We perform an analysis to determine the recoverability of the assets carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset using discount and capitalization rates deemed reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in the market, and, if appropriate and available, current estimated net sales proceeds from pending offers.
If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred, which is generally upon acquisition, construction, or development and/or through the normal operation of the asset.
Financing Receivables
We define financing receivables as financing arrangements that represent a contractual right to receive money either on demand or on fixed or determinable dates, which are recognized as an asset in our consolidated balance sheets. We record all financing receivables at amortized cost in current and long-term financing receivables. We recognize interest income as earned and provide an allowance for cancellations and defaults. We have divided our financing receivables into two portfolio segments based on the level of aggregation at which we develop and document a systematic methodology to determine the allowance for credit losses. Based on their initial measurement, risk characteristics, and our method for monitoring and assessing credit risk, we have determined the classes of financing receivables to correspond to our identified portfolio segments as follows:
|
Timeshare notes receivable comprise loans related to our financing of timeshare interval sales and secured by the underlying timeshare properties. We determine our timeshare notes receivable to be past due based on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare notes receivable as earned. The interest rate charged on the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase that is financed, among other factors. We record an estimate of uncollectibility as a reduction of sales revenue at the time revenue is recognized on a timeshare interval sale. We evaluate this portfolio collectively, since we hold a large group of homogenous timeshare notes receivable, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. With the exception of the financing provided to customers of our timeshare business, we do not normally require |
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collateral or other security to support credit sales. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our timeshare notes receivable. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging, and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Once a note is 90 days past due or is determined to be uncollectible prior to 90 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees, late charges, interest, and principal. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 90 days past due. We fully reserve for a timeshare note receivable, in the month following the date that the loan is 120 days past due and, subsequently, we write the uncollectible note off against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. |
| Other notes receivable primarily comprise individual loans and other types of unsecured financing arrangements provided to hotel owners. We individually assess all financing receivables in this portfolio for collectability and impairment. We measure loan impairment based on the present value of expected future cash flows discounted at the loans effective interest rate. For impaired loans, we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows. We do not recognize interest income on unsecured financing to hotel owners for notes that are greater than 90 days past due and only resume interest recognition if the financing receivable becomes current. We fully reserve unsecured financing to hotel owners when we determine that the receivables are uncollectible and when all commercially reasonable means of recovering the receivable balances have been exhausted. |
Investments in Affiliates
We hold investments in affiliates that primarily own or lease hotels under one of our nine distinct hotel brands. If the entity does not meet the definition of a VIE, we evaluate our voting interest or general partnership interest to determine if we have a controlling financial interest in the entity. Investments in affiliates over which we exercise significant influence, but lack a controlling financial interest, are accounted for using the equity method. We account for investments using the equity method when we own more than a minimal investment, but have no more than a 50 percent voting interest or do not otherwise control the investment. Investments in affiliates over which we are not able to exercise significant influence are accounted for under the cost method.
Our proportionate share of earnings (losses) from our equity method investments is presented as equity in earnings (losses) from unconsolidated affiliates in our consolidated statements of operations. Cash distributions from investments in unconsolidated entities are presented as an operating activity in our consolidated statements of cash flows when such distributions are a return on investment. Distributions from unconsolidated affiliates are recorded as an investing activity in our consolidated statements of cash flows when such distributions are a return of investment.
We assess the recoverability of our equity method and cost method investments if there are indicators of potential impairment. If an identified event or change in circumstances requires an evaluation to determine if an investment may have an other-than-temporary impairment, we assess the fair value of the investment based on the accepted valuation methodologies, which include discounted cash flows, estimates of sales proceeds, and external appraisals. If an investments fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in earnings (losses) from unconsolidated affiliates for equity method investments or impairment losses for cost method investments in our consolidated statements of operations.
F-12
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below the carrying amount.
We review the carrying value of our goodwill by comparing the carrying value of our reporting units to their fair value. Our reporting units are the same as our operating segments as described in Note 22: Business Segments. We perform this evaluation annually or at an interim date if indicators of impairment exist. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process. In the first step, we determine the fair value of each of our reporting units. The valuation is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its estimated fair value, then the second step must be performed. In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
Brands
We own, operate, and franchise hotels under our portfolio of brands. There are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives of these brands and, accordingly, the useful lives of these brands are considered to be indefinite. Our hotel brand portfolio includes Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton (including DoubleTree Suites by Hilton), Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn (including Hampton Inn & Suites and, outside of the U.S., Hampton by Hilton), Homewood Suites by Hilton, and Home2 Suites by Hilton. In addition, we also develop and operate timeshare properties under our Hilton Grand Vacations brand.
At the time of the Merger, our brands were assigned a fair value based on a common valuation technique known as the relief from royalty approach. Home2 Suites by Hilton was launched post-Merger and, as such, it was not assigned a fair value. We evaluate our brands for impairment on an annual basis or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of the brand is below the carrying value. If a brands estimated current fair value is less than its respective carrying value, the excess of the carrying value over the estimated fair value is recorded in our consolidated statements of operations within impairment losses.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value at the time of the Merger. These intangible assets consist of management agreements, franchise contracts, leases, certain proprietary technologies, and our guest loyalty program, Hilton HHonors. Additionally, we capitalize management and franchise contract acquisition costs as finite lived intangible assets. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives.
We capitalize costs incurred to develop internal-use computer software. Internal and external costs incurred in connection with development of upgrades or enhancements that result in additional functionality are also capitalized. These capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. These capitalized costs are recorded in other intangible assets in our consolidated balance sheets.
F-13
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying amounts may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the fair value in our consolidated statements of operations.
Hilton HHonors
Hilton HHonors is a guest loyalty program provided to hotels. All of our owned, leased, managed, and franchised hotels and timeshare properties participate in the Hilton HHonors program. Hilton HHonors members earn points based on their spending at most of our hotel and timeshare properties and through participation in affiliated partner programs. When points are earned by Hilton HHonors members, the property or affiliated partner pays Hilton HHonors based on an estimated cost per point for the costs of operating the program, which include marketing, promotion, communication, administration, and the estimated cost of award redemptions. Hilton HHonors member points are accumulated and may be redeemed for certificates that entitle the holder to the right to stay at participating properties, as well as other opportunities with third parties, including, but not limited to, airlines, car rentals, cruises, vacation packages, shopping, and dining. We provide Hilton HHonors as a marketing program to participating hotels, with the objective of operating the program on a break-even basis to us.
Hilton HHonors defers revenue received from participating hotels and program partners in an amount equal to the estimated cost per point of the future redemption obligation. We engage outside actuaries to assist in determining the fair value of the future award redemption obligation using statistical formulas that project future point redemptions based on factors that include historical experience, an estimate of breakage (points that will never be redeemed), an estimate of the points that will eventually be redeemed, and the cost of reimbursing hotels and other third parties in respect to other redemption opportunities available to members. Revenue is recognized by participating hotels and resorts only when points that have been redeemed for hotel stay certificates are used by members or their designees at the respective properties. Additionally, when members of the Hilton HHonors loyalty program redeem award certificates at our owned and leased hotels, we recognize room rental revenue.
Fair Value Measurements - Valuation Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:
| Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 - Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. |
| Level 3 - Valuation is based upon other unobservable inputs that are significant to the fair value measurement. |
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
F-14
Derivative Instruments
We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and foreign currency exchange rates. We regularly monitor the financial stability and credit standing of the counterparties to our derivative instruments. Under the terms of our loan agreements, we are required to maintain derivative financial instruments to manage interest rates. We do not enter into derivative financial instruments for trading or speculative purposes.
We record all derivatives at fair value. On the date the derivative contract is entered, we designate the derivative as one of the following: a hedge of a forecasted transaction or the variability of cash flows to be paid (cash flow hedge), a hedge of the fair value of a recognized asset or liability (fair value hedge), a hedge of our foreign currency exposure (net investment hedge), or an undesignated hedge instrument. Changes in the fair value of a derivative that is qualified, designated, and highly effective as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) (OCI) in the consolidated statements of comprehensive income (loss) until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated, and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows. Cash flows from undesignated derivative financial instruments are included as an investing activity in the consolidated statements of cash flows.
If we determine that we qualify for and will designate a derivative as a hedging instrument, at the designation date we formally document all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions, linking all derivatives designated as fair value hedges to specific assets and liabilities in our consolidated balance sheets, and determining the foreign currency exposure of net investment of the foreign operation for a net investment hedge.
On a quarterly basis, we assess the effectiveness of our designated hedges in offsetting the variability in the cash flows or fair values of the hedged assets or obligations via use of the Hypothetical Derivative Method. This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions. Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument. We discontinue hedge accounting prospectively, when the derivative is not highly effective as a hedge, the underlying hedged transaction is no longer probable, or the hedging instrument expires, is sold, terminated, or exercised.
Currency Translation
The United States Dollar (USD) is our reporting currency and is the functional currency of our consolidated and unconsolidated entities operating in the U.S. The functional currency for our consolidated and unconsolidated entities operating outside of the U.S. is the currency of the primary economic environment in which the respective entity operates. Assets and liabilities measured in foreign currencies are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in equity. Income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables denominated in a currency other than an entitys functional currency that are not of a long-term investment nature are reported as a component of gain (loss) on foreign currency transactions in our consolidated statements of operations.
F-15
Self-Insurance
We are self-insured for various levels of general liability, auto liability, workers compensation, and employee health insurance coverage at our owned properties. Additionally, the majority of employees at managed hotels, of which we are the employer, participate in our workers compensation and employee health insurance coverage. Also, a number of our managed hotels participate in our general liability, auto liability, excess liability and property insurance programs. We purchase insurance coverage for claim amounts which exceed our self-insured retentions. Our insurance reserves are accrued based on estimates of the ultimate cost of claims that occurred during the covered period, which includes claims incurred but not reported. These estimates are prepared with the assistance of outside actuaries and consultants. The ultimate cost of claims for a covered period may differ from our original estimates. Our provision for insured events for the years ended December 31, 2012, 2011, and 2010 was $27 million, $33 million, and $30 million, respectively. Our insured claims and adjustments paid for the years ended December 31, 2012, 2011, and 2010 were $37 million, $33 million, and $29 million, respectively.
Share-based compensation
We recognize the cost of services received in a share-based payment transaction with an employee as services are received and recognize either a corresponding increase in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria.
The measurement objective for these equity awards is the estimated fair value at the grant date of the equity instruments that we are obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. The compensation cost for an award classified as an equity instrument is recognized ratably over the requisite service period. The requisite service period is the period during which an employee is required to provide service in exchange for an award.
Liability awards under a share-based payment arrangement are measured based on the awards fair value, and the fair value is remeasured at each reporting date until the date of settlement. Compensation cost for each period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the instrument for each reporting period.
Compensation cost for awards with performance conditions is recognized over the requisite service period if it is probable that the performance condition will be satisfied. If such performance conditions are not considered probable until they occur, no compensation expense for these awards is recognized.
Income Taxes
We account for income taxes using the asset and liability method. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the respective temporary differences or operating loss or tax credit carry forwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carry forwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.
We use a prescribed recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related
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appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
Recently Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which was subsequently codified in Accounting Standards Codification (ASC) Section 810, Consolidations . We prospectively adopted SFAS 167 on January 1, 2010. Upon adoption of this accounting guidance, we deconsolidated the entity holding the Hilton Orlando Lake Buena Vista, Florida (Hilton Orlando Lake Buena Vista). To account for the deconsolidation, we were required to initially measure any retained interest in the Hilton Orlando Lake Buena Vista at the amount at which any retained interest would have been carried in our consolidated financial statements if the new accounting guidance had been effective when we first became involved with the Hilton Orlando Lake Buena Vista. As we retained no interest in the Hilton Orlando Lake Buena Vista, the difference between the net amounts removed from our consolidated balance sheet in deconsolidation ($19 million) was recognized as a cumulative effect adjustment to increase accumulated deficit by $19 million. We subsequently acquired the Hilton Orlando Lake Buena Vista in August 2010 and consolidated the property upon our acquisition. See Note 3: Acquisitions for further discussion of this acquisition.
In July 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-02 (ASU 2012-02), Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment . This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This ASU was effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 14, 2012. We adopted ASU 2012-02 prospectively as of January 1, 2013; however, our annual indefinite-lived intangible impairment tests will not be performed until the fourth quarter of 2013, at which time the provisions of the ASU will be applied. We do not expect the application of ASU 2012-02 to have a material impact on our consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02 (ASU 2013-02), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . This ASU amends existing guidance by requiring companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income in the same reporting period. For amounts which are not required to be reclassified in their entirety to net income in the same reporting period, companies will be required to cross reference other disclosures that provide information about those amounts. We adopted ASU 2013-02 prospectively as of January 1, 2013. The adoption of this ASU did not have a material impact on our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05 (ASU 2013-05), Foreign Currency Matters (Topic 830): Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity . The ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. We plan to adopt ASU 2013-05 prospectively as of January 1, 2014 and we are currently evaluating the impact, if any, that this ASU will have on our consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11 (ASU 2013-11), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
F-17
Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. We plan to adopt ASU 2013-11 prospectively as of January 1, 2014 and we are currently evaluating the impact, if any, that this ASU will have on our consolidated financial statements.
Note 3: Acquisitions
In conjunction with business combinations, we record the assets acquired, liabilities assumed, and non-controlling interests at fair value as of the acquisition date, including any contingent consideration. Furthermore, acquisition-related costs, such as due diligence, legal, and accounting fees, are expensed in the period incurred and are not capitalized or applied in determining the fair value of the acquired assets.
Odawara Hilton Co., LTD
In December 2012, we purchased the remaining 53.5 percent ownership interest in Odawara Hilton Co., LTD (OHC), which leased the Hilton Odawara that we managed, for a cash payment of Japanese Yen (JPY) 155 million, or approximately $1 million. Prior to the acquisition, we had a 46.5 percent ownership interest in OHC, with the remaining interest held by nine stockholders each of whom had no more than a 10 percent ownership interest. We were considered to be the primary beneficiary of this VIE and, as such, OHC was consolidated in our consolidated financial statements. Upon completion of the acquisition of the remaining interests, we wholly own OHC. The equity transaction resulted in a decrease of approximately $4 million to additional paid-in capital.
In conjunction with this acquisition and predicated upon the fact that it would occur, in December 2012, OHC executed a binding purchase agreement with the owner of the Hilton Odawara to purchase the building and the surrounding land. However, the closing of the sale, which will include the exchange of cash and the acquisition of the title by Hilton, will not occur until December 2015. As a result of this purchase agreement and other factors, the Hilton Odawara lease, which was previously accounted for as an operating lease, was recorded as a capital lease asset and obligation of $15 million as of December 31, 2012.
Oakbrook Suites and Garden Inn, LLC
In August 2011, we purchased the remaining 50 percent ownership interest in Oakbrook Suites and Garden Inn, LLC (Oakbrook LLC), which owned the Hilton Suites Oakbrook and the Hilton Garden Inn Oakbrook Terrace, for a cash payment of $12 million. Prior to the acquisition, we had a 50 percent ownership interest in Oakbrook LLC, which was accounted for using the equity method of accounting. Upon completion of the acquisition of the remaining interests, we wholly owned Oakbrook LLC and it was consolidated in our financial statements. The fair value of the net assets acquired was $24 million. Our cash paid for the acquisition, along with the carrying value of our investment in Oakbrook LLC, was allocated to the net assets acquired, which consisted primarily of land, buildings, and furniture and equipment.
Hilton New Orleans Riverside
In November 2010, we acquired the 25 percent interest in the Hilton New Orleans Riverside that we did not previously own from the minority partner for $100 million. Upon completing the transaction, the hotel was wholly owned by us.
Prior to the acquisition of the remaining 25 percent interest, the operations of the Hilton New Orleans Riverside were consolidated based on our controlling interest in the entity that owned the hotel. Upon acquiring the remaining ownership interest, we reduced to zero the noncontrolling interest balance related to the former partner and reflected the difference in the amount of cash paid and the noncontrolling interest balance of approximately $47 million in Hiltons additional paid-in capital.
F-18
Hilton Orlando Lake Buena Vista, Florida
In August 2010, we completed the acquisition of the Hilton Orlando Lake Buena Vista for a total purchase price of $250 million, which was the stated price of a put option held by the former owner to us. The purchase was funded with cash on hand. The purchase included the assumption of a net $5 million liability relating to working capital of the hotel assumed in the acquisition. As of the date of purchase, we had recognized a put liability of $103 million related to our estimated purchase price obligation, which reflected the difference between the fair value of the hotel of $147 million and the total put option purchase price.
The acquisition cost of the hotel was allocated as follows:
(in millions) | ||||
Building |
$ | 137 | ||
Furniture and equipment |
10 | |||
Extinguishment of put liability |
103 | |||
|
|
|||
Purchase price |
250 | |||
Working capital deficit acquired |
(5) | |||
Repayment of capital improvement loan |
(30) | |||
Transaction costs incurred |
1 | |||
|
|
|||
Total net cash paid for acquisition |
$ | 216 | ||
|
|
The hotel is subject to a ground lease and has certain retail leases, which were assumed by us as part of the purchase. We evaluated these leases to determine whether the terms were favorable or unfavorable compared with the market terms of leases of the same or similar items at the date of acquisition. Based upon the third-party appraisal at the time of the transaction, the terms of these leases approximated current market rates and, as such, none of the purchase price was allocated to these leases.
Hilton Belfast
In February 2010, we purchased the remaining 25 percent of ownership interest in the Hilton Belfast from a minority owner for British Pound Sterling (GBP) 5 million, or approximately $7 million. Upon completing the transaction, we owned 100 percent of the entity that owns the hotel. Prior to the acquisition of the remaining 25 percent interest, the operations of the Hilton Belfast were consolidated based on our controlling interest in the entity. Upon acquiring the remaining ownership interest, we reduced to zero the noncontrolling interest balance related to the former partner and reflected the difference in the amount of cash paid and the noncontrolling interest balance of approximately $3 million in Hiltons additional paid-in capital.
Note 4: Disposals
India Joint Venture
In December 2011, we completed the sale of our 26 percent interest in a hotel development joint venture located in India for GBP 15 million, or approximately $23 million. As a result of the sale, we reclassified the currency translation adjustment of $8 million, which was previously recognized in accumulated other comprehensive loss, to earnings within our consolidated statement of operations for the year ended December 31, 2011. Further, we recognized a related pre-tax loss on the sale of $10 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2011.
Beverly Hills Office Building
In January 2011, we completed the sale of our former corporate headquarters office building in Beverly Hills, California for approximately $65 million and recognized a pre-tax gain of $16 million that was included in other gain, net in our consolidated statement of operations for the year ended December 31, 2011.
F-19
Note 5: Inventories
Inventories were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Timeshare |
$ | 389 | $ | 529 | ||||
Hotel |
26 | 23 | ||||||
|
|
|
|
|||||
$ | 415 | $ | 552 | |||||
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|
During the years ended December 31, 2012, 2011, and 2010, we capitalized interest of $3 million, $1 million, and $1 million, respectively, in timeshare inventory related to our timeshare development projects.
In May 2011, we purchased a non-operating hotel in Honolulu, Hawaii for $32 million. We are converting the property to a timeshare development. The acquisition value of the building, as well as subsequent conversion costs incurred were included in timeshare inventory as of December 31, 2012 and 2011.
Note 6: Property and Equipment
Property and equipment were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Land |
$ | 4,090 | $ | 4,142 | ||||
Buildings and leasehold improvements |
5,450 | 5,185 | ||||||
Furniture and equipment |
1,111 | 960 | ||||||
Construction-in-progress |
88 | 95 | ||||||
|
|
|
|
|||||
10,739 | 10,382 | |||||||
Accumulated depreciation and amortization |
(1,542) | (1,265) | ||||||
|
|
|
|
|||||
$ | 9,197 | $ | 9,117 | |||||
|
|
|
|
Depreciation and amortization expense on property and equipment, including amortization of assets recorded under capital leases, recognized during the years ended December 31, 2012, 2011, and 2010 was $290 million, $323 million, and $341 million, respectively. We capitalized $5 million, $6 million, and $1 million of interest as a cost of construction during the years ended December 31, 2012, 2011, and 2010, respectively.
As of December 31, 2012 and 2011, property and equipment included approximately $157 million and $148 million, respectively, of capital lease assets primarily consisting of buildings and leasehold improvements, net of $71 million and $60 million, respectively, of accumulated depreciation and amortization.
The following table details the impairment losses recognized on our assets included in property and equipment, by property type:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Owned and leased hotels |
$ | 42 | $ | 17 | $ | 23 | ||||||
Timeshare properties |
| 3 | 1 | |||||||||
Corporate office facilities |
11 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | 53 | $ | 20 | $ | 24 | |||||||
|
|
|
|
|
|
F-20
The amount of each impairment was based on the excess of the assets carrying value over the fair value.
Note 7: Financing Receivables
Financing receivables were as follows:
December 31, 2012 | December 31, 2011 | |||||||||||||||||||||||
Timeshare | Other | Total | Timeshare | Other | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Financing receivables |
$ | 853 | $ | 44 | $ | 897 | $ | 809 | $ | 50 | $ | 859 | ||||||||||||
Less: allowance |
(81) | (1) | (82) | (85) | (4) | (89) | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
772 | 43 | 815 | 724 | 46 | 770 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Current portion of financing receivables |
131 | | 131 | 115 | | 115 | ||||||||||||||||||
Less: allowance |
(12) | | (12) | (12) | | (12) | ||||||||||||||||||
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|
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|
|
|||||||||||||
119 | | 119 | 103 | | 103 | |||||||||||||||||||
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|
|
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|
|
|
|||||||||||||
Total financing receivables |
$ | 891 | $ | 43 | $ | 934 | $ | 827 | $ | 46 | $ | 873 | ||||||||||||
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Timeshare notes receivable
As of December 31, 2012, we had 49,310 timeshare notes outstanding with interest rates ranging from zero percent to 23.50 percent, an average interest rate of 12.27 percent, a weighted average remaining term of 7.5 years, and maturities through 2024. As of December 31, 2012 and 2011, we had ceased accruing interest on timeshare notes with aggregate principal balances of $30 million and $31 million, respectively. The changes in our allowance for uncollectible timeshare notes were as follows:
(in millions) | ||||
Balance as of December 31, 2009 |
$ | 77 | ||
Write-offs |
(41) | |||
Provision for uncollectibles on sales |
65 | |||
|
|
|||
Balance as of December 31, 2010 |
101 | |||
Write-offs |
(36) | |||
Provision for uncollectibles on sales |
32 | |||
|
|
|||
Balance as of December 31, 2011 |
97 | |||
Write-offs |
(33) | |||
Provision for uncollectibles on sales |
29 | |||
|
|
|||
Balance as of December 31, 2012 |
$ | 93 | ||
|
|
Our timeshare notes receivable mature as follows:
Year | (in millions) | |||
2013 |
$ | 131 | ||
2014 |
113 | |||
2015 |
113 | |||
2016 |
115 | |||
2017 |
115 | |||
Thereafter |
397 | |||
|
|
|||
984 | ||||
Less: allowance |
(93) | |||
|
|
|||
$ | 891 | |||
|
|
F-21
The following table details an aged analysis of our gross timeshare notes receivable balance:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Current |
$ | 940 | $ | 879 | ||||
30 - 89 days past due |
14 | 14 | ||||||
90 - 119 days past due |
4 | 3 | ||||||
120 days and greater past due |
26 | 28 | ||||||
|
|
|
|
|||||
$ | 984 | $ | 924 | |||||
|
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|
|
Note 8: Investments in Affiliates
Investments in affiliates were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Equity investments |
$ | 276 | $ | 318 | ||||
Other investments |
15 | 16 | ||||||
|
|
|
|
|||||
$ | 291 | $ | 334 | |||||
|
|
|
|
We maintain investments in affiliates accounted for under the equity method, which are primarily investments in entities that owned or leased 32 hotels as of December 31, 2012 and 2011.
Our investments in affiliates accounted for under the equity method totaled $276 million and $318 million, representing approximately one percent of total assets as of December 31, 2012 and 2011. We are a partner in joint ventures with Felcor Hotels, LLC and affiliates that own 14 hotels in which our ownership interest ranges from 10 percent to 50 percent, as well as a management company in which we have a 50 percent interest. The total carrying amount of our investments with Felcor Hotels, LLC and affiliates was $107 million and $120 million as of December 31, 2012 and 2011, respectively. We are also partners in other significant joint ventures with the following ownership interests and carrying amounts: a 25 percent ownership interest in Ashford HHC Partners III, LP, which owns two hotels and had a carrying amount of $37 million and $36 million as of December 31, 2012 and 2011, respectively; and, a 40 percent interest in Domhotel GmbH, Berlin, which owns one hotel and had a carrying amount of $35 million and $32 million as of December 31, 2012 and 2011, respectively. We also have investments in 15 other joint ventures in which our ownership interest ranges from 10 percent to 50 percent.
The equity investments had total debt of approximately $1.1 billion as of December 31, 2012 and 2011. Substantially all of the debt is secured solely by the affiliates assets or is guaranteed by other partners without recourse to us. We were the creditor on $20 million and $23 million of total debt from unconsolidated affiliates as of December 31, 2012 and 2011, respectively, which were included in financing receivables, net in our consolidated balance sheets.
We identified certain indicators of impairment in 2012, 2011, and 2010 relative to the carrying value of certain of our investments and, as a result, determined that we had impairments on these investments during the years ended December 31, 2012, 2011, and 2010. The amount of the impairment was based on the excess of the carrying amount of the asset over its fair value, as calculated using discounted operating cash flows. We recorded $19 million, $141 million, and $6 million of impairment losses on certain equity method investments during the years ended December 31, 2012, 2011, and 2010, respectively, which were included in equity in losses from unconsolidated affiliates in our consolidated statements of operations. Additionally in 2012, we recorded a $1 million impairment loss on one of our other investments, which was included in impairment losses in our consolidated statement of operations for the year ended December 31, 2012.
F-22
In connection with the Merger, we recorded our equity method investments at their estimated fair value, which resulted in an increase to our historical basis in those entities, primarily as a result of an increase in the fair value of the real estate assets of the investee entities. The basis difference is being amortized as a component of equity in losses from unconsolidated affiliates over a period of approximately 40 years and it is also adjusted for impairment charges. The unamortized basis was $120 million and $141 million, as of December 31, 2012 and 2011, respectively. We estimate our future amortization expense to be approximately $3 million per year for the remaining amortization period.
Note 9: Consolidated Variable Interest Entities
As of December 31, 2012, we consolidated three VIEs as required by the accounting standards related to the consolidation of VIEs. As of December 31, 2011 and 2010, we consolidated four VIEs.
Two out of three of these VIEs lease hotels from unconsolidated affiliates in Japan. We hold a significant ownership interest in these VIEs and have the power to direct the activities that most significantly impact their economic performance. Our consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised $29 million and $24 million of cash and cash equivalents, $66 million and $79 million of property and equipment, net, and $408 million and $464 million of debt and capital lease obligations as of December 31, 2012 and 2011, respectively. The debt and capital lease obligations are non-recourse to us and were reflected as non-recourse debt and capital lease obligations of consolidated variable interest entities in our consolidated balance sheets. The assets of these entities are only available to settle the obligations of these entities. Interest expense related to the non-recourse debt and capital lease obligations of these two consolidated VIEs was $33 million during the years ended December 31, 2012 and 2011 and $37 million during the year ended December 31, 2010 and was included in interest expense in our consolidated statements of operations.
In 2012, we acquired the remaining ownership interest in OHC, which was previously one of our consolidated VIEs located in Japan. See Note 3: Acquisitions for further discussion of this transaction. Our consolidated balance sheet as of December 31, 2011 included the assets and liabilities of this entity, which primarily comprised $4 million of cash and cash equivalents, and $5 million of debt and capital lease obligations.
In 2011, two of our consolidated VIEs located in Japan restructured their lease agreements which were accounted for as capital leases. These lease restructurings resulted in a reduction of our capital lease assets and obligations of $76 million and $73 million, respectively, as of December 31, 2011. Additionally, we recognized a gain associated with one of the lease restructurings of $13 million during the year ended December 31, 2011, resulting from the difference between the fair value of the new lease terms and the carrying value of the former lease. This gain was recognized in other gain, net, in our consolidated statement of operations for the year ended December 31, 2011. Additionally, $7 million of the gain was recognized as being attributable to noncontrolling interests based on their ownership interest in the VIE, and was included in net income attributable to noncontrolling interests in our consolidated statement of operations for the year ended December 31, 2011.
As of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011, and 2010, we also consolidated a VIE that owned one hotel that was immaterial to our consolidated financial statements.
During the years ended December 31, 2012, 2011, and 2010, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.
Note 10: Goodwill
In 2007, as part of the purchase accounting for the Merger, we recorded $10.5 billion of goodwill representing the excess purchase price over the fair value of the other identified assets and liabilities. During the year ended December 31, 2008, we recognized approximately $4.3 billion of impairment charges relating to our goodwill,
F-23
including impairment losses of $795 million on our goodwill assigned to our timeshare reporting unit which had no remaining goodwill assigned to that reporting unit as of December 31, 2012, 2011, and 2010. In the fourth quarter of each year, we performed our annual assessment for impairment and concluded that there was no impairment of our goodwill for the years ended December 31, 2012, 2011, and 2010. Changes to our goodwill during the years ended December 31, 2012, 2011, and 2010 were due to foreign currency translations. Our goodwill balances, by reporting unit, were as follows:
Ownership |
Management
and Franchise |
Total | ||||||||||
(in millions) | ||||||||||||
Goodwill |
$ | 4,557 | $ | 5,158 | $ | 9,715 | ||||||
Accumulated impairment losses |
(3,527) | | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2010 |
1,030 | 5,158 | 6,188 | |||||||||
Foreign currency translation |
(2) | (11) | (13) | |||||||||
Goodwill |
4,555 | 5,147 | 9,702 | |||||||||
Accumulated impairment losses |
(3,527) | | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2011 |
1,028 | 5,147 | 6,175 | |||||||||
Foreign currency translation |
4 | 18 | 22 | |||||||||
Goodwill |
4,559 | 5,165 | 9,724 | |||||||||
Accumulated impairment losses |
(3,527) | | (3,527) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2012 |
$ | 1,032 | $ | 5,165 | $ | 6,197 | ||||||
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|
|
Note 11: Other Intangible Assets
Other intangible assets were as follows:
December 31, 2012 | ||||||||||||
Gross Carrying
Amount |
Accumulated
Amortization |
Net Carrying
Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management agreements |
$ | 836 | $ | (259) | $ | 577 | ||||||
Franchise agreements |
1,706 | (683) | 1,023 | |||||||||
Leases |
408 | (107) | 301 | |||||||||
Other (1) |
646 | (203) | 443 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,596 | $ | (1,252) | $ | 2,344 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,029 | $ | | $ | 5,029 |
December 31, 2011 | ||||||||||||
Gross Carrying
Amount |
Accumulated
Amortization |
Net Carrying
Amount |
||||||||||
(in millions) | ||||||||||||
Amortizing Intangible Assets: |
||||||||||||
Management agreements |
$ | 802 | $ | (207) | $ | 595 | ||||||
Franchise agreements |
1,704 | (551) | 1,153 | |||||||||
Leases |
399 | (85) | 314 | |||||||||
Other (1) |
529 | (140) | 389 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,434 | $ | (983) | $ | 2,451 | |||||||
|
|
|
|
|
|
|||||||
Non-amortizing Intangible Assets: |
||||||||||||
Brands |
$ | 5,025 | $ | | $ | 5,025 |
F-24
(1) | Includes capitalized software with a net balance of $191 million and $112 million as of December 31, 2012 and 2011, respectively, and the Hilton HHonors intangible with a net balance of $236 million and $256 million as of December 31, 2012 and 2011, respectively. We recorded amortization expense on capitalized software of $30 million, $15 million, and $5 million for the years ended December 31, 2012, 2011, and 2010, respectively, and amortization expense on the Hilton HHonors intangible of $22 million for each of the years ended December 31, 2012, 2011, and 2010. |
Our amortizing intangible assets related to management and franchise agreements, leases, proprietary technologies, capitalized software, and Hilton HHonors have finite lives and, accordingly, we recorded amortization expense of $260 million, $241 million, and $233 million for the years ended December 31, 2012, 2011, and 2010, respectively. Changes to our brands intangible asset during the years ended December 31, 2012 and 2011 were due to foreign currency translations.
During the years ended December 31, 2012, 2011, and 2010, we recorded no impairment relating to our other intangible assets.
We estimate our future amortization expense for our finite lived intangible assets to be as follows:
Year | (in millions) | |||
2013 |
$ | 297 | ||
2014 |
293 | |||
2015 |
274 | |||
2016 |
240 | |||
2017 |
227 | |||
Thereafter |
1,013 | |||
|
|
|||
$ | 2,344 | |||
|
|
Note 12: Accounts Payable, Accrued Expenses, and Other
Accounts payable, accrued expenses, and other were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Accrued employee compensation and benefits |
$ | 530 | $ | 432 | ||||
Accounts payable |
286 | 294 | ||||||
Liability for guest loyalty program, current |
262 | 247 | ||||||
Deposit liabilities |
169 | 102 | ||||||
Deferred revenue |
61 | 86 | ||||||
Self insurance reserves, current |
47 | 44 | ||||||
Other accrued expenses |
567 | 601 | ||||||
|
|
|
|
|||||
$ | 1,922 | $ | 1,806 | |||||
|
|
|
|
Deferred revenue and deposit liabilities are related to our timeshare business and hotel operations. Other accrued expenses consist of taxes, rent, interest, and other accrued balances.
F-25
Note 13: Debt
Debt balances, including obligations for capital leases, and associated interest rates were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Senior mortgage loans with a rate of 2.51%, due 2015 (1) |
$ | 7,271 | $ | 7,596 | ||||
Secured mezzanine loans with an average rate of 4.12%, due 2015 (1) |
7,697 | 7,698 | ||||||
Secured mezzanine loans with a rate of 4.71%, due 2015 (1) |
240 | 250 | ||||||
Unsecured notes (2) |
| 389 | ||||||
Mortgage notes with an average rate of 6.14%, due 2013 to 2016 |
134 | 158 | ||||||
Other unsecured notes with an average rate of 7.82%, due 2017 to 2031 |
149 | 153 | ||||||
Capital lease obligations with an average rate of 5.69%, due 2015 to 2097 |
83 | 66 | ||||||
Contingently convertible notes with a rate of 3.38%, due 2023 |
1 | 1 | ||||||
|
|
|
|
|||||
Total long-term debt, including current maturities |
15,575 | 16,311 | ||||||
Less: current maturities of long-term debt |
(392) | (342) | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 15,183 | $ | 15,969 | ||||
|
|
|
|
(1) | Initial due date was November 12, 2010, with up to five additional one-year extensions at our option. We have extended the scheduled maturity date to November 12, 2013 by exercising our first, second, and third extension options. The fourth and fifth extension options are at our sole discretion, and require an extension fee equal to 50 basis points of the then outstanding principal balance. Combined, the extensions effectively extend the maturity of our senior mortgage and senior mezzanine debt to November 12, 2015. |
(2) | As discussed below, we redeemed these unsecured notes in December 2012. |
Debt Restructuring
In April 2010, we completed a restructuring (the Debt Restructuring) of our senior mortgage loan and secured mezzanine loans (collectively, the Secured Debt) for which HWI and its subsidiaries were the primary obligor. The transaction resulted in an overall reduction of debt of $4.0 billion. Key components of the Debt Restructuring were:
| A $76 million principal reduction payment on our senior mortgage loan. Funding for the principal repayment of the senior mortgage loan was provided from certain of our restricted cash and cash equivalents balances, which restrictions were required under the terms of the loan agreement. |
| The repurchase of $1.8 billion of secured mezzanine debt for a cash payment of $819 million, representing a 54 percent discount from par value. Funding for the repurchase of the secured mezzanine debt was provided through an equity contribution of $819 million from our Parent. |
| The extinguishment, by our Parent, of the two most-junior tranches of our secured mezzanine loans with an aggregate outstanding principal amount of $2.0 billion, as well as the respective outstanding deferred cash interest payments through the date of the Debt Restructuring, totaling $87 million. |
| The amendment of our Secured Debt loan agreement provides for the adjustment of the interest rate spreads of our Secured Debt from a range of 30-day LIBOR plus 80-525 basis points, to a range of 30-day LIBOR plus 175-425 basis points. The decrease in the upper end of the range of interest rates is due to the acquisition of the two most-junior tranches of the secured mezzanine debt by our Parent as discussed above. |
F-26
As a result of the Debt Restructuring, we recognized a gain of $789 million in gain on debt restructuring in our consolidated statement of operations for the year ended December 31, 2010, which was comprised of the following components:
(in millions) | ||||
Gain on excess of carrying amount over reacquisition price of certain debt |
$ | 910 | ||
Less: write-off of existing deferred financing costs |
(4) | |||
Less: fees incurred as part of Debt Restructuring |
(39) | |||
Loss on excess of reacquisition price over carrying value of debt extinguished |
(78) | |||
|
|
|||
$ | 789 | |||
|
|
From certain lenders that were a party to the Debt Restructuring, we only reacquired a portion of the secured mezzanine debt tranches for which those specific entities were the lenders. The total cash payments we expect to make to these lenders, including interest, is greater than the pre-restructuring principal balance. These transactions involving a modification of terms were accounted for prospectively and the carrying amount of the debt held by these lenders was $240 million and $250 million as of December 31, 2012 and 2011, respectively. Interest expense for these revised loans was computed using the interest method, with the interest rate determined as the amount that equates to the present value of the future cash payments specified by the new terms of the carrying amount of the debt.
Secured Debt
Our Secured Debt totaled $15.2 billion and $15.5 billion as of December 31, 2012 and 2011, respectively. Interest under the Secured Debt is payable monthly and includes both variable and fixed components. The Secured Debt is secured by substantially all of our consolidated assets in which we hold an ownership interest and contains significant restrictions on the incurrence of any additional indebtedness by us, including the prohibition of any additional indebtedness for borrowed money evidenced by bonds, debentures, notes, or other similar instruments. Additionally, under the terms of our Secured Debt, we are restricted from declaring dividends.
We are required to deposit with the lender certain cash reserves that may, upon our request, be used for, among other things, debt service, capital expenditures, and general corporate purposes. These reserves, totaling $147 million and $321 million as of December 31, 2012 and 2011, respectively, were included in restricted cash and cash equivalents in our consolidated balance sheets as a current asset, since we have the ability to access the cash within the 12 months following the dates of the consolidated balance sheets, subject to necessary lender notification.
As a condition to permitting certain events under the Secured Debt, such as a release of certain assets as collateral for the loan or change of control of the Company, we must satisfy certain debt yield tests. We were able to satisfy all of the debt yield tests as of our most recent testing date.
Repayment of Debt
During the years ended December 31, 2012, 2011, and 2010, we made scheduled debt repayments on our Secured Debt of $314 million, $299 million, and $24 million, respectively. We also made the following additional debt repayments:
| In December 2012, we redeemed the outstanding $389 million in unsecured notes that were due in 2013, which included 100 percent of the principal amount, as well as any accrued and unpaid interest. |
| In December 2012, we paid the outstanding mortgage of $23 million for a property purchased for a timeshare development in Honolulu, Hawaii in May 2011. |
F-27
| In November 2011, we purchased $335 million of our senior mortgage debt from one lender for a cash payment of $300 million, representing a purchase price at 89.5 percent of the face value. This repayment was accounted for as a modification as the expected net present value of our cash flows on our indebtedness to that lender changed by less than ten percent as a result of the paydown. This modification was accounted for prospectively and the interest expense for these revised loans was computed using the interest method, with the interest rate determined as the amount that equaled the present value of the future cash payments specified by the new terms of the carrying amount of the debt. |
| In January 2011, we completed sales of our former corporate headquarters office building in Beverly Hills, California for approximately $65 million and our 26 percent investment interest in an Indian joint venture for approximately $23 million. The office building and our investment in the Indian joint venture were pledged as collateral under our Secured Debt; therefore, the proceeds from these sales were used to repay a portion of our Secured Debt during the year ended December 31, 2011. See Note 4: Disposals for further discussion of these transactions. |
| In December 2010, we purchased $111 million of our $500 million outstanding unsecured notes for a cash payment of $100 million, representing a purchase price at 90 percent of the face value. As a result of this transaction, we recognized a gain of $11 million included in other gain, net, in our consolidated statement of operations for the year ended December 31, 2010. |
Non-Recourse Debt and Capital Lease Obligations of Consolidated Variable Interest Entities
In addition to our long-term debt, our consolidated balance sheets included debt and capital lease obligations related to consolidated VIEs that are non-recourse to us as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Capital lease obligations with an average rate of 6.34%, due 2018 to 2025 |
$ | 373 | $ | 425 | ||||
Non-recourse debt |
47 | 56 | ||||||
|
|
|
|
|||||
420 | 481 | |||||||
Less: current maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities |
(15) | (42) | ||||||
|
|
|
|
|||||
Non-recourse debt and capital lease obligations of consolidated variable
|
$ | 405 | $ | 439 | ||||
|
|
|
|
Debt Maturities
The contractual debt maturities as of December 31, 2012, including maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities, were as follows:
Year | (in millions) | |||
2013 |
$ | 407 | ||
2014 |
410 | |||
2015 (1) |
14,521 | |||
2016 |
123 | |||
2017 |
75 | |||
Thereafter |
459 | |||
|
|
|||
$ | 15,995 | |||
|
|
(1) | The Secured Debt has five one-year extensions solely at our option that effectively extend maturity to November 12, 2015. We have assumed all extensions for purposes of calculating maturity dates. |
F-28
Note 14: Other Liabilities
Other long-term liabilities were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Program surplus |
$ | 263 | $ | 179 | ||||
Pension obligations |
262 | 240 | ||||||
Other long-term tax liabilities |
340 | 341 | ||||||
Deferred employee compensation and benefits |
129 | 79 | ||||||
Deferred revenue |
82 | 90 | ||||||
Self insurance reserves |
80 | 85 | ||||||
Guarantee liability |
57 | 88 | ||||||
Other |
310 | 375 | ||||||
|
|
|
|
|||||
$ | 1,523 | $ | 1,477 | |||||
|
|
|
|
Deferred revenue is related to our timeshare business and hotel operations. Guarantee liability is related to obligations under our outstanding performance guarantees. Program surplus represents obligations to operate our marketing, sales, and brand programs on behalf of our hotel owners. Our obligations related to the self insurance claims are expected to be satisfied over the next three years.
Note 15: Derivative Instruments and Hedging Activities
Cash Flow Hedges
Under the terms of our Secured Debt, we are required to hedge interest rate risk using derivative instruments with an aggregate notional amount equal to the principal amount of the Secured Debt. As such, during the years ended December 31, 2012, 2011, and 2010, derivatives were used to hedge the variable cash flows associated with existing variable rate debt.
As of December 31, 2012, we held ten interest rate caps with an aggregate notional amount of $15.2 billion. The caps were executed in August 2012 to replace the previous portfolio of interest rate caps that expired in November 2012. These interest rate caps expire in November 2013. We have elected not to designate any of the ten interest rate caps as effective hedging instruments. During the year ended December 31, 2012, we recorded a loss of $1 million in other gain, net in our consolidated statement of operations, which represented the premiums paid on these interest rate caps. No other gain or loss related to the ten undesignated interest rate caps in our current portfolio or previous portfolio were recorded in the year ended December 31, 2012 as changes in the fair values of our interest rate caps were immaterial.
As of December 31, 2011, we held ten interest rate caps with an aggregate notional amount of $15.9 billion. The caps were executed in October 2011 to replace our previous portfolio of eleven interest rate caps maturing in November 2011. We elected not to designate any of the ten interest rate caps as effective hedges for accounting purposes. During the year ended December 31, 2011, we recognized a loss of $3 million in other gain, net, in our consolidated statement of operations, related to hedge ineffectiveness on our eight designated interest rate caps in our previous portfolio and premiums paid for our ten undesignated interest rate caps.
As of December 31, 2010, we held eleven interest rate caps with an aggregate notional amount of $16.2 billion. The caps were executed in October 2010 to replace our previous portfolio maturing in November 2010. We had designated eight interest rate caps with an aggregate notional amount of $14.6 billion as effective hedging instruments. We did not designate three of our interest rate cap agreements entered into during 2010 as hedging instruments. As of December 31, 2010, the notional amount of the undesignated portion of the interest rate cap agreements was $1.6 billion.
F-29
During the year ended December 31, 2010, we recognized $5 million as a reduction in interest expense in our consolidated statement of operations related to hedge ineffectiveness primarily attributable to one of our interest rate swaps that had a fair market value other than zero at the time of designation. The related interest rate swap matured in November 2010.
The fair value of our interest rate caps was immaterial to our consolidated balance sheets as of December 31, 2012 and 2011.
Net Investment Hedges
Our most significant foreign currency exposure relates to fluctuations in the foreign exchange rate between USD and GBP. Historically, we used foreign exchange currency option agreements to hedge our exposure to changes in foreign exchange rates on certain of our foreign investments. Under the terms of these currency option contracts, we paid a premium to a counterparty for the right to sell a specified amount of foreign currency at a specified strike rate at the maturity date of the option. During 2010, we settled our remaining GBP foreign currency options, designated as net investment hedges, with an aggregate notional value of approximately GBP 505 million, for proceeds of $234 million, and we have not had any further designated foreign currency options held as net investment hedges since that time.
For the year ended December 31, 2010, we recognized $58 million of gains within OCI related to our net investment hedges in foreign entities. We have total deferred gains related to these net investment hedges in accumulated other comprehensive income of $170 million as of December 31, 2012 and 2011. The amounts related to these net investment hedges will be released as we substantially liquidate or sell our original hedged investments in GBP and release amounts recorded in our cumulative translation adjustment component of accumulated other comprehensive income related to such investments.
Non-designated Hedges
Historically, we have held certain derivatives, as economic hedges of our foreign exchange exposure, which were not designated as hedges for accounting purposes. During 2010, we settled our portfolio of Euro (EUR) and Australian dollar (AUD) foreign exchange options with aggregate notional values of approximately EUR 540 million and AUD 374 million, respectively, for proceeds of $59 million and $31 million, respectively. These foreign exchange options were not designated as hedges in qualifying hedging relationships. We have not had any further undesignated foreign currency options since that time. For the year ended December 31, 2010, we recorded a gain of $20 million in gain (loss) on foreign currency transactions on undesignated foreign currency hedging instruments in our consolidated statement of operations.
There was no effect of derivatives not designated as hedging instruments to our consolidated statements of operations for the years ended December 31, 2012 and 2011.
The following table summarizes the effect of derivative designated as hedging instruments in our consolidated statements of operations and consolidated statements of comprehensive income (loss) before any effect for income taxes for the years ended December 31, 2012, 2011, and 2010:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Deferred gains (losses) from derivatives in AOCI, beginning of period |
$ | 170 | $ | 168 | $ | (61) | ||||||
Gains recognized in OCI from derivative instruments |
| | 222 | |||||||||
Reclassification of losses from OCI |
| 2 | 7 | |||||||||
|
|
|
|
|
|
|||||||
Deferred gains from derivatives in AOCI, end of period |
$ | 170 | $ | 170 | $ | 168 | ||||||
|
|
|
|
|
|
F-30
Note 16: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities, which included related current portions, were as follows:
December 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|||||||||||||
(in millions) | ||||||||||||||||
Cash equivalents (1) |
$ | 561 | $ | 561 | $ | 578 | $ | 578 | ||||||||
Cash equivalents - restricted (1) |
322 | 322 | 408 | 408 | ||||||||||||
Timeshare notes receivable (2) |
984 | 987 | 924 | 931 | ||||||||||||
Other long-term debt (2)(3) |
284 | 297 | 701 | 668 | ||||||||||||
Secured Debt (2)(4) |
15,208 | 15,571 | 15,544 | 14,668 |
(1) | Classified as Level 2 under the fair value hierarchy. |
(2) | Classified as Level 3 under the fair value hierarchy. |
(3) | Excludes capital lease obligations with a carrying value of $83 million and $66 million as of December 31, 2012 and 2011, respectively. |
(4) | We assumed the exercise of all extensions on the Secured Debt for purposes of calculating fair value. |
We believe the carrying amounts of our current financial assets and liabilities and other notes receivable approximated fair value as of December 31, 2012 and 2011. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair value. Proper placement of fair value measurements within the valuation hierarchy is considered each reporting period. Third-party information received for calculating Level 3 fair value measurements is reviewed to ensure it is in accordance with U.S. GAAP. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
Cash equivalents and cash equivalents - restricted are primarily comprised of short-term interest-bearing money market funds with maturities of less than 90 days, time deposits, and commercial paper. The estimated fair values were based on available market pricing information of similar financial instruments.
The estimated fair values of timeshare notes receivable, net and other long-term debt were calculated based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rate would result in a decrease in the fair value.
The estimated fair value of our Secured Debt was based on estimates of market spreads when quoted market values did not exist, on the current rates offered to us for debt of the same maturities, or quoted market prices for the same or similar issues. In determining the current market rate for the fixed rate debt, a market spread was added to the quoted yields on federal government treasury securities with similar maturity dates. The primary sensitivity in these calculations is based on the selection of appropriate market spreads. Fluctuations in these assumptions will result in different estimates of fair value. An increase in market spreads would result in a decrease in the fair value.
Our financial and nonfinancial assets that are measured at fair value on a nonrecurring basis include property and equipment, investments in affiliates, goodwill, brands, management and franchise contracts, and other intangible assets. As of December 31, 2012 and 2011, there were certain financial and nonfinancial assets that were determined to be impaired and therefore the carrying amount of those assets were recorded at their fair value. The estimated fair values of our impaired financial and nonfinancial assets were calculated based on the expected future discounted cash flows of the respective asset. The key assumptions used were projected revenues, projected net operating income, long-term growth rates, terminal capitalization rates, and discount rates. The fair value measurements were considered Level 3 under the fair value hierarchy.
F-31
The estimated fair values of our financial and nonfinancial assets that were measured at fair value on a nonrecurring basis as a result of impairments losses during the years ended December 31, 2012, 2011, and 2010 were as follows:
2012 | 2011 | 2010 | ||||||||||||||||||||||
Fair Value (1) |
Impairment
Losses |
Fair Value (1) |
Impairment
Losses |
Fair Value (1) |
Impairment
Losses |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Property and equipment, net |
$ | 24 | $ | 53 | $ | 5 | $ | 20 | $ | 61 | $ | 24 | ||||||||||||
Investments in affiliates |
29 | 20 | 205 | 141 | 25 | 3 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
During the years ended December 31, 2012, 2011, and 2010, property and equipment, net with carrying value of $77 million, $25 million, and $85 million before impairment, respectively, was reduced to its estimated fair value, resulting in impairment losses of $53 million, $20 million, and $24 million, respectively. Using estimates of undiscounted net cash flows, we concluded that the carrying value of the assets were not fully recoverable. We estimated the fair value of the assets using discounted cash flow analyses, with estimated stabilized growth rates ranging from 2 percent to 3 percent, a discounted cash flow term of 10 years, terminal capitalization rates ranging from 8 percent to 11 percent, and discount rates ranging from 9 percent to 12 percent. The discount and terminal capitalization rates used for the fair value of the assets reflect the risk profile of the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole.
During the years ended December 31, 2012, 2011, and 2010, investments in affiliates with a carrying value of $49 million, $346 million, and $28 million before impairment, respectively, were reduced to their estimated fair value, resulting in impairment losses of $20 million, $141 million, and $3 million, respectively, related to our investments in entities that own or lease hotels. We estimated the fair value of the investments using discounted cash flow analyses, with estimated stabilized growth rates ranging from 3 percent to 7 percent, a discounted cash flow term of 10 years, terminal capitalization rates ranging from 8 percent to 12 percent, and discount rates ranging from 10 percent to 22 percent. The discount and terminal capitalization rates used for the fair value of our investments reflect the risk profile of the individual markets where the assets subject to our investment are located, and are not necessarily indicative of our investment portfolio as a whole.
Note 17: Leases
We lease hotel properties, land, equipment, and corporate office space under operating and capital leases. As of December 31, 2012 and 2011, we leased 71 hotels and 74 hotels, respectively, under operating leases and seven hotels and six hotels, respectively, under capital leases. Two of the capital leases as of December 31, 2012 and 2011 were liabilities of VIEs that we consolidated and were non-recourse to us. Our leases expire at various dates from 2013 through 2191, with varying renewal options, and the majority expire before 2025.
Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income, or the payment of rent equal to the greater of a minimum rent or contingent rent. In addition, we may be required to pay some, or all, of the capital costs for property and equipment in the hotel during the term of the lease.
F-32
The future minimum rent payments, under non-cancelable leases, due in each of the next five years and thereafter as of December 31, 2012, were as follows:
Operating
Leases |
Capital
Leases |
Non-Recourse
Capital Leases |
||||||||||
Year | (in millions) | |||||||||||
2013 |
$ | 265 | $ | 8 | $ | 34 | ||||||
2014 |
251 | 9 | 38 | |||||||||
2015 |
241 | 18 | 38 | |||||||||
2016 |
234 | 6 | 39 | |||||||||
2017 |
222 | 7 | 39 | |||||||||
Thereafter |
2,315 | 146 | 405 | |||||||||
|
|
|
|
|
|
|||||||
Total minimum rent payments |
$ | 3,528 | 194 | 593 | ||||||||
|
|
|||||||||||
Less: amount representing interest |
(111) | (220) | ||||||||||
|
|
|
|
|||||||||
Present value of net minimum rent payments |
$ | 83 | $ | 373 | ||||||||
|
|
|
|
Amortization of assets recorded under capital leases is recorded in depreciation and amortization in our consolidated statements of operations and is recognized over the lease term.
Rent expense for all operating leases for the years ended December 31, 2012, 2011, and 2010 was as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Minimum rentals |
$ | 286 | $ | 264 | $ | 268 | ||||||
Contingent rentals |
161 | 175 | 152 | |||||||||
|
|
|
|
|
|
|||||||
$ | 447 | $ | 439 | $ | 420 | |||||||
|
|
|
|
|
|
During the year ended December 31, 2012, we acquired the remaining ownership interest in one of our consolidated VIEs located in Japan, as well as restructured the lease agreement for the Hilton Odawara. In conjunction with the lease restructuring, we executed a binding purchase agreement with the owner to purchase the building and surrounding land at the end of the extended lease term. The Hilton Odawara lease, which was previously accounted for as an operating lease, was recorded as a capital lease asset and obligation of $15 million as of December 31, 2012. See Note 3: Acquisitions for discussion regarding the acquisition of the VIE.
During the year ended December 31, 2011, one of our consolidated VIEs located in Japan restructured their lease agreement. See Note 9: Consolidated Variable Interest Entities for discussion of the restructuring.
Note 18: Income Taxes
Our tax provision (benefit) includes federal, state, and foreign income taxes payable. The domestic and foreign components of income before income taxes for the years ended December 31, 2012, 2011, and 2010 were as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
U.S. income before tax |
$ | 435 | $ | 48 | $ | 281 | ||||||
Foreign income before tax |
138 | 148 | 138 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 573 | $ | 196 | $ | 419 | ||||||
|
|
|
|
|
|
F-33
The components of our provision (benefit) for income taxes for the years ended December 31, 2012, 2011, and 2010 were as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Current: |
||||||||||||
Federal |
$ | 71 | $ | 50 | $ | 194 | ||||||
State |
13 | 8 | 32 | |||||||||
Foreign |
57 | 70 | 64 | |||||||||
|
|
|
|
|
|
|||||||
Total current |
141 | 128 | 290 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
63 | (190) | 111 | |||||||||
State |
2 | (8) | (54) | |||||||||
Foreign |
8 | 11 | (39) | |||||||||
|
|
|
|
|
|
|||||||
Total deferred |
73 | (187) | 18 | |||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) for income taxes |
$ | 214 | $ | (59) | $ | 308 | ||||||
|
|
|
|
|
|
During 2011, based on our consideration of all positive and negative evidence available, we believe that it is more likely than not we will be able to realize the benefit of our U.S. federal foreign tax credits. Accordingly, as of December 31, 2011, we released valuation allowances of $182 million against our deferred tax assets related to U.S. foreign tax credits.
Reconciliations of our tax provision at the U.S. statutory rate to the provision (benefit) for income taxes for the years ended December 31, 2012, 2011 and 2010 were as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Statutory U.S. federal income tax provision |
$ | 201 | $ | 69 | $ | 147 | ||||||
State income taxes, net of U.S. federal tax benefit |
10 | 6 | 26 | |||||||||
Foreign income tax expense (benefit) |
18 | 50 | (8) | |||||||||
Foreign losses not subject to U.S. tax |
(24) | (26) | (19) | |||||||||
Tax credits |
(67) | (58) | (67) | |||||||||
Change in deferred tax asset valuation allowance |
56 | (160 | ) | 10 | ||||||||
Change in basis difference in foreign subsidiaries |
18 | 20 | (7) | |||||||||
Nondeductible settlement of a liability |
| | 26 | |||||||||
Nondeductible portion of debt extinguishment |
| | 27 | |||||||||
Provision for uncertain tax positions |
(2) | 35 | 185 | |||||||||
Other, net |
4 | 5 | (12) | |||||||||
|
|
|
|
|
|
|||||||
Provision (benefit) for income taxes |
$ | 214 | $ | (59) | $ | 308 | ||||||
|
|
|
|
|
|
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The composition of net deferred tax balances were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Deferred income tax assets - current |
$ | 76 | $ | 74 | ||||
Deferred income tax assets - noncurrent |
104 | 112 | ||||||
Deferred income tax liabilities - current (1) |
(1) | (1) | ||||||
Deferred income tax liabilities - noncurrent |
(4,948) | (5,006) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,769) | $ | (4,821) | ||||
|
|
|
|
(1) | Included in the accounts payable, accrued expenses, and other in our consolidated balance sheets. |
F-34
The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Deferred tax assets: |
||||||||
Foreign tax credits |
$ | 227 | $ | 346 | ||||
Net operating loss carryforwards |
570 | 563 | ||||||
Compensation |
245 | 212 | ||||||
Deferred transaction costs |
25 | 37 | ||||||
Other reserves |
198 | 204 | ||||||
Capital lease obligations |
188 | 214 | ||||||
Insurance reserves |
44 | 43 | ||||||
System funds |
23 | 28 | ||||||
Other tax credits |
48 | 73 | ||||||
Other |
72 | | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
1,640 | 1,720 | ||||||
Less: valuation allowance |
(769) | (694) | ||||||
|
|
|
|
|||||
Deferred tax assets |
$ | 871 | $ | 1,026 | ||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment |
$ | (2,025) | $ | (2,023) | ||||
Brands |
(1,916) | (1,914) | ||||||
Amortizable intangible |
(659) | (742) | ||||||
Unrealized foreign currency gains |
(301) | (380) | ||||||
Investments |
(70) | (109) | ||||||
Investment in foreign subsidiaries |
(93) | (122) | ||||||
Deferred income |
(576) | (548) | ||||||
Other |
| (9) | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
(5,640) | (5,847) | ||||||
|
|
|
|
|||||
Net deferred taxes |
$ | (4,769) | $ | (4,821) | ||||
|
|
|
|
As of December 31, 2012, we had state and foreign net operating loss carryforwards of $1.1 billion and $1.9 billion, respectively, which resulted in deferred tax assets of $52 million for state jurisdictions and $519 million for foreign jurisdictions. Approximately $73 million of our deferred tax assets as of December 31, 2012 related to net operating loss carryforwards expiring between 2013 and 2032 with $2 million of that amount expiring in 2013. Approximately $497 million of our deferred tax assets as of December 31, 2012 resulted from net operating loss carryforwards that are not subject to expiration. We believe that it is more likely than not that the benefit from certain state and foreign net operating loss carryforwards will not be realized. In recognition of this assessment, we provided a valuation allowance of $15 million and $422 million as of December 31, 2012 on the deferred tax assets relating to these state and foreign net operating loss carryforwards, respectively. Our valuation allowances increased in total by approximately $75 million during the year ended December 31, 2012. This increase was primarily related to foreign deferred tax assets. As of December 31, 2012, we had foreign tax credits of $192 million recorded as deferred tax assets that expire between 2018 and 2022.
F-35
Reconciliations of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2012, 2011, and 2010 were as follows:
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Balance at beginning of year |
$ | 436 | $ | 405 | $ | 88 | ||||||
Additions for tax positions related to the prior year |
71 | 60 | 131 | |||||||||
Additions for tax positions related to the current year |
5 | 5 | 191 | |||||||||
Reductions for tax positions for prior years |
(23) | (6) | (1) | |||||||||
Settlements |
(14) | (27) | (1) | |||||||||
Lapse of statute of limitations |
(6) | (2) | (1) | |||||||||
Currency translation adjustment |
| 1 | (2) | |||||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
$ | 469 | $ | 436 | $ | 405 | ||||||
|
|
|
|
|
|
We classify reserves for tax uncertainties within income taxes payable and other liabilities in our consolidated balance sheets. Our total unrecognized tax benefits as of December 31, 2012, 2011, and 2010 were $469 million, $436 million, and $405 million, respectively. The net increase to unrecognized tax benefits was primarily the result of items identified, resolved, and settled as part of our ongoing U.S. federal audit as well as an uncertain tax position with regard to our debt restructuring. We recognize interest and penalties accrued related to uncertain tax positions in income tax expense. We accrued approximately $8 million and $6 million during 2012 and 2011, respectively. In total, we had accrued balances of approximately $42 million and $40 million for the payment of interest and penalties as of December 31, 2012 and 2011, respectively. Included in the balance of uncertain tax positions as of December 31, 2012 and 2011 were $374 million and $400 million, respectively, associated with positions that if favorably resolved would provide a benefit to our effective tax rate. As a result of the expected resolution of examination issues with federal (primarily), state, and foreign tax authorities, we believe it is reasonably possible that during the next 12 months the amount of unrecognized tax benefits will decrease up to $50 million.
We file income tax returns, including returns for our subsidiaries, with federal, state and foreign jurisdictions. We are under regular and recurring audit by the Internal Revenue Service (IRS) on open tax positions. It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal, and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. We are no longer subject to U.S. federal income tax examination for years through 2004. As of December 31, 2012, we remain subject to federal examinations from 2005-2011, state examinations from 1999-2011, and foreign examinations of our income tax returns for the years 1996 through 2011. During 2009, the IRS commenced its audit of our predecessors consolidated U.S. income tax returns for the 2006 through October 2007 tax years. In 2013, we received Notices of Proposed Adjustment from the IRS for such years primarily relating to assertions by the IRS that: (1) certain foreign currency-denominated, intercompany loans from our foreign subsidiaries to certain U.S. subsidiaries should be recharacterized as equity for U.S. federal income tax purposes and constitute deemed dividends from such foreign subsidiaries to our U.S. subsidiaries; (2) in calculating the amount of U.S. taxable income resulting from our HHonors guest loyalty program, we should not reduce gross income by the estimated costs of future redemptions, but rather such costs are deductible at the time the points are redeemed; and (3) certain foreign-currency denominated loans issued by one of our Luxembourg subsidiaries whose functional currency is the U.S. dollar, should instead be treated as issued by one of our Belgian subsidiaries whose functional currency is the Euro, and thus foreign currency gains and losses with respect to such loans should have been measured in Euros, instead of U.S. dollars. In total, the proposed adjustments sought by the IRS would result in additional U.S. federal tax owed of approximately $695 million, excluding interest and penalties and potential state income taxes. The portion of this amount related to our HHonors guest loyalty program would result in a decrease to our future tax liability when the points are redeemed. We disagree with the IRSs position on each of these assertions and intend to vigorously contest them. We plan to pursue all available administrative remedies, and if we are not
F-36
able to resolve these matters administratively, we plan to pursue judicial remedies. Accordingly, as of December 31, 2012, no accrual had been made for these amounts. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution.
State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return; however, the state impact of any federal tax return changes remains subject to examination by various states for a period generally of up to one year after formal notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after filing the respective tax return.
Note 19: Employee Benefit Plans
We sponsor multiple domestic and international employee benefit plans. Benefits are based upon years of service and compensation.
We have a noncontributory retirement plan in the U.S. (the Domestic Plan), which covers certain employees not earning union benefits. This plan was frozen for participant benefit accruals in 1996; therefore, the projected benefit obligation is equal to the accumulated benefit obligation. Plan assets will be used to pay benefits due to employees for service through December 31, 1996. As employees have not accrued additional benefits since that time, we do not utilize salary or pension inflation assumptions in calculating our benefit obligation for the Domestic Plan. The annual measurement date for the Domestic Plan is December 31.
We also have multiple employee benefit plans that cover many of our international employees. These include a plan that covers workers in the United Kingdom (the U.K. Plan) and a number of smaller plans that cover workers in various countries around the world (the International Plans). The annual measurement date for all of these plans is December 31.
We are required to recognize the funded status (the difference between the fair value of plan assets and the projected benefit obligations) of our pension plans in our consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive loss, net of tax.
F-37
The following table presents the projected benefit obligation, fair value of plan assets, the funded status, and the accumulated benefit obligation as of December 31, 2012 and 2011 for the Domestic Plan, the U.K. Plan, and the International Plans:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||
Change in Projected Benefit Obligation |
||||||||||||||||||||||||
Benefit obligation at beginning of year |
$ | 449 | $ | 442 | $ | 312 | $ | 292 | $ | 119 | $ | 124 | ||||||||||||
Service cost |
| | 5 | 4 | 4 | 4 | ||||||||||||||||||
Interest cost |
21 | 23 | 16 | 17 | 5 | 5 | ||||||||||||||||||
Employee contributions |
| | 2 | 2 | | | ||||||||||||||||||
Prior service cost |
| | | | | (4) | ||||||||||||||||||
Actuarial loss (gain) |
43 | 5 | 28 | 11 | 9 | (1) | ||||||||||||||||||
Settlements and curtailments |
| | | | | (3) | ||||||||||||||||||
Effect of foreign exchange rates |
| | 14 | (1) | (2) | 1 | ||||||||||||||||||
Benefits paid |
(22) | (21) | (12) | (13) | (10) | (7) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Benefit obligation at end of year |
$ | 491 | $ | 449 | $ | 365 | $ | 312 | $ | 125 | $ | 119 | ||||||||||||
|
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|
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|
|
|
|
|
|
|
|||||||||||||
Change in Plan Assets |
||||||||||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 249 | $ | 251 | $ | 318 | $ | 305 | $ | 83 | $ | 80 | ||||||||||||
Actual return on plan assets, net of expenses |
31 | 13 | 34 | 10 | 4 | 2 | ||||||||||||||||||
Employer contribution |
15 | 6 | 7 | 15 | 10 | 10 | ||||||||||||||||||
Employee contributions |
| | 2 | 2 | | | ||||||||||||||||||
Effect of foreign exchange rates |
| | 14 | (1) | (2) | 1 | ||||||||||||||||||
Benefits paid |
(22) | (21) | (12) | (13) | (10) | (7) | ||||||||||||||||||
Settlements |
| | | | | (3) | ||||||||||||||||||
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|
|||||||||||||
Fair value of plan assets at end of year |
273 | 249 | 363 | 318 | 85 | 83 | ||||||||||||||||||
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|
|
|
|
|
|||||||||||||
Funded status at end of year (overfunded/ (underfunded)) |
(218) | (200) | (2) | 6 | (40) | (36) | ||||||||||||||||||
|
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|
|
|
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|
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|
|||||||||||||
Accumulated benefit obligation |
$ | 491 | $ | 449 | $ | 365 | $ | 312 | $ | 125 | $ | 119 | ||||||||||||
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Amounts recognized in the consolidated balance sheets as of December 31, 2012 and 2011 consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||
Non-current asset |
$ | | $ | | $ | | $ | 8 | $ | 3 | $ | 3 | ||||||||||||
Current liability |
| | | | (1) | (1) | ||||||||||||||||||
Non-current liability |
(218) | (200) | (2) | (2) | (42) | (38) | ||||||||||||||||||
|
|
|
|
|
|
|
|
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|
|||||||||||||
Net amount recognized |
$ | (218) | $ | (200) | $ | (2) | $ | 6 | $ | (40) | $ | (36) | ||||||||||||
|
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Amounts recognized in accumulated other comprehensive loss during the years ended December 31, 2012, 2011, and 2010 consisted of:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Net actuarial loss (gain) |
$ | 29 | $ | 8 | $ | 8 | $ | 17 | $ | 21 | $ | (40) | $ | 9 | $ | 2 | $ | (4) | ||||||||||||||||||
Prior service cost (credit) |
(4) | (4) | 30 | 16 | 3 | (22) | | (4) | | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
1 | (4) | (6) | (3) | (1) | (7) | (1) | (2) | (1) | |||||||||||||||||||||||||||
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Net amount recognized |
$ | 26 | $ | | $ | 32 | $ | 30 | $ | 23 | $ | (69) | $ | 8 | $ | (4) | $ | (5) | ||||||||||||||||||
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F-38
The estimated unrecognized net losses and prior service cost (credit) that will be amortized into net periodic pension cost over the next fiscal year were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Unrecognized net losses |
$ | 4 | $ | 6 | $ | 4 | $ | 4 | $ | 3 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
Unrecognized prior service cost (credit) |
4 | 4 | 4 | (3) | (16) | (3) | | | | |||||||||||||||||||||||||||
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|||||||||||||||||||
Amount unrecognized |
$ | 8 | $ | 10 | $ | 8 | $ | 1 | $ | (13) | $ | (2) | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||
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The net periodic pension cost for the Domestic Plan, the U.K. Plan, and the International Plans for the years ended December 31, 2012, 2011, and 2010 were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Service cost |
$ | | $ | | $ | | $ | 5 | $ | 4 | $ | 5 | $ | 4 | $ | 4 | $ | 3 | ||||||||||||||||||
Interest cost |
21 | 23 | 22 | 16 | 17 | 19 | 5 | 5 | 6 | |||||||||||||||||||||||||||
Expected return on plan assets |
(17) | (17) | (18) | (21) | (21) | (18) | (4) | (4) | (4) | |||||||||||||||||||||||||||
Amortization of prior service cost (credit) |
4 | 4 | | (16) | (3) | | | | | |||||||||||||||||||||||||||
Amortization of net loss (gain) |
(1) | 4 | 6 | 3 | 1 | 7 | 1 | 1 | 1 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Net periodic pension cost (credit) |
7 | 14 | 10 | (13) | (2) | 13 | 6 | 6 | 6 | |||||||||||||||||||||||||||
Settlement losses |
| | | | | | | 1 | | |||||||||||||||||||||||||||
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|||||||||||||||||||
Net pension cost (credit) |
$ | 7 | $ | 14 | $ | 10 | $ | (13) | $ | (2) | $ | 13 | $ | 6 | $ | 7 | $ | 6 | ||||||||||||||||||
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The weighted-average assumptions used to determine benefit obligations as of December 31, 2012 and 2011 were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Discount rate |
3.9% | 4.9% | 4.7 | % | 5.0 | % | 3.8 | % | 4.6 | % | ||||||||||||||
Salary inflation |
N/A | N/A | 1.9 | % | 1.7 | % | 2.2 | % | 2.8 | % | ||||||||||||||
Pension inflation |
N/A | N/A | 2.8 | % | 2.9 | % | 2.0 | % | 1.8 | % |
The weighted-average assumptions used to determine net periodic pension cost for the years ended December 31, 2012, 2011, and 2010 were as follows:
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||||||
Discount rate |
4.9% | 5.4% | 5.7% | 5.0% | 5.7% | 5.8% | 4.6% | 5.0% | 5.3% | |||||||||||||||||||||||||||
Expected return on plan assets |
6.8% | 6.8% | 6.8% | 6.5% | 6.5% | 6.6% | 6.2% | 6.2% | 6.9% | |||||||||||||||||||||||||||
Salary inflation |
N/A | N/A | N/A | 1.7% | 2.6% | 4.6% | 2.8% | 3.3% | 3.4% | |||||||||||||||||||||||||||
Pension inflation |
N/A | N/A | N/A | 2.9% | 3.0% | 3.4% | 1.8% | 1.8% | 1.9% |
The investment objectives for the various plans are preservation of capital, current income, and long-term growth of capital. All plan assets are managed by outside investment managers and do not include investments in Company stock. Asset allocations are reviewed periodically.
F-39
Expected long-term returns on plan assets are determined using historical performance for debt and equity securities held by our plans, actual performance of plan assets, and current and expected market conditions. Expected returns are formulated based on the target asset allocation. The target asset allocation for the Domestic Plan as a percentage of total plan assets as of December 31, 2012 and 2011 was 50 percent in funds that invest in equity securities, and 50 percent in funds that invest in debt securities. The U.K. Plan and International Plans target asset allocation as a percentage of total plan assets as of December 31, 2012 and 2011 was 36 percent in funds that invest in equity securities, 50 percent in funds that invest in debt securities, and 14 percent in property funds.
The following table presents the fair value hierarchy, as defined in Note 2: Basis of Presentation and Summary of Significant Accounting Policies, of total plan assets measured at fair value as of December 31, 2012 and 2011 by asset category. The fair value of Level 2 assets were based on available market pricing information of similar financial instruments.
December 31, 2012 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 11 | $ | | $ | | ||||||||||||||||||
Equity funds |
54 | 98 | | | 138 | | | 9 | | |||||||||||||||||||||||||||
Debt securities |
16 | 103 | | | | | | | | |||||||||||||||||||||||||||
Bond funds |
| | | | 163 | | | 15 | | |||||||||||||||||||||||||||
Real estate funds |
| | | | 58 | | | 1 | | |||||||||||||||||||||||||||
Other |
| 2 | | | 4 | | | 49 | | |||||||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||||
Total |
$ | 70 | $ | 203 | $ | | $ | | $ | 363 | $ | | $ | 11 | $ | 74 | $ | | ||||||||||||||||||
|
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|
|
December 31, 2011 | ||||||||||||||||||||||||||||||||||||
Domestic Plan | U.K. Plan | International Plans | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 10 | $ | | $ | | ||||||||||||||||||
Equity funds |
47 | 85 | | | 111 | | | 6 | | |||||||||||||||||||||||||||
Debt securities |
9 | 105 | | | | | | | | |||||||||||||||||||||||||||
Bond funds |
| | | | 153 | | | 15 | | |||||||||||||||||||||||||||
Real estate funds |
| | | | 44 | | | | | |||||||||||||||||||||||||||
Other |
| 3 | | | 10 | | | 52 | | |||||||||||||||||||||||||||
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|
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|
|
|
|
|
|||||||||||||||||||
Total |
$ | 56 | $ | 193 | $ | | $ | | $ | 318 | $ | | $ | 10 | $ | 73 | $ | | ||||||||||||||||||
|
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|
We expect to contribute approximately $47 million, $5 million, and $8 million to the Domestic Plan, the U.K. Plan, and the International Plans, respectively, in 2013.
F-40
As of December 31, 2012, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter were as follows:
Domestic Plan | U.K. Plan |
International
Plans |
||||||||||
(in millions) | ||||||||||||
Year |
||||||||||||
2013 |
$ | 80 | $ | 13 | $ | 14 | ||||||
2014 |
27 | 13 | 9 | |||||||||
2015 |
26 | 13 | 9 | |||||||||
2016 |
26 | 13 | 9 | |||||||||
2017 |
26 | 13 | 9 | |||||||||
2018 - 2022 |
130 | 70 | 45 | |||||||||
|
|
|
|
|
|
|||||||
$ | 315 | $ | 135 | $ | 95 | |||||||
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|
Domestic Plan
As of January 1, 2007, the frozen Domestic Plan and plans maintained for certain domestic hotels currently or formerly managed by us were merged into a multiple employer plan. As of December 31, 2012, the multiple employer plan had combined assets of $303 million and a projected benefit obligation of $526 million.
A class action lawsuit was filed in 1998 against Hilton and the Domestic Plan claiming that the Domestic Plan did not calculate benefit obligations in accordance with the terms of the plan nor were vesting rules followed in accordance with the plan. In May 2009, the U.S. District Court for the District of Columbia (the District Court) found in favor of the plaintiff in a summary judgment and required that we and the plaintiff enter into mediation to reach agreement on the amounts necessary for recognition of service and benefits for plan participants and in August 2011, the District Court issued a final order with respect to this lawsuit. Both Hilton and the plaintiff appealed various aspects of the final order to the U.S. Court of Appeals.
In December 2012, the U.S. Court of Appeals affirmed the ruling of the District Court, and further appellate rights expired in January 2013. Based on the final order, we believe the best estimate of the minimum additional pension obligation based on the final order as issued by the District Court is approximately $109 million, which is included in the projected benefit obligation as of December 31, 2012. We had accrued in other long-term liabilities $109 million and $104 million as of December 31, 2012 and 2011, respectively. The estimated additional obligation will be recognized as additional pension expense over the average remaining life expectancy of the plan participants as determined by our actuaries, with the remainder of the obligation having been recognized in accumulated other comprehensive loss as an adjustment of the pension liability.
In February 2012, the District Court ordered us to post bond of $76 million under the litigation to support potential future plan contributions. We funded an account, which is classified as restricted cash and cash equivalents, with this amount to support this requirement, and the bond will be released upon the future contributions being made. The Company is currently undertaking a process to clarify certain matters with the District Court to permit the adoption of an amended plan, considering the requirements of the ruling in the final order. As the matters are clarified and a new plan is adopted, the Company will be required to make contributions to allow for the adoption of the amendments. These contribution amounts are estimated to increase 2013 contributions by approximately $39 million and are included in the estimated contributions described above. The value of the bond may be applied toward the required contributions as necessary.
U.K. Plan
In March 2012, we, along with the trustees of the U.K. Plan, adopted an agreement to freeze the defined benefit plan for enrollment to new employees effective immediately, and to freeze the accrual of benefits to existing
F-41
employees on November 30, 2013. A defined contribution plan will be put in place for the affected employees. We recognized an acceleration of prior service credit of $13 million related to the adoption of this agreement during the year ended December 31, 2012.
In May 2011, we, along with the trustees for the U.K. Plan, reached a tentative agreement on the funded status and security for the U.K. Plan. This agreement extended our GBP 15 million guarantee (equivalent to $24 million as of December 31, 2012) to December 2013 and included a one-time voluntary cash contribution of GBP 5 million (equivalent to approximately $8 million) by us to the plan, which was funded during the year ended December 31, 2011.
Other Benefit Plans
We also have plans covering qualifying employees and non-officer directors (the Supplemental Plans). Benefits for the Supplemental Plans are based upon years of service and compensation. Since December 31, 1996, employees and non-officer directors have not accrued additional benefits under the Supplemental Plans. These plans are self-funded by us and, therefore, have no plan assets isolated to pay benefits due to employees. As of December 31, 2012 and 2011, these plans had benefit obligations of $13 million, which were fully accrued in our consolidated balance sheets. Expense incurred under the Supplemental Plans for the years ended December 31, 2012, 2011, and 2010 was not significant.
We have various employee defined contribution investment plans whereby we contribute matching percentages of employee contributions. The aggregate expense under these plans totaled $18 million, $18 million, and $17 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Multi-Employer Pension Plans
Certain employees are covered by union sponsored multi-employer pension plans pursuant to agreements between us and various unions. Our participation in these plans is outlined in the table below:
Pension Fund |
EIN/Pension
Plan Number |
Pension Protection
Act Zone Status |
Contributions | |||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2010 | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund |
13-1764242 | Pending | Yellow | $ | 13 | $ | 13 | $ | 13 | |||||||||||||||
Other plans |
11 | 9 | 9 | |||||||||||||||||||||
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Total contributions |
$ | 24 | $ | 22 | $ | 22 | ||||||||||||||||||
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Eligible employees at our owned hotels in New York City participate in the New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund (New York Pension Fund). Our contributions are based on a percentage of all union employee wages as dictated by the collective bargaining agreement that expires on June 30, 2019. Our contributions exceeded 5 percent of the total contributions to the New York Pension Fund in 2011, as indicated in the New York Pension Funds Annual Return/Report of Employee Benefit Plan on IRS Form 5500 for the year ended December 31, 2011. The New York Pension Fund has implemented a funding improvement plan, and we have not paid a surcharge.
Note 20: Share-Based Compensation
Original Promote Plan
In August 2008, BH Hotels established an executive equity compensation plan (the original Promote plan) for members of our senior management team. The original Promote plan provided for the grant of restricted profits
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interest units in the form of B-1 Units and B-2 Units issued by BH Hotels. We recognized the capital contributions from our Ultimate Parent associated with these awards to our employees as additional paid-in capital.
The B-1 Units vested ratably over a five year period based on continued employment, with acceleration of vesting upon certain defined change in control events. The estimated grant date fair value of these B-1 awards was recognized over the requisite service period of these awards using the accelerated attribution method of expense recognition.
The B-2 Units vested solely in the event that the principal owners of BH Hotels achieved specified returns on their investments in BH Hotels and other service conditions. Because the performance condition required to vest in the B-2 Units was not likely to be achieved, the aggregate grant date fair value of these awards of $25.4 million was not recognized.
New Promote Plan
In November 2010, BH Hotels offered certain members of our senior management team the opportunity to participate in an executive compensation plan (the Promote plan). The Promote plan provides for the grant of a Tier I liability award, or an alternative cash payment in lieu thereof, and a Tier II equity award. The Tier I liability awards provide the participants the right to share in 2.75 percent of the equity value of Hilton up to $8.352 billion (or $230 million) based on the achievement of certain service and performance conditions. The awards vest based on continued employment in equal annual installments over five years. Vesting accelerates on the Acceleration Date, defined as the date on which Blackstone and its affiliates cease to own, beneficially or of record, at least 50 percent of BH Hotels Class A Units. The ultimate value of the award is affected by Hiltons equity value on the Acceleration Date. The plan initially allowed for a portion of the Tier I liability awards to be paid in three annual early installments, if an Acceleration Date had not been achieved by April 2013. Each early installment payment is contingent on continued employment with us or one of our affiliates on each applicable early installment payment date. The early installments for the full participant group is a maximum of $50 million annually, less applicable withholding taxes. None of the early installments are subject to recovery by us in the event that the participant terminates employment prior to an Acceleration Date or if the ultimate value of the Tier I liability awards at the Acceleration Date is less than the early installment payments paid. Since the value of the Tier I liability awards is a fixed monetary amount known at inception and settleable with cash, the awards are classified and accounted for as liability awards.
The Tier II equity awards allow participants to share in Hiltons equity growth above $8.352 billion and are also subject to service and performance conditions. Subject to continued employment with us or one of our affiliates, the Tier II equity awards will vest fully on the Acceleration Date. Payments will be made in respect of the Tier II equity awards only after the owners of Class A Units in BH Hotels have received a return of the value at grant date of their capital investment. As the vesting of the Tier II equity awards are subject to the achievement of a performance condition in the form of a liquidity event that is not probable, no expense has been recognized related to Tier II equity awards.
In November 2012, we offered certain members of our senior management team the opportunity to participate in a new cash retention award in exchange for cancellation of their participation in the Promote plan. The cash retention award will be paid in two equal installments with the first installment being paid by December 31, 2012, and the second installment being paid by December 31, 2013.
Those who elected not to accept the new cash retention award will continue to vest in the Promote plan. The vesting period was modified to accelerate the remaining two early installment payments. The original payment dates, assuming no acceleration for a liquidity event, was April 2014 and 2015, which have been accelerated to April 2013 and 2014. The acceleration of the early installment payments resulted in additional compensation cost of $3 million during the year ended December 31, 2012.
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Accounting for the Modification
Because the original Promote plan was modified through the issuance of new awards, incremental compensation was measured as the excess, if any, of the fair value of the modified awards over the fair value of the original awards immediately before their terms were modified. The measured cost of a modified award generally cannot be less than the grant-date fair value of the original award.
The incremental fair value associated with the Tier II equity awards was separated from the Tier I liability awards. This separation was required because a component of the incremental fair value for Tier I liability awards is being recognized beginning on the modification date, while the incremental fair value for Tier II equity awards will not be recognized until the performance condition associated with the Tier II equity awards is probable. The separation of incremental fair values between Tier I liability awards and Tier II equity awards was calculated based on the relative fair values of the Tier I and Tier II awards at the modification date.
As the modification of B-1 Units and B-2 Units and allocation to the Tier I liability awards changed the balance sheet classification of the award, $7 million of previously recognized compensation cost was reclassified from additional paid-in capital to other long-term liabilities. The modification also resulted in $51 million of incremental compensation expense recognized as of December 3, 2010 for the Tier I liability awards.
Payments on Share-Based Compensation Plans
Total payments under the Promote plan and cash retention awards during the year ended December 31, 2012 were $95 million. No payments were made during the years ended December 31, 2011 and 2010.
During the first quarter of 2012, the first installment payments for the Tier I liability awards were accelerated, which resulted in $9 million of additional share-based compensation expense during the year ended December 31, 2012. The amount of the payment was approximately $25 million.
During the fourth quarter of 2012, we paid the first installment to the 13 participants who elected to receive the retention award in exchange for cancellation of their participation in the Promote plan which totaled approximately $9 million. We recognized $9 million of additional share-based compensation expense during the year ended December 31, 2012 for those participants who elected the retention award.
During the fourth quarter of 2012, we made payments totaling $55 million under the Promote plan. A portion of these payments resulted from the acceleration of installment payments for certain executives. The acceleration of the installment payments resulted in additional compensation cost of $10 million during the year ended December 31, 2012.
A number of participants in the Promote plan terminated their employment with us during the year ended December 31, 2012. We made separation payments related to the participants vested portion of the Promote plan totaling $6 million during the year ended December 31, 2012.
We expect future payments under the Promote plan and retention awards to total $18 million and $7 million during the years ending December 31, 2013 and 2014, respectively.
Summary of Share-Based Compensation Expense and Related Activity
Total compensation expense under the original Promote plan totaled $5 million for the year ended December 31, 2010. Total compensation expense related to the new Promote plan and cash retention award, was $50 million, $19 million, and $51 million for the years ended December 31, 2012, 2011, and 2010, respectively. As of December 31, 2012, there was $286 million of unrecognized compensation expense related to the Promote plan and cash retention award, $7 million of which is expected to be recognized through April 2014 and $279 million of which is subject to the achievement of a performance condition, which is currently not probable of being met.
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The liability awards have been recorded at estimated fair value of $18 million and $69 million as of December 31, 2012 and 2011, respectively, and will be remeasured at each reporting date until settlement. As of December 31, 2012, $13 million was included in accounts payable, accrued expenses, and other in our consolidated balance sheet. There was no amount classified in current liabilities as of December 31, 2011 related to the Promote plan and retention awards. The portion of the liability, if any, in excess of the early installment payments that vests only upon an Acceleration Date will only be recognized if the liquidity event occurs.
In calculating the compensation expense for the Tier I liability awards and Tier II equity awards granted, we have estimated the fair value of these awards as of December 31, 2012 using a lattice-based binomial model. The fair value of the Tier I liability awards and the Tier II equity awards was calculated based on the following assumptions, which were evaluated and revised, as necessary, to reflect market conditions and experience:
2012 | 2011 | 2010 | ||||||||||
Dividend yield |
% | % | % | |||||||||
Expected volatility |
23% | 31% | 31% | |||||||||
Risk-free interest rate |
0.4% | 0.8% | 1.7% | |||||||||
Expected term (in years) |
2.9 | 3.9 | 5.1 |
The dividend yield is based on no current annual dividend being paid. Volatility is based on historical information from us and our competitors with terms consistent with the expected life of our awards. The risk-free rate is based on the quoted treasury yield curve, with terms consistent with the expected life of our awards.
A summary of the activity of the Tier II equity awards was as follows:
Promote Plan | ||||||||
Tier II | ||||||||
Units |
Weighted-
Average Fair Value |
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Balance as of December 31, 2011 |
283,072,516 | $ | 1.03 | |||||
Granted |
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Forfeited |
(54,025,398) | 1.21 | ||||||
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Balance as of December 31, 2012 |
229,047,118 | $ | 1.18 | |||||
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Note 21: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of taxes, were as follows:
December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Foreign currency translation adjustment |
$ | (317) | $ | (441) | $ | (362) | ||||||
Unrealized losses on pension obligations |
(194) | (153) | (140) | |||||||||
Unrealized gains on hedging instruments |
105 | 105 | 104 | |||||||||
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$ | (406) | $ | (489) | $ | (398) | |||||||
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Note 22: Business Segments
We are a diversified hospitality company with operations organized in three distinct operating segments: ownership, management and franchise, and timeshare. Each segment is managed separately because of its distinct economic characteristics.
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The ownership segment includes all hotels that we wholly own or lease, as well as consolidated non-wholly owned entities and consolidated VIEs. As of December 31, 2012, this segment included 123 wholly owned and leased hotels and resorts, three non-wholly owned hotel properties, and three hotels of consolidated VIEs. While we do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment revenues or segment operating income (loss), we manage these investments in our ownership segment. Our unconsolidated affiliates are primarily investments in entities that owned or leased 32 hotels as of December 31, 2012.
The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels operated or managed by someone other than us under one of our proprietary brand names of our hotel brand portfolio. As of December 31, 2012, this segment included 453 managed hotels and 3,312 franchised hotels. This segment earns fees for managing properties in our ownership segment.
The timeshare segment includes the development of vacation ownership clubs and resorts, marketing and selling of timeshare intervals, providing timeshare customer financing, and licensing fees paid by third parties for the use of our Hilton Grand Vacations brand name. This segment also provides assistance to third-party developers in selling their timeshare inventory. As of December 31, 2012, this segment included 40 timeshare properties.
Corporate and other represents revenues and related operating expenses generated by the incidental support of hotel operations for owned, leased, managed, and franchised hotels and other rental income, as well as corporate assets and related expenditures.
The performance of our operating segments is evaluated primarily on Adjusted EBITDA, which should not be considered an alternative to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. We define Adjusted EBITDA as net income attributable to Hilton stockholder before interest expense, income tax expense (benefit), and depreciation and amortization, further adjusted to exclude certain items, including, but not limited to: gains, losses, and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment charges; (v) furniture, fixtures and equipment (FF&E) replacement reserves required under certain lease agreements; (vi) reorganization costs; (vii) share-based and certain other compensations expenses; (viii) severance, relocation and other expenses; and (ix) other items.
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The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Revenues: |
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Ownership |
$ | 4,006 | $ | 3,926 | $ | 3,684 | ||||||
Management and franchise |
1,180 | 1,095 | 933 | |||||||||
Timeshare |
1,085 | 944 | 863 | |||||||||
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Segment revenues |
6,271 | 5,965 | 5,480 | |||||||||
Other revenues from managed and franchised properties |
3,124 | 2,927 | 2,637 | |||||||||
Other revenues |
66 | 58 | 59 | |||||||||
Intersegment fees elimination (1)(2)(3) |
(185) | (167) | (108) | |||||||||
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Total revenues |
$ | 9,276 | $ | 8,783 | $ | 8,068 | ||||||
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Adjusted EBITDA |
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Ownership (1)(4) |
$ | 793 | $ | 725 | $ | 688 | ||||||
Management and franchise (2) |
1,180 | 1,095 | 927 | |||||||||
Timeshare |
252 | 207 | 212 | |||||||||
Corporate and other (3) |
(269) | (274) | (263) | |||||||||
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Adjusted EBITDA |
$ | 1,956 | $ | 1,753 | $ | 1,564 | ||||||
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(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which are eliminated in our consolidated financial statements. These charges totaled $24 million, $27 million, and $17 million for the years ended December 31, 2012, 2011, and 2010, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to ownership Adjusted EBITDA and a cost to the timeshare segment. |
(2) | Includes management, royalty, and intellectual property fees of $96 million, $88 million, and $82 million for the years ended December 31, 2012, 2011, and 2010, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our consolidated financial statements. Effective January 1, 2011, management and franchise began charging a licensing fee to our timeshare segment, which is also eliminated in our consolidated financial statements. This fee was $52 million and $43 million for the years ended December 31, 2012 and 2011, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to management and franchise Adjusted EBITDA and a cost to the ownership and timeshare segments. |
(3) | Includes charges to consolidated owned and leased properties for services provided by our wholly-owned laundry business of $10 million, $9 million, and $9 million for the years ended December 31, 2012, 2011, and 2010, respectively. These charges are eliminated in our consolidated financial statements. |
(4) | Includes unconsolidated affiliate Adjusted EBITDA. |
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The table below provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholder:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Adjusted EBITDA |
$ | 1,956 | $ | 1,753 | $ | 1,564 | ||||||
Net loss (income) attributable to noncontrolling interests |
(7) | (2) | 17 | |||||||||
Gain (loss) on foreign currency transactions |
23 | (21) | 18 | |||||||||
FF&E replacement reserve |
(68) | (57) | (48) | |||||||||
Share-based compensation expense |
(50) | (19) | (56) | |||||||||
Impairment losses |
(54) | (20) | (24) | |||||||||
Impairment losses included in equity in losses from unconsolidated affiliates |
(19) | (141) | (6) | |||||||||
Gain on debt restructuring |
| | 789 | |||||||||
Other gain, net |
15 | 19 | 8 | |||||||||
Other adjustment items (1) |
(64) | (51) | (242) | |||||||||
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EBITDA |
1,732 | 1,461 | 2,020 | |||||||||
Interest expense |
(569) | (643) | (946) | |||||||||
Interest expense included in equity in losses from unconsolidated affiliates |
(13) | (12) | (16) | |||||||||
Income tax benefit (expense) |
(214) | 59 | (308) | |||||||||
Depreciation and amortization |
(550) | (564) | (574) | |||||||||
Depreciation and amortization included in equity in losses from unconsolidated affiliates |
(34) | (48) | (48) | |||||||||
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Net income attributable to Hilton stockholder |
$ | 352 | $ | 253 | $ | 128 | ||||||
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(1) | Represents adjustments for legal expenses, severance and certain guarantee payments. Includes $150 million of legal settlement expense, including a cash payment of $75 million for the year ended December 31, 2010. |
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Assets: |
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Ownership |
$ | 12,316 | $ | 12,448 | ||||
Management and franchise |
11,650 | 11,842 | ||||||
Timeshare |
1,839 | 1,807 | ||||||
Corporate and other |
1,261 | 1,215 | ||||||
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$ | 27,066 | $ | 27,312 | |||||
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The following table presents capital expenditures for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
Capital expenditures: |
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Ownership (1) |
$ | 396 | $ | 368 | $ | 132 | ||||||
Timeshare |
28 | 12 | 5 | |||||||||
Corporate and other |
9 | 9 | 11 | |||||||||
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$ | 433 | $ | 389 | $ | 148 | |||||||
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(1) | Excludes acquisitions of $12 million and $216 million for the years ended December 31, 2011 and 2010, respectively. |
Revenues by country were as follows:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
(in millions) | ||||||||||||
U.S. |
$ | 6,743 | $ | 6,293 | $ | 5,754 | ||||||
All other |
2,533 | 2,490 | 2,314 | |||||||||
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$ | 9,276 | $ | 8,783 | $ | 8,068 | |||||||
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Other than the U.S., there were no countries that individually represented more than ten percent of total revenues for the years ended December 31, 2012, 2011, and 2010.
Property and equipment, net by country were as follows:
December 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
U.S. |
$ | 8,252 | $ | 8,186 | ||||
All other |
945 | 931 | ||||||
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$ | 9,197 | $ | 9,117 | |||||
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Other than the U.S., there were no countries which individually comprised over ten percent of total property and equipment, net as of December 31, 2012 and 2011.
Note 23: Commitments and Contingencies
As of December 31, 2012, we had outstanding guarantees of $32 million, with remaining terms ranging from six months to ten years, for debt and other obligations of third parties. We have two letters of credit, which are supported by restricted cash and cash equivalents, for a total of $27 million that have been pledged as collateral for two of these guarantees. Although we believe it is unlikely that material payments will be required under these guarantees or letters of credit, there can be no assurance that this will be the case.
We have also provided performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of December 31, 2012, we had nine contracts containing performance guarantees, with expirations ranging
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from 2013 to 2030, and possible cash outlays totaling approximately $196 million. Funding under these guarantees in future periods is dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of December 31, 2012, we recorded current liabilities of approximately $30 million and non-current liabilities of approximately $57 million in our consolidated balance sheet for obligations under our outstanding performance guarantees related to certain VIEs for which we are not the primary beneficiary. As of December 31, 2011, we recorded non-current liabilities of approximately $88 million related to these performance guarantees.
As of December 31, 2012 we had the following commitments:
| Contract acquisition costs of $49 million, the majority of which are expected to be paid over the next two years. |
| In June 2012, we entered into an agreement with a developer in Las Vegas, Nevada, whereby we will purchase residential units from the developer that we will convert to timeshare units to be marketed and sold under our Hilton Grand Vacations brand. Subject to certain conditions, we will be required to purchase approximately $92 million of inventory ratably over a period of four years. As of December 31, 2012, we had not purchased any inventory under this agreement. We plan to purchase approximately $6 million of inventory in the first quarter of 2013, with subsequent purchases of approximately $6 million per quarter over the next 15 quarters. |
In addition to the above, in the normal course of business we enter into purchase commitments for which we are reimbursed by the owners of our managed and franchised hotels. These obligations will not have a material effect on our consolidated results of operations, financial position, or cash flows.
Also, as of December 31, 2012, we had outstanding commitments under construction contracts of approximately $72 million for capital expenditures at certain owned and leased properties, including our consolidated VIEs. Our construction contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
During 2010, an affiliate of our Ultimate Parent settled a $75 million liability on our behalf in conjunction with a lawsuit settlement by entering into service contracts with the plaintiff. We recorded the portion settled by the affiliate of our Ultimate Parent as a non-cash capital contribution. Additionally, as part of the settlement, we entered into a guarantee with the plaintiff to pay any shortfall that the affiliate of our Ultimate Parent does not fund related to those service contracts up to the value of the settlement amount made by the affiliate of our Ultimate Parent. The remaining potential exposure under this guarantee as of December 31, 2012 was approximately $57 million. We have not accrued a liability for this guarantee as we believe the likelihood of any material funding to be remote. In 2011, we received a payment of $20 million from our insurance carrier in recovery of legal expenses incurred by us as part of the settlement. We recognized these proceeds as a reduction to general, administrative, and other expenses in our consolidated statement of operations for the year ended December 31, 2011.
We are involved in other litigation arising from the normal course of business, some of which includes claims for substantial sums. Although we cannot predict the outcome of litigation with certainty, generally accepted accounting principles require us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made for contingencies where there is at least a reasonable possibility that a loss may have been incurred. We have a thorough process to determine an estimate of the reasonably possible loss or range of loss before we conclude and disclose that an estimate cannot be made. A reasonably possible loss or range of loss associated with any of our material litigation cannot be estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of December 31, 2012 will not have a material effect on our consolidated results of operations, financial position, or cash flows.
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Note 24: Related Party Transactions
Investment in Affiliates
We hold investments in affiliates that own or lease properties that we manage or franchise. We recognized management and franchise fee revenue of $29 million, $32 million, and $26 million for the years ended December 31, 2012, 2011, and 2010, respectively, related to our agreements for these properties. We recognized reimbursements and reimbursable costs for these hotels, primarily related to payroll and marketing expenses, of $172 million, $148 million, and $137 million in other revenue and expense from managed and franchised properties in our consolidated statements of operations for the years ended December 31, 2012, 2011, and 2010, respectively. As of December 31, 2012 and 2011, we had accounts receivable due from these properties related to these management and franchise fees and reimbursements of $21 million and $17 million, respectively. Additionally, in certain cases we incur costs to acquire management contracts with our unconsolidated affiliates or provide loans or guarantees on behalf of these entities. We incurred acquisition costs of $18 million and $1 million for the years ended December 31, 2011 and 2010 related to such contracts. There were no acquisition costs for the year ended December 31, 2012 related to such contracts. As of December 31, 2012 and 2011, we had unamortized acquisition costs of $18 million and $19 million, respectively, recorded in management and franchise contracts, net in our consolidated balance sheets. As of December 31, 2012 and 2011, we had other financing receivables, net related to these properties of $17 million and $20 million, respectively. We recorded interest income on these other financing receivables of $3 million, $3 million, and $2 million for the years ended December 31, 2012, 2011 and 2010, respectively. We generally own between 10% and 50% of these equity method investments. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies, for further discussion.
The Blackstone Group
Affiliates of Blackstone directly and indirectly own hotels that we manage or franchise and receive fees in connection with those management and franchise agreements. We recognized management and franchise fee revenue of $29 million, $23 million, and $16 million for the years ended December 31, 2012, 2011, and 2010, respectively, related to our agreements for these hotels. We recognized reimbursements and reimbursable costs for these hotels, primarily related to payroll and marketing expenses, of $135 million, $101 million, and $93 million in other revenue and expense from managed and franchised properties in our consolidated statements of operations for the years ended December 31, 2012, 2011, and 2010, respectively. As of December 31, 2012 and 2011, we had accounts receivable due from these hotels related to these management and franchise fees and reimbursements of $28 million and $19 million, respectively. Additionally, in certain cases, we incur costs to acquire management and franchise contracts with hotels owned by affiliates of Blackstone. We incurred acquisition costs of $5 million for the year ended December 31, 2011 related to these contracts. There were no acquisition costs for the years ended December 31, 2012 and 2010 related to these contracts. As of December 31, 2012 and 2011, we had unamortized acquisition costs of $6 million recorded in management and franchise contracts, net in our consolidated balance sheets. As of December 31, 2012 and 2011, we had $5 million accrued in accounts payable, accrued expenses, and other in our consolidated balance sheets related to contract acquisition costs for these hotels. Our maximum exposure to loss related to these hotels is limited to the amounts discussed above; therefore, our involvement with these hotels does not expose us to additional variability or risk of loss.
We also purchase products and services from entities affiliated with or owned by Blackstone. The fees paid for these products and services were $26 million, $23 million, and $23 million, during the years ended December 31, 2012, 2011, and 2010, respectively.
Note 25: Supplemental Disclosures of Cash Flow Information
Interest paid during the years ended December 31, 2012, 2011, and 2010, was $486 million, $470 million, and $686 million, respectively.
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Income taxes, net of refunds, paid during the years ended December 31, 2012, 2011, and 2010 were $103 million, $114 million, and $80 million, respectively.
The following non-cash investing and financing activities were excluded from the consolidated statements of cash flows:
| In 2012, we executed a capital lease in conjunction with the acquisition of OHC, for which we recorded a capital lease asset and obligation of $15 million as of December 31, 2012. See Note 3: Acquisitions for further discussion. |
| In 2011, two of our consolidated VIEs restructured their debt resulting in a reduction of our capital lease assets and obligations of $76 million and $73 million, respectively, as of December 31, 2011. See Note 9: Consolidated Variable Interest Entities for further discussion. |
| In 2010, our Parent extinguished on our behalf the two most-junior tranches of our secured mezzanine loans with an aggregate outstanding principal amount of $2.0 billion, as well as the respective outstanding deferred cash interest payments through the date of the Debt Restructuring, totaling $87 million. This resulted in a reduction to our liabilities and an increase to additional paid-in capital of approximately $2.1 billion. See Note 13: Debt for further discussion. |
| Upon our formation, we recognized an equity contribution of $25 million for the transfer of ownership from a former subsidiary of our Ultimate Parent to our Parent. Additionally, in 2010, an affiliate of our Ultimate Parent settled a $75 million liability on our behalf, which we recognized as an equity contribution. |
Note 26: Subsequent Events
The Company has evaluated all subsequent events through September 6, 2013, the date the consolidated financial statements were available to be issued.
Capital Lease Restructuring
In February 2013, Osaka Hilton Co., Ltd., one of our consolidated VIEs, signed a Memorandum of Understanding to restructure the terms of their capital lease. The terms of the restructuring call for a reduction in future rent expense under the lease, as well as a commitment to fund capital improvements to the hotel over the next three years. The effect of the capital lease restructuring resulted in a reduction in property and equipment, net, of $44 million and a reduction in non-recourse debt and capital lease obligations of consolidated variable interest entities of $48 million and was recognized during the first quarter of 2013. In conjunction with the lease restructuring and to fund a portion of the capital improvements, we committed to purchase additional non-voting shares in Osaka Hilton Co., Ltd. Our total share purchase commitment is approximately $15 million, and the purchases are expected to occur through 2015.
Revolving Non-Recourse Timeshare Notes Credit Facility
In May 2013, we entered into a receivables loan agreement that is secured by certain of our timeshare financing receivables. Concurrently, we borrowed $400 million under the agreement, which is secured by $448 million of our timeshare financing receivables. The proceeds from the receivables loan were used to make an unscheduled debt payment of $400 million on our Secured Debt.
Asset-Backed Notes
In August 2013, we issued $250 million in aggregate principal amount of 2.28% notes that are secured by a pledge of certain assets, consisting primarily of a pool of our timeshare financing receivables secured by a first mortgage or first deed of trust on a timeshare interest. Interest on the notes is payable monthly at an annual rate
F-52
of 2.28%. The proceeds from the asset-backed notes were used to reduce the outstanding balance on our revolving non-recourse timeshare notes credit facility we entered into in May 2013.
Repayment of Debt
In 2013, we made unscheduled, contractually obligated debt repayments totaling $27 million. We funded these repayments with proceeds we received from the sale of an owned hotel and proceeds from a debt refinancing and distribution to us by one of our equity investments. Additionally, in 2013, we have made unscheduled, voluntary debt repayments totaling $900 million on our secured mezzanine loans, which includes the $400 million repayment with proceeds from our revolving timeshare notes credit facility discussed above.
F-53
Hilton Worldwide Holdings Inc.
Condensed Consolidated Balance Sheets
(in millions, except share data)
June 30,
2013 |
December 31,
2012 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 661 | $ | 755 | ||||
Restricted cash and cash equivalents |
625 | 550 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $34 and $39 |
830 | 719 | ||||||
Inventories |
395 | 415 | ||||||
Deferred income tax assets |
75 | 76 | ||||||
Current portion of financing receivables, net |
116 | 119 | ||||||
Prepaid expenses |
139 | 153 | ||||||
Other |
49 | 40 | ||||||
|
|
|
|
|||||
Total current assets (variable interest entities - $44 and $49) |
2,890 | 2,827 | ||||||
|
|
|
|
|||||
Property, Investments, and Other Assets: |
||||||||
Property and equipment, net |
9,084 | 9,197 | ||||||
Financing receivables, net |
817 | 815 | ||||||
Investments in affiliates |
274 | 291 | ||||||
Goodwill |
6,172 | 6,197 | ||||||
Brands |
4,993 | 5,029 | ||||||
Management and franchise contracts, net |
1,505 | 1,600 | ||||||
Other intangible assets, net |
710 | 744 | ||||||
Deferred income tax assets |
103 | 104 | ||||||
Other |
237 | 262 | ||||||
|
|
|
|
|||||
Total property, investments, and other assets (variable interest entities - $112 and $168) |
23,895 | 24,239 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 26,785 | $ | 27,066 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable, accrued expenses, and other |
$ | 1,914 | $ | 1,922 | ||||
Current maturities of long-term debt |
388 | 392 | ||||||
Current maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities |
13 | 15 | ||||||
Income taxes payable |
72 | 20 | ||||||
|
|
|
|
|||||
Total current liabilities (variable interest entities - $45 and $51) |
2,387 | 2,349 | ||||||
Long-term debt |
14,280 | 15,183 | ||||||
Revolving non-recourse timeshare notes credit facility |
400 | | ||||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities |
306 | 405 | ||||||
Deferred income tax liabilities |
5,132 | 4,948 | ||||||
Liability for guest loyalty program |
529 | 503 | ||||||
Other |
1,573 | 1,523 | ||||||
|
|
|
|
|||||
Total liabilities (variable interest entities - $379 and $485) |
24,607 | 24,911 | ||||||
Commitments and contingencies - see Note 16 |
||||||||
Equity: |
||||||||
Common stock, $0.01 par value, June 30, 2013 and December 31, 2012 - 1,000 shares authorized; 100 issued and outstanding |
1 | 1 | ||||||
Additional paid-in capital |
8,452 | 8,452 | ||||||
Accumulated deficit |
(5,557) | (5,746) | ||||||
Accumulated other comprehensive loss |
(591) | (406) | ||||||
|
|
|
|
|||||
Total Hilton stockholders equity |
2,305 | 2,301 | ||||||
Noncontrolling interests |
(127) | (146) | ||||||
|
|
|
|
|||||
Total equity |
2,178 | 2,155 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND EQUITY |
$ | 26,785 | $ | 27,066 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
F-54
Hilton Worldwide Holdings Inc.
Condensed Consolidated Statements of Operations
(unaudited, in millions)
Six Months Ended
June 30, |
||||||||
2013 | 2012 | |||||||
Revenues |
||||||||
Owned and leased hotels |
$ | 1,984 | $ | 1,925 | ||||
Management and franchise fees and other |
561 | 521 | ||||||
Timeshare |
507 | 515 | ||||||
|
|
|
|
|||||
3,052 | 2,961 | |||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | ||||||
|
|
|
|
|||||
Total revenues |
4,643 | 4,521 | ||||||
Expenses |
||||||||
Owned and leased hotels |
1,547 | 1,595 | ||||||
Timeshare |
351 | 363 | ||||||
Depreciation and amortization |
309 | 259 | ||||||
Impairment losses |
| 16 | ||||||
General, administrative, and other |
189 | 236 | ||||||
|
|
|
|
|||||
2,396 | 2,469 | |||||||
Other expenses from managed and franchised properties |
1,591 | 1,560 | ||||||
|
|
|
|
|||||
Total expenses |
3,987 | 4,029 | ||||||
Operating income |
656 | 492 | ||||||
Interest income |
3 | 9 | ||||||
Interest expense |
(274) | (281) | ||||||
Equity in earnings (losses) from unconsolidated affiliates |
8 | (2) | ||||||
Gain (loss) on foreign currency transactions |
(82) | 1 | ||||||
Other gain, net |
6 | 9 | ||||||
|
|
|
|
|||||
Income before income taxes |
317 | 228 | ||||||
Income tax expense |
(122) | (112) | ||||||
|
|
|
|
|||||
Net income |
195 | 116 | ||||||
Net income attributable to noncontrolling interests |
(6) | (2) | ||||||
|
|
|
|
|||||
Net income attributable to Hilton stockholder |
$ | 189 | $ | 114 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
F-55
Hilton Worldwide Holdings Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in millions)
Six Months Ended
June 30, |
||||||||
2013 | 2012 | |||||||
Net income |
$ | 195 | $ | 116 | ||||
Other comprehensive income (loss), net of tax benefit (expense): |
||||||||
Currency translation adjustment, net of tax of $(155) and $4 |
(180) | (5) | ||||||
Pension liability adjustment, net of tax of $(7) and $8 |
12 | (15) | ||||||
Net investment hedge adjustment, net of tax of $0 and $ |
(1) | | ||||||
|
|
|
|
|||||
Total other comprehensive loss |
(169) | (20) | ||||||
|
|
|
|
|||||
Comprehensive income |
26 | 96 | ||||||
Comprehensive income attributable to noncontrolling interests |
(22) | (7) | ||||||
|
|
|
|
|||||
Comprehensive income attributable to Hilton stockholder |
$ | 4 | $ | 89 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
F-56
Hilton Worldwide Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)
Six Months Ended
June 30, |
||||||||
2013 | 2012 | |||||||
Operating Activities: |
||||||||
Net income |
$ | 195 | $ | 116 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Impairment losses |
| 16 | ||||||
Depreciation and amortization |
309 | 259 | ||||||
Equity in losses (earnings) from unconsolidated affiliates |
(8) | 2 | ||||||
Loss (gain) on foreign currency transactions |
82 | (1) | ||||||
Other gain, net |
(6) | (9) | ||||||
Share-based compensation |
3 | 17 | ||||||
Distributions from unconsolidated affiliates |
10 | 20 | ||||||
Deferred income taxes |
25 | 34 | ||||||
Change in restricted cash and cash equivalents |
(46) | (68) | ||||||
Working capital changes and other |
74 | 42 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
638 | 428 | ||||||
|
|
|
|
|||||
Investing Activities: |
||||||||
Capital expenditures |
(121) | (243) | ||||||
Acquisitions |
(30) | | ||||||
Payments received on other financing receivables |
1 | 4 | ||||||
Issuance of other financing receivables |
(7) | (1) | ||||||
Investments in affiliates |
(3) | (2) | ||||||
Distributions from unconsolidated affiliates |
13 | | ||||||
Proceeds from asset dispositions |
| 8 | ||||||
Contract acquisition costs |
(10) | (11) | ||||||
Software capitalization costs |
(26) | (51) | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(183) | (296) | ||||||
|
|
|
|
|||||
Financing Activities: |
||||||||
Borrowings |
451 | 36 | ||||||
Repayment of debt |
(952) | (217) | ||||||
Change in restricted cash and cash equivalents |
(30) | 10 | ||||||
Distributions to noncontrolling interests |
(3) | (2) | ||||||
|
|
|
|
|||||
Net cash used in financing activities |
(534) | (173) | ||||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
(15) | (1) | ||||||
Net decrease in cash and cash equivalents |
(94) | (42) | ||||||
Cash and cash equivalents, beginning of period |
755 | 781 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 661 | $ | 739 | ||||
|
|
|
|
|||||
Supplemental Disclosures: |
||||||||
Cash paid during the year: |
||||||||
Interest |
$ | 288 | $ | 241 | ||||
Income taxes, net of refunds |
$ | 40 | $ | 49 |
See notes to condensed consolidated financial statements.
F-57
Hilton Worldwide Holdings Inc.
Condensed Consolidated Statements of Equity
(unaudited, in millions)
Equity Attributable to Hilton Stockholder |
Noncontrolling
Interests |
Total | ||||||||||||||||||||||
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive Loss |
|||||||||||||||||||||
Balance as of December 31, 2011 |
$ | 1 | $ | 8,454 | $ | (6,098) | $ | (489) | $ | (166) | $ | 1,702 | ||||||||||||
Net income |
| | 114 | | 2 | 116 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||
Currency translation adjustment |
| | | (10) | 5 | (5) | ||||||||||||||||||
Pension liability adjustment |
| | | (15) | | (15) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income (loss) |
| | | (25) | 5 | (20) | ||||||||||||||||||
Distributions |
| | | | (2) | (2) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of June 30, 2012 |
$ | 1 | $ | 8,454 | $ | (5,984) | $ | (514) | $ | (161) | $ | 1,796 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Hilton Stockholder |
Noncontrolling
Interests |
Total | ||||||||||||||||||||||
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive Loss |
|||||||||||||||||||||
Balance as of December 31, 2012 |
$ | 1 | $ | 8,452 | $ | (5,746) | $ | (406) | $ | (146) | $ | 2,155 | ||||||||||||
Net income |
| | 189 | | 6 | 195 | ||||||||||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||||||||||
Currency translation adjustment |
| | | (196) | 16 | (180) | ||||||||||||||||||
Pension liability adjustment |
| | | 12 | | 12 | ||||||||||||||||||
Net investment hedge adjustment |
| | | (1) | | (1) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income (loss) |
| | | (185) | 16 | (169) | ||||||||||||||||||
Distributions |
| | | | (3) | (3) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance as of June 30, 2013 |
$ | 1 | $ | 8,452 | $ | (5,557) | $ | (591) | $ | (127) | $ | 2,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-58
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Organization and Basis of Presentation
Organization
Hilton Worldwide Holdings Inc. (Hilton together with its subsidiaries, we, us, our, or the Company) was formed on March 18, 2010 to hold, directly or indirectly, all of the equity of Hilton Worldwide, Inc. (HWI). Hilton is incorporated in the state of Delaware and has no operations other than its ownership of HWI. The accompanying financial statements present the consolidated financial position of Hilton, which includes consolidation of HWI.
Hilton is one of the largest hospitality companies in the world based upon the number of hotel rooms and timeshare units under our ten distinct brands. We are engaged in owning, leasing, managing, developing, and franchising hotels, resorts, and timeshare properties. As of June 30, 2013, we owned, leased, managed, or franchised 4,000 hotel and resort properties, totaling 659,263 rooms in 90 countries and territories, as well as 41 timeshare properties comprised of 6,404 units.
On October 24, 2007, HWI became a wholly owned subsidiary of BH Hotels Holdco, LLC (BH Hotels or our Ultimate Parent), an affiliate of The Blackstone Group (Blackstone), following the completion of a merger (the Merger). BH Hotels and its subsidiaries subsequently formed Hilton Global Holdings LLC, (HGH or our Parent), which has directly owned 100 percent of our stock since our formation.
Basis of Presentation and Use of Estimates
The condensed consolidated financial statements for the six months ended June 30, 2013 and 2012 have been prepared in accordance with United States of America (U.S.) generally accepted accounting principles (GAAP) and are unaudited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2012, 2011, and 2010.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.
All material intercompany transactions have been eliminated in consolidation. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.
Note 2: Recently Issued Accounting Pronouncements
Adopted Accounting Standards
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-02 (ASU 2012-02), Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This ASU was effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years
F-59
beginning after September 14, 2012. We adopted ASU 2012-02 prospectively as of January 1, 2013; however, our annual indefinite-lived intangible impairment tests will not be performed until the fourth quarter of 2013, at which time the provisions of the ASU will be applied. We do not expect the application of ASU 2012-02 to have a material impact on our consolidated financial statements.
In February 2013, the FASB issued ASU No. 2013-02 (ASU 2013-02), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU amends existing guidance by requiring companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income in the same reporting period. For amounts which are not required to be reclassified in their entirety to net income in the same reporting period, companies will be required to cross reference other disclosures that provide information about those amounts. We adopted ASU 2013-02 prospectively as of January 1, 2013, and our adoption did not have a material impact on our condensed consolidated financial statements. See Note 14: Accumulated Other Comprehensive Loss for the required disclosures.
Accounting Standards Not Yet Adopted
In July 2013, the FASB issued ASU No. 2013-11 (ASU 2013-11), Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists in the applicable jurisdiction to settle any additional income taxes that would result from disallowance of the tax position. We plan to adopt ASU 2013-11 prospectively as of January 1, 2014 and we are currently evaluating the impact, if any, that this ASU will have on our consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05 (ASU 2013-05), Foreign Currency Matters (Topic 830): Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The ASU clarifies when a cumulative translation adjustment should be released to net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate) within a foreign entity. We plan to adopt ASU 2013-05 prospectively as of January 1, 2014 and we are currently evaluating the impact, if any, that this ASU will have on our consolidated financial statements.
Note 3: Inventories
Inventories were as follows:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Timeshare |
$ | 368 | $ | 389 | ||||
Hotel |
27 | 26 | ||||||
|
|
|
|
|||||
$ | 395 | $ | 415 | |||||
|
|
|
|
F-60
Note 4: Property and Equipment
Property and equipment were as follows:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Land |
$ | 4,119 | $ | 4,090 | ||||
Buildings and leasehold improvements |
5,384 | 5,450 | ||||||
Furniture and equipment |
1,117 | 1,111 | ||||||
Construction-in-progress |
103 | 88 | ||||||
|
|
|
|
|||||
10,723 | 10,739 | |||||||
Accumulated depreciation and amortization |
(1,639) | (1,542) | ||||||
|
|
|
|
|||||
$ | 9,084 | $ | 9,197 | |||||
|
|
|
|
Depreciation and amortization expense on property and equipment, including amortization of assets recorded under capital leases, was $166 million and $140 million during the six months ended June 30, 2013 and 2012, respectively.
As of June 30, 2013 and December 31, 2012, property and equipment included approximately $103 million and $157 million, respectively, of capital lease assets primarily consisting of buildings and leasehold improvements, net of $44 million and $71 million, respectively, of accumulated depreciation and amortization.
We did not record any impairment losses on property and equipment during the six months ended June 30, 2013. We recorded impairment losses on property and equipment of $16 million during the six months ended June 30, 2012.
During the six months ended June 30, 2013, we acquired a parcel of land for $28 million, which we previously leased under a long-term ground lease.
Note 5: Financing Receivables
Financing receivables were as follows:
June 30, 2013 | December 31, 2012 | |||||||||||||||||||||||
Timeshare | Other | Total | Timeshare | Other | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Financing receivables |
$ | 851 | $ | 50 | $ | 901 | $ | 853 | $ | 44 | $ | 897 | ||||||||||||
Less: allowance |
(83) | (1) | (84) | (81) | (1) | (82) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
768 | 49 | 817 | 772 | 43 | 815 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Current portion of financing receivables |
128 | | 128 | 131 | | 131 | ||||||||||||||||||
Less: allowance |
(12) | | (12) | (12) | | (12) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
116 | | 116 | 119 | | 119 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total financing receivables |
$ | 884 | $ | 49 | $ | 933 | $ | 891 | $ | 43 | $ | 934 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-61
Timeshare notes receivable
As of June 30, 2013, we had 49,261 timeshare notes outstanding with interest rates ranging from zero percent to 20.50 percent, an average interest rate of 12.24 percent, a weighted average remaining term of 7.4 years, and maturities through 2025. As of June 30, 2013 and December 31, 2012, we had ceased accruing interest on timeshare notes with aggregate principal balances of $34 million and $30 million, respectively. The changes in our allowance for uncollectible timeshare notes were as follows:
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Beginning balance |
$ | 93 | $ | 97 | ||||
Write-offs |
(11) | (20) | ||||||
Provision for uncollectibles on sales |
13 | 16 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 95 | $ | 93 | ||||
|
|
|
|
Our timeshare notes receivable as of June 30, 2013 mature as follows:
Year | (in millions) | |||
2013 (remaining) |
$ | 73 | ||
2014 |
113 | |||
2015 |
114 | |||
2016 |
117 | |||
2017 |
119 | |||
Thereafter |
443 | |||
|
|
|||
979 | ||||
Less: allowance |
(95) | |||
|
|
|||
$ | 884 | |||
|
|
The following table details an aged analysis of our gross timeshare notes receivable balance:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Current |
$ | 936 | $ | 940 | ||||
30 - 89 days past due |
10 | 14 | ||||||
90 - 119 days past due |
2 | 4 | ||||||
120 days and greater past due |
31 | 26 | ||||||
|
|
|
|
|||||
$ | 979 | $ | 984 | |||||
|
|
|
|
In May 2013, we entered into a revolving non-recourse timeshare notes credit facility that is secured by certain of our timeshare notes receivable. As of June 30, 2013, we had borrowed $400 million under the agreement secured by $439 million of timeshare notes receivable. See Note 8: Debt for additional details.
F-62
Note 6: Investments in Affiliates
Investments in affiliates were as follows:
June 30, 2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Equity investments |
$ | 258 | $ | 276 | ||||
Other investments |
16 | 15 | ||||||
|
|
|
|
|||||
$ | 274 | $ | 291 | |||||
|
|
|
|
We maintain investments in affiliates accounted for under the equity method, which are primarily investments in entities that owned or leased 32 hotels as of June 30, 2013 and December 31, 2012.
The equity investments had total debt of approximately $1.1 billion as of June 30, 2013 and December 31, 2012. Substantially all of the debt is secured solely by the affiliates assets or is guaranteed by other partners without recourse to us. We were the creditor on $20 million of total debt from unconsolidated affiliates as of June 30, 2013 and December 31, 2012, which was included in financing receivables, net in our condensed consolidated balance sheets.
There were no impairment losses on our investments in affiliates during the six months ended June 30, 2013. We recorded impairment losses of $4 million on two of our equity investments during the six months ended June 30, 2012, which were included in equity in losses from unconsolidated affiliates in our condensed consolidated statement of operations.
Note 7: Consolidated Variable Interest Entities
As of June 30, 2013 and December 31, 2012, we consolidated three variable interest entities (VIEs).
Two out of three of these VIEs lease hotels from unconsolidated affiliates in Japan. We hold a significant ownership interest in these VIEs and have the power to direct the activities that most significantly impact their economic performance. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily comprised $26 million and $29 million of cash and cash equivalents, $18 million and $66 million of property and equipment, net, and $307 million and $408 million of debt and capital lease obligations as of June 30, 2013 and December 31, 2012, respectively. The debt and capital lease obligations are non-recourse to us and were reflected as non-recourse debt and capital lease obligations of consolidated variable interest entities in our condensed consolidated balance sheets. The assets of these entities are only available to settle the obligations of these entities. Interest expense related to the non-recourse debt and capital lease obligations of these two consolidated VIEs was $15 million and $16 million during the six months ended June 30, 2013 and 2012, respectively and was included in interest expense in our condensed consolidated statements of operations.
In February 2013, Osaka Hilton Co., Ltd., one of our consolidated VIEs in Japan, signed a Memorandum of Understanding to restructure the terms of their capital lease. The terms of the restructuring call for a reduction in future rent expense under the lease, as well as a commitment to fund capital improvements to the hotel over the next three years. The effect of the capital lease restructuring was recognized during the six months ended June 30, 2013, resulting in a reduction in property and equipment, net, of $44 million and a reduction in non-recourse debt and capital lease obligations of consolidated variable interest entities of $48 million. This transaction was considered a non-cash investing and financing activity and was excluded from our condensed consolidated statement of cash flows.
The remaining VIE owns one hotel that was immaterial to our condensed consolidated financial statements.
F-63
During the six months ended June 30, 2013 and 2012, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.
Note 8: Debt
Debt balances, including obligations for capital leases, and associated interest rates were as follows:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Senior mortgage loans with a rate of 2.49%, due 2015 (1) |
$ | 7,094 | $ | 7,271 | ||||
Secured mezzanine loans with an average rate of 4.10%, due 2015 (1) |
6,993 | 7,697 | ||||||
Secured mezzanine loans with a rate of 4.69%, due 2015 (1) |
216 | 240 | ||||||
Mortgage notes with an average rate of 6.12%, due 2013 to 2016 |
135 | 134 | ||||||
Other unsecured notes with an average rate of 7.82%, due 2017 to 2031 |
149 | 149 | ||||||
Capital lease obligations with an average rate of 5.79%, due 2015 to 2097 |
80 | 83 | ||||||
Contingently convertible notes with a rate of 3.38%, due 2023 |
1 | 1 | ||||||
|
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|
|
|||||
Total long-term debt, including current maturities |
14,668 | 15,575 | ||||||
Less: current maturities of long-term debt |
(388) | (392) | ||||||
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|
|
|||||
Total long-term debt |
14,280 | 15,183 | ||||||
Revolving non-recourse timeshare notes credit facility with a rate of 1.44%, due 2016 |
400 | | ||||||
|
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|
|||||
Total long-term debt and revolving non-recourse timeshare notes credit facility |
$ | 14,680 | $ | 15,183 | ||||
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(1) | Initial due date was November 12, 2010, with up to five additional one-year extensions at our option. We have extended the scheduled maturity date to November 12, 2013 by exercising our first, second, and third extension options. The fourth and fifth extension options are at our sole discretion, and require an extension fee equal to 50 basis points of the then outstanding principal balance. Combined, the extensions effectively extend the maturity of our senior mortgage and senior mezzanine debt to November 12, 2015. |
Secured Debt
Our senior mortgage loans and secured mezzanine loans (collectively, the Secured Debt) totaled $14.3 billion and $15.2 billion as of June 30, 2013 and December 31, 2012, respectively. Interest under the Secured Debt is payable monthly and includes both variable and fixed components. The Secured Debt is secured by substantially all of our consolidated assets in which we hold an ownership interest and contains significant restrictions on the incurrence of any additional indebtedness by us, including the prohibition of any additional indebtedness for borrowed money evidenced by bonds, debentures, notes, or other similar instruments. Additionally, under the terms of our Secured Debt, we are restricted from declaring dividends.
We are required to deposit with the lender certain cash reserves that may, upon our request, be used for, among other things, debt service, capital expenditures, and general corporate purposes. These reserves, totaling $147 million as of June 30, 2013 and December 31, 2012, were included in restricted cash and cash equivalents in our condensed consolidated balance sheets as a current asset because we have the ability to access the cash within the 12 months following the dates of the condensed consolidated balance sheets, subject to necessary lender notification.
As a condition to permitting certain events under the Secured Debt, such as a release of certain assets as collateral for the loan or change of control of the Company, we must satisfy certain debt yield tests. We were able to satisfy all of the debt yield tests as of our most recent testing date.
F-64
During the six months ended June 30, 2013 and 2012, we made scheduled debt repayments on our Secured Debt of $164 million and $154 million, respectively. In addition, during the six months ended June 30, 2013, we made unscheduled, contractually obligated debt repayments of $13 million due to a distribution from an equity method investment as a result of a debt refinancing that occurred during the period and of $14 million from the proceeds of the disposal of one of our owned hotel properties during the period. Further, during the six months ended June 30, 2013, we made unscheduled, voluntary debt repayments of $700 million on our secured mezzanine loans. We did not make any unscheduled debt repayments on our Secured Debt during the six months ended June 30, 2012. Additionally, in August 2013, we made an unscheduled, voluntary debt repayment of $200 million on our secured mezzanine loans.
Revolving Non-Recourse Timeshare Notes Credit Facility
In May 2013, we entered into a receivables loan agreement that is secured by certain of our timeshare notes receivable. See Note 5: Financing Receivables. Currently, under the terms of the loan agreement we may borrow up to a maximum amount of approximately $400 million based on the amount and credit quality characteristics of the timeshare notes receivable securing the loan. The loan agreement allows for us to borrow up to the maximum amount until May 2015 and all amounts borrowed must be repaid by May 2016. Interest on the loan, at a variable rate, is payable monthly.
We are required to deposit payments received from customers on the pledged timeshare notes receivable into a depository account maintained by a third party. On a monthly basis, the depository account will first be utilized to make required interest and other payments due under the receivables loan agreement. After payment of all amounts due under the receivables loan agreement, any remaining amounts will be remitted to the Company for use in our operations.
Non-Recourse Debt and Capital Lease Obligations of Consolidated Variable Interest Entities
In addition to our long-term debt, our condensed consolidated balance sheets included the debt and capital lease obligations related to our consolidated VIEs that are non-recourse to us as follows:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Capital lease obligations with a rate of 6.34%, due 2018 to 2026 |
$ | 274 | $ | 373 | ||||
Non-recourse debt |
45 | 47 | ||||||
|
|
|
|
|||||
319 | 420 | |||||||
Less: current maturities of non-recourse debt and capital lease obligations of consolidated variable interest entities |
(13) | (15) | ||||||
|
|
|
|
|||||
Non-recourse debt and capital lease obligations of consolidated variable interest entities |
$ | 306 | $ | 405 | ||||
|
|
|
|
F-65
Debt Maturities
The contractual debt maturities as of June 30, 2013, including maturities of the revolving non-recourse timeshare notes credit facility and non-recourse debt and capital lease obligations of consolidated variable interest entities, were as follows:
Year | (in millions) | |||
2013 (remaining) |
$ | 213 | ||
2014 |
384 | |||
2015 (1) |
13,809 | |||
2016 |
516 | |||
2017 |
68 | |||
Thereafter |
397 | |||
|
|
|||
$ | 15,387 | |||
|
|
(1) | The Secured Debt has five one-year extensions solely at our option that effectively extend maturity to November 12, 2015. We have assumed all extensions for purposes of calculating maturity dates. |
Note 9: Derivative Instruments and Hedging Activities
Under the terms of our Secured Debt, we are required to hedge interest rate risk using derivative instruments with an aggregate notional amount equal to the principal amount of the Secured Debt. As such, during the six months ended June 30, 2013 and 2012, derivatives were used to hedge the variable cash flows associated with this existing variable rate debt.
As of June 30, 2013, we held ten interest rate caps with an aggregate notional amount of $15.2 billion. The caps were executed in August 2012 to replace the previous portfolio of interest rate caps that expired in November 2012. These interest rate caps expire in November 2013. We have elected not to designate any of these ten interest rate caps as effective hedging instruments. No gain or loss related to these ten undesignated interest rate caps was recorded during the six months ended June 30, 2013.
As of June 30, 2012, we held ten interest rate caps with an aggregate notional amount of $15.9 billion. The caps were executed in October 2011 and expired in November 2012. We elected not to designate any of these ten interest rate caps as effective hedges for accounting purposes. No gain or loss related to these ten undesignated interest rate caps was recorded during the six months ended June 30, 2012.
The fair value of our interest rate caps was immaterial to our condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012.
F-66
Note 10: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities, which included related current portions, were as follows:
June 30, 2013 | December 31, 2012 | |||||||||||||||
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|||||||||||||
(in millions) | ||||||||||||||||
Cash equivalents (1) |
$ | 447 | $ | 447 | $ | 561 | $ | 561 | ||||||||
Restricted cash equivalents (1) |
323 | 323 | 322 | 322 | ||||||||||||
Timeshare notes receivable (2) |
979 | 983 | 984 | 987 | ||||||||||||
Other long-term debt (2)(3) |
285 | 297 | 284 | 297 | ||||||||||||
Secured Debt (2)(4) |
14,303 | 15,003 | 15,208 | 15,571 | ||||||||||||
Revolving non-recourse timeshare notes credit facility (1) |
400 | 400 | | |
(1) | Classified as Level 2 under the fair value hierarchy. |
(2) | Classified as Level 3 under the fair value hierarchy. |
(3) | Excludes capital lease obligations with a carrying value of $80 million and $83 million as of June 30, 2013 and December 31, 2012, respectively. |
(4) | We assumed the exercise of all extensions on the Secured Debt for the purposes of calculating fair value. |
We believe the carrying amounts of our current financial assets and liabilities and other notes receivable approximated fair value as of June 30, 2013 and December 31, 2012. The carrying amount of debt outstanding pursuant to the revolving non-recourse timeshare notes credit facility approximated fair value as the interest rate under the loan agreement approximated current market rates. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair value. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. Third-party information received for calculating Level 3 fair value measurements is reviewed to ensure it is in accordance with U.S. GAAP. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
Cash equivalents and restricted cash equivalents are primarily comprised of short-term interest-bearing money market funds with maturities of less than 90 days, time deposits and commercial paper. The estimated fair values were based on available market pricing information of similar financial instruments.
The estimated fair values of timeshare notes receivable and other long-term debt were calculated based on the expected future cash flows discounted at risk-adjusted rates. The primary sensitivity in these calculations is based on the selection of appropriate discount rates. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the discount rate would result in a decrease in the fair value.
The estimated fair value of our Secured Debt was based on estimates of market spreads when quoted market values did not exist, on the current rates offered to us for debt of the same maturities, or quoted market prices for the same or similar issues. In determining the current market rate for the fixed rate debt, a market spread was added to the quoted yields on federal government treasury securities with similar maturity dates. The primary sensitivity in these calculations is based on the selection of appropriate market spreads. Fluctuations in these assumptions will result in different estimates of fair value. An increase in the market spread would result in a decrease in the fair value.
F-67
There were no assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2013. The estimated fair values of our financial and nonfinancial assets that were measured at fair value on a nonrecurring basis as a result of impairment losses during the six months ended June 30, 2012 were as follows:
Six Months Ended
June 30, 2012 |
||||||||
Fair Value (1) |
Impairment
Losses |
|||||||
(in millions) | ||||||||
Property and equipment, net |
$ | | $ | 16 | ||||
Investments in affiliates |
27 | 4 |
(1) | Fair value measurements using significant unobservable inputs (Level 3). |
During the six months ended June 30, 2012, property and equipment, net with a carrying value of $16 million before impairment was reduced to its estimated fair value, resulting in impairment losses of $16 million. Using estimates of undiscounted net cash flows, we concluded that the carrying value of the assets were not fully recoverable. We estimated the fair value of the assets using discounted cash flow analyses, with estimated stabilized growth rates ranging from 2.0 percent to 3.0 percent, a discounted cash flow term ranging from 10 years to 13 years, capitalization rates ranging from 8.0 percent to 9.0 percent, and discount rates ranging from 10.0 percent to 11.5 percent. The discount and capitalization rates used for the fair value of the assets reflect the risk profile of the individual markets where the assets are located, and are not necessarily indicative of our hotel portfolio as a whole.
During the six months ended June 30, 2012, investments in affiliates with a carrying value of $31 million before impairment were reduced to their estimated fair value, resulting in impairment losses of $4 million, related to our investments in entities that own hotels. We estimated the fair value of the investments using discounted cash flow analyses, with estimated stabilized growth rates ranging from 4.4 percent to 7.5 percent, a discounted cash flow term of 10 years, capitalization rates ranging from 8.0 percent to 10.5 percent, and discount rates ranging from 12.0 percent to 22.0 percent. The discount and capitalization rates used for the fair value of our investments reflect the risk profile of the individual markets where the assets subject to our investment are located, and are not necessarily indicative of our investment portfolio as a whole.
Note 11: Income Taxes
At the end of each interim period, we estimate the effective tax rate expected to be applied for the full fiscal year. The effective income tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, foreign, state, and local income taxes and reflects income tax expense or benefit resulting from our significant operations outside of the U.S., which are generally subject to both local country and U.S. tax due to the terms of our debt agreements. Our effective tax rate during the six months ended June 30, 2013 was 39 percent compared to 49 percent for the six months ended June 30, 2012. The higher effective tax rate, as compared to our statutory tax rate, for the six months ended June 30, 2012 was largely affected by increases in unrecognized tax benefits.
Our total unrecognized tax benefits as of June 30, 2013 and December 31, 2012 were $469 million. As a result of the expected resolution of examination issues with federal, state, and foreign tax authorities, we believe it is reasonably possible that during the next 12 months the amount of unrecognized tax benefits will decrease up to $50 million. Included in the balance of unrecognized tax benefits as of June 30, 2013 and December 31, 2012 were $375 million and $374 million, respectively, associated with positions that, if favorably resolved, would provide a benefit to our effective tax rate.
We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. We have accrued balances of approximately $46 million and $42 million for the payment of interest and penalties as of June 30, 2013 and December 31, 2012, respectively.
F-68
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the Internal Revenue Service (IRS) on open tax positions. It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals, or litigation in state, local, federal, and foreign tax jurisdictions or from the resolution of various proceedings between the U.S. and foreign tax authorities. During 2009, the IRS commenced its audit of our consolidated U.S. income tax returns for the 2006 through October 2007 tax years. As of June 30, 2013, we remain subject to federal examinations from 2005-2011, state examinations from 1999-2011, and foreign examinations of our income tax returns for the years 1996 through 2011.
State income tax returns are generally subject to examination for a period of three to five years after their respective filings; however, the state impact of any federal tax return changes remains subject to examination by various states for a period generally of up to one year after formal notification to the states. The statute of limitations for the foreign jurisdictions generally ranges from three to ten years after their respective filings.
Note 12: Employee Benefit Plans
We sponsor multiple domestic and international employee benefit plans. Benefits are based upon years of service and compensation.
We have a noncontributory retirement plan in the U.S. (the Domestic Plan), which covers certain employees not earning union benefits. This plan was frozen for participant benefit accruals in 1996. We also have multiple employee benefit plans that cover many of our international employees. These include a plan that covers workers in the United Kingdom (the U.K. Plan) and a number of smaller plans that cover workers in various other countries around the world (the International Plans).
The components of net periodic pension cost (credit) for the Domestic Plan, U.K. Plan, and International Plans were as follows:
Six Months Ended June 30, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Domestic
Plan |
U.K.
Plan |
International
Plans |
Domestic
Plan |
U.K.
Plan |
International
Plans |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Service cost |
$ | 2 | $ | 2 | $ | 1 | $ | | $ | 2 | $ | 2 | ||||||||||||
Interest cost |
9 | 8 | 2 | 11 | 8 | 2 | ||||||||||||||||||
Expected return on plan assets |
(10) | (11) | (2) | (9) | (10) | (2) | ||||||||||||||||||
Amortization of prior service cost (credit) |
2 | (1) | | 2 | (14) | | ||||||||||||||||||
Amortization of net loss |
2 | 2 | 1 | 3 | 1 | | ||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||
Net periodic pension cost (credit) |
5 | | 2 | 7 | (13) | 2 | ||||||||||||||||||
Settlement losses |
| | 1 | | | | ||||||||||||||||||
|
|
|
|
|
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|
|
|
|
|
|
|||||||||||||
Net pension cost (credit) |
$ | 5 | $ | | $ | 3 | $ | 7 | $ | (13) | $ | 2 | ||||||||||||
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In March 2012, we, along with the trustees of the U.K. Plan, adopted an agreement to freeze the defined benefit plan for enrollment to new employees effective immediately and to freeze the accrual of benefits to existing employees on November 30, 2013. A defined contribution plan will be put in place for the affected employees. We recognized an acceleration of prior service credit of $13 million during the six months ended June 30, 2012.
In May 2011, we, along with the trustees of the U.K. Plan, reached a tentative agreement on the funded status and security for the U.K. Plan. This agreement extended our British Pound Sterling (GBP) 15 million guarantee (equivalent to $23 million as of June 30, 2013) to December 2013.
F-69
A class action lawsuit was filed in 1998 against Hilton and the Domestic Plan claiming that the Domestic Plan did not calculate benefit obligations in accordance with the terms of the plan nor were vesting rules followed in accordance with the plan. In May 2009, the U.S. District Court for the District of Columbia (the District Court) found in favor of the plaintiff in a summary judgment, and this judgment was upheld by the U.S. Court of Appeals in December 2012. Based on the final order, we believe the best estimate of the minimum additional pension obligation to be approximately $109 million, which was included in the projected benefit obligation and accrued in other long-term liabilities as of June 30, 2013 and December 31, 2012 in our condensed consolidated balance sheets. The estimated additional obligation will be recognized as additional pension expense over the average remaining life expectancy of the plan participants as determined by our actuaries, with the remainder of the obligation having been recognized in accumulated other comprehensive loss as an adjustment of the pension liability.
We were ordered by the District Court to post a bond of $76 million under the litigation to support potential future plan contributions. The bond, which is included in restricted cash and cash equivalents, will be released when the future contributions are made. The Company is currently undertaking a process to clarify certain matters with the District Court to permit the adoption of an amended plan, considering the requirements of the ruling in the final order. As the matters are clarified and a new plan is adopted, the Company will be required to make contributions to allow for the adoption of the amendments. These contribution amounts are estimated to increase 2013 contributions by approximately $39 million. The value of the bond may be applied toward the required contributions as necessary.
Note 13: Share-Based Compensation
Certain members of our senior management team participate in an executive compensation plan (the Promote plan), which provides for the grant of Tier I liability awards, or an alternative cash payment in lieu thereof and Tier II equity awards. The Tier I liability awards provide the participants the right to share in 2.75 percent of the equity value of Hilton up to $8.352 billion (or $230 million) based on the achievement of certain service and performance conditions. The majority of these payments are to be made in three installments for most plan participants. The Tier II equity awards allow participants to share in Hiltons equity growth above $8.352 billion and are also subject to service and performance conditions.
During the six months ended June 30, 2012, the first of the installment payments for certain Tier I liability awards was accelerated for certain participants, which resulted in $9 million of additional share-based compensation expense. The amount of the payment was approximately $25 million. We made payments to certain participants in the Promote plan of approximately $9 million during the six months ended June 30, 2013; approximately $7 million of those payments were the second installment payment for certain Tier I liability awards.
We recorded compensation expense related to share-based compensation plans of $3 million and $17 million for the six months ended June 30, 2013 and 2012, respectively. No expense was recognized for the portion of the awards that are subject to the achievement of a performance condition in the form of a liquidity event, since such an event was not probable as of June 30, 2013.
As of June 30, 2013, the liability for the Promote plan and cash retention award was recorded at an estimated fair value of $12 million and included in accounts payable, accrued expenses, and other in our condensed consolidated balance sheet as we expect to pay all amounts accrued no later than March 2014. As of December 31, 2012, the Promote plan and cash retention award liability was recorded at an estimated fair value of $18 million, of which $13 million was included in accounts payable, accrued expenses, and other and $5 million was included in other long-term liabilities in our condensed consolidated balance sheet. The liability awards will be remeasured at each reporting date until settlement.
F-70
Note 14: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of taxes, were as follows:
Currency
Translation Adjustment |
Pension
Liability Adjustment |
Net
Investment Hedge Adjustment |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Balance as of December 31, 2012 |
$ | (317) | $ | (194) | $ | 105 | $ | (406) | ||||||||
Other comprehensive income (loss) before reclassifications |
(197) | 8 | | (189) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
1 | 4 | (1) | 4 | ||||||||||||
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Net current period other comprehensive income (loss) |
(196) | 12 | (1) | (185) | ||||||||||||
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|
|||||||||
Balance as of June 30, 2013 |
$ | (513) | $ | (182) | $ | 104 | $ | (591) | ||||||||
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The following table presents additional information about reclassifications out of accumulated other comprehensive loss:
Six Months Ended
June 30, 2013 |
||||
(in millions) | ||||
Currency translation adjustment: |
||||
Sale and liquidation of foreign assets (1) |
$ | (1) | ||
Tax benefit (2)(5) |
| |||
|
|
|||
Total currency translation adjustment reclassifications for the period, net of taxes |
$ | (1) | ||
|
|
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Pension liability adjustment: |
||||
Amortization of prior service cost (2) |
$ | (1) | ||
Amortization of net loss (2) |
(5) | |||
Tax benefit (4) |
2 | |||
|
|
|||
Total pension liability adjustment reclassifications for the period, net of taxes |
$ | (4) | ||
|
|
|||
Net investment hedge adjustment: |
||||
Sale of a hedged asset (3) |
$ | 1 | ||
Tax expense (4)(5) |
| |||
|
|
|||
Total net investment hedge adjustment reclassifications for the period, net of taxes |
$ | 1 | ||
|
|
|||
Total reclassifications for the period, net of tax |
$ | (4) | ||
|
|
(1) | Reclassified out of accumulated other comprehensive loss to other gain, net in the condensed consolidated statements of operations. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
(2) | Reclassified out of accumulated other comprehensive loss to general, administrative, and other in the condensed consolidated statements of operations. These amounts were included in the computation of net periodic pension cost. See Note 12: Employee Benefit Plans for additional information. Amounts in parentheses indicate a loss in our condensed consolidated statements of operations. |
(3) | Reclassified out of accumulated other comprehensive loss to gain (loss) on foreign currency transactions in the condensed consolidated statements of operations. |
(4) | Reclassified out of accumulated other comprehensive loss to income tax benefit (expense) in the condensed consolidated statements of operations. |
(5) | The respective tax benefit (expense) was less than $1 million for the six months ended June 30, 2013. |
F-71
Note 15: Business Segments
We are a diversified hospitality company with operations organized in three distinct operating segments: ownership, management and franchise, and timeshare. Each segment is managed separately because of its distinct economic characteristics.
The ownership segment includes all hotels that we wholly own or lease, as well as consolidated non-wholly owned entities and consolidated VIEs. As of June 30, 2013, this segment included 118 wholly owned and leased hotels and resorts, three non-wholly owned hotel properties, and three hotels of consolidated VIEs. While we do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment revenues, we manage these investments in our ownership segment. Our unconsolidated affiliates are primarily investments in entities that owned or leased 32 hotels as of June 30, 2013.
The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels operated or managed by someone other than us under one of our proprietary brand names of our hotel brand portfolio. As of June 30, 2013, this segment included 479 managed hotels and 3,364 franchised hotels. This segment earns fees for managing properties in our ownership segment.
The timeshare segment includes the development of vacation ownership clubs and resorts, marketing and selling of timeshare intervals, providing timeshare customer financing, and licensing fees paid by third parties for the use of our Hilton Grand Vacations brand name. This segment also provides assistance to third-party developers in selling their timeshare inventory. As of June 30, 2013, this segment included 41 timeshare properties.
Corporate and other represents revenues and related operating expenses generated by the incidental support of hotel operations for owned, leased, managed, and franchised hotels and other rental income, as well as corporate assets and related expenditures.
The performance of our operating segments is evaluated primarily on Adjusted EBITDA, which should not be considered an alternative to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. We define Adjusted EBITDA as net income attributable to Hilton stockholder before interest expense, income tax expense (benefit), and depreciation and amortization, further adjusted to exclude certain items, including, but not limited to: gains, losses, and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment charges; (v) furniture, fixtures and equipment (FF&E) replacement reserves required under certain lease agreements; (vi) reorganization costs; (vii) share-based and certain other compensations expenses; (viii) severance, relocation and other expenses; and (ix) other items.
F-72
The following table presents revenues and Adjusted EBITDA for our reportable segments, reconciled to consolidated amounts:
Six Months Ended
June 30, |
||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Revenues: |
||||||||
Ownership |
$ | 1,998 | $ | 1,942 | ||||
Management and franchise |
608 | 564 | ||||||
Timeshare |
507 | 515 | ||||||
|
|
|
|
|||||
Segment revenues |
3,113 | 3,021 | ||||||
Other revenues from managed and franchised properties |
1,591 | 1,560 | ||||||
Other revenues |
30 | 30 | ||||||
Intersegment fees elimination (1)(2)(3) |
(91) | (90) | ||||||
|
|
|
|
|||||
Total revenues |
$ | 4,643 | $ | 4,521 | ||||
|
|
|
|
|||||
Adjusted EBITDA |
||||||||
Ownership (1)(4) |
$ | 445 | $ | 358 | ||||
Management and franchise (2) |
608 | 564 | ||||||
Timeshare |
119 | 113 | ||||||
Corporate and other (3) |
(135) | (148) | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 1,037 | $ | 887 | ||||
|
|
|
|
(1) | Includes charges to timeshare operations for rental fees and fees for other amenities, which are eliminated in our condensed consolidated financial statements. These charges totaled $12 million and $15 million for the six months ended June 30, 2013 and 2012, respectively. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to ownership Adjusted EBITDA and a cost to the timeshare segment. |
(2) | Includes management, royalty, and intellectual property fees of $47 million and $45 million for the six months ended June 30, 2013 and 2012, respectively. These fees are charged to consolidated owned and leased properties and are eliminated in our condensed consolidated financial statements. Also includes a licensing fee of $25 million and $24 million for the six months ended June 30, 2013 and 2012, respectively, which is charged to our timeshare segment by our management and franchise segment and is eliminated in our condensed consolidated financial statements. While the net impact is zero, our measure of segment Adjusted EBITDA includes these fees as a benefit to management and franchise Adjusted EBITDA and a cost to the ownership and timeshare segments. |
(3) | Includes charges to consolidated owned and leased properties for services provided by our wholly-owned laundry business of $5 million and $4 million for the six months ended June 30, 2013 and 2012, respectively. These charges are eliminated in our condensed consolidated financial statements. |
(4) | Includes unconsolidated affiliate Adjusted EBITDA. |
F-73
The table below provides a reconciliation of Adjusted EBITDA to EBITDA and EBITDA to net income attributable to Hilton stockholder:
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Adjusted EBITDA |
$ | 1,037 | $ | 887 | ||||
Net income attributable to noncontrolling interests |
(6) | (2) | ||||||
(Loss) gain on foreign currency transactions |
(82) | 1 | ||||||
FF&E replacement reserve |
(17) | (35) | ||||||
Share-based compensation expense |
(3) | (17) | ||||||
Impairment losses |
| (16) | ||||||
Impairment losses included in equity in losses from unconsolidated affiliates |
| (4) | ||||||
Other gain, net |
6 | 9 | ||||||
Other adjustment items |
(20) | (32) | ||||||
|
|
|
|
|||||
EBITDA |
915 | 791 | ||||||
Interest expense |
(274) | (281) | ||||||
Interest expense included in equity in losses from unconsolidated affiliates |
(6) | (6) | ||||||
Income tax expense |
(122) | (112) | ||||||
Depreciation and amortization |
(309) | (259) | ||||||
Depreciation and amortization included in equity in losses from unconsolidated affiliates |
(15) | (19) | ||||||
|
|
|
|
|||||
Net income attributable to Hilton stockholder |
$ | 189 | $ | 114 | ||||
|
|
|
|
The following table presents assets for our reportable segments, reconciled to consolidated amounts:
June 30,
2013 |
December 31,
2012 |
|||||||
(in millions) | ||||||||
Assets: |
||||||||
Ownership |
$ | 12,209 | $ | 12,316 | ||||
Management and franchise |
11,426 | 11,650 | ||||||
Timeshare |
1,898 | 1,839 | ||||||
Corporate and other |
1,252 | 1,261 | ||||||
|
|
|
|
|||||
$ | 26,785 | $ | 27,066 | |||||
|
|
|
|
The following table presents capital expenditures for our reportable segments, reconciled to consolidated amounts:
Six Months Ended
June 30, |
||||||||
2013 | 2012 | |||||||
(in millions) | ||||||||
Capital expenditures: |
||||||||
Ownership |
$ | 116 | $ | 222 | ||||
Timeshare |
2 | 15 | ||||||
Corporate and other |
3 | 6 | ||||||
|
|
|
|
|||||
$ | 121 | $ | 243 | |||||
|
|
|
|
F-74
Note 16: Commitments and Contingencies
As of June 30, 2013, we had outstanding guarantees of $27 million, with remaining terms ranging from four months to ten years, for debt and other obligations of third parties. We have two letters of credit, which are supported by restricted cash and cash equivalents, for a total of $27 million that have been pledged as collateral for two of these guarantees. Although we believe it is unlikely that material payments will be required under these guarantees or letters of credit, there can be no assurance that this will be the case.
We have also provided performance guarantees to certain owners of hotels that we operate under management contracts. Most of these guarantees allow us to terminate the contract, rather than fund shortfalls, if specified performance levels are not achieved. However, in limited cases, we are obligated to fund performance shortfalls. As of June 30, 2013, we had eight contracts containing performance guarantees, with expirations ranging from 2017 to 2030, and possible cash outlays totaling approximately $185 million. Our obligations under these guarantees in future periods is dependent on the operating performance levels of these hotels over the remaining terms of the performance guarantees. We do not have any letters of credit pledged as collateral against these guarantees. As of June 30, 2013 and December 31, 2012, we recorded current liabilities of approximately $8 million and $30 million, respectively, and non-current liabilities of approximately $53 million and $57 million, respectively, in our condensed consolidated balance sheets for obligations under our outstanding performance guarantees that are related to certain VIEs for which we are not the primary beneficiary.
As of June 30, 2013, we had outstanding commitments under third party contracts of approximately $61 million for capital expenditures at certain owned and leased properties, including our consolidated VIEs. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
In June 2012, we entered into an agreement with a developer in Las Vegas, Nevada, whereby we will purchase residential units from the developer that we will convert to timeshare units to be marketed and sold under our Hilton Grand Vacations brand. Subject to certain conditions, we will be required to purchase approximately $92 million of inventory ratably over a period of four years. As of June 30, 2013, we had purchased $12 million of inventory under this agreement. We plan to make purchases of approximately $6 million per quarter over the next 14 quarters.
We have committed to purchase additional non-voting shares in one of our consolidated VIEs to fund a master renovation plan of the underlying hotel. Our total share purchase commitment is Japanese Yen 1.4 billion (equivalent to $14 million as of June 30, 2013), and the purchases are expected to occur through 2015. As of June 30, 2013, we had not purchased any shares under this commitment.
During 2010, an affiliate of our Ultimate Parent settled a $75 million liability on our behalf in conjunction with a lawsuit settlement by entering into service contracts with the plaintiff. We recorded the portion settled by the affiliate of our Ultimate Parent as a capital contribution. Additionally, as part of the settlement, we entered into a guarantee with the plaintiff to pay any shortfall that the affiliate of our Ultimate Parent does not fund related to those service contracts up to the value of the settlement amount made by the affiliate of our Ultimate Parent. The remaining potential exposure under this guarantee as of June 30, 2013 was approximately $52 million. We have not accrued a liability for this guarantee as we believe the likelihood of any material funding to be remote.
We are involved in other litigation arising from the normal course of business, some of which includes claims for substantial sums. Accruals are recorded when the outcome is probable and can be reasonably estimated in accordance with applicable accounting requirements regarding accounting for contingencies. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of June 30, 2013 will not have a material effect on our condensed consolidated results of operations, financial position, or cash flows.
F-75
Note 17: Subsequent Events
The Company has evaluated all subsequent events through September 6, 2013, the date the condensed consolidated financial statements were available to be issued.
Asset-Backed Notes
In August 2013, we issued $250 million in aggregate principal amount of 2.28% notes that are secured by a pledge of certain assets, consisting primarily of a pool of our timeshare financing receivables that are secured by a first mortgage or first deed of trust on a timeshare interest. Interest on the notes is payable monthly at an annual rate of 2.28%. The proceeds from the asset-backed notes were used to reduce the outstanding balance on our revolving non-recourse timeshare notes credit facility we entered into in May 2013.
F-76
Shares
Hilton Worldwide Holdings Inc.
Common Stock
PROSPECTUS
Deutsche Bank Securities
Goldman, Sachs & Co.
BofA Merrill Lynch
Morgan Stanley
,
Through and including the 25th day after the date of this prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. |
The following table sets forth the expenses payable by the Registrant expected to be incurred in connection with the issuance and distribution of the shares of common stock being registered hereby (other than underwriting discounts and commissions). All of such expenses are estimates, other than the filing and listing fees payable to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, Inc. and .
Filing FeeSecurities and Exchange Commission |
$ | 170,500 | ||
FeeFinancial Industry Regulatory Authority, Inc. |
188,000 | |||
Listing Fee |
* | |||
Fees and Expenses of Counsel |
* | |||
Printing Expenses |
* | |||
Fees and Expenses of Accountants |
* | |||
Transfer Agent and Registrars Fees |
* | |||
Miscellaneous Expenses |
* | |||
|
|
|||
Total |
* | |||
|
|
* | To be provided by amendment. |
ITEM 14. | INDEMNIFICATION OF DIRECTORS AND OFFICERS. |
Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation will provide for this limitation of liability.
Section 145 of the DGCL, or Section 145, provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened to be made, 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 such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include 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, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporations best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporations best interests, provided further that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred.
II-1
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him or her under Section 145.
Our amended and restated bylaws will provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified under our amended and restated bylaws or otherwise.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our amended and restated certificate of incorporation, our amended and restated bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification to our directors and officers by the underwriters against certain liabilities.
ITEM 15. | RECENT SALES OF UNREGISTERED SECURITIES. |
None.
ITEM 16. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
(a) Exhibit Index
1.1 | Form of Underwriting Agreement * | |
3.1 | Form of Amended and Restated Certificate of Incorporation of the Registrant * | |
3.2 | Form of Amended and Restated Bylaws of the Registrant * | |
4.1 | Indenture, dated as of October 4, 2013, among Hilton Worldwide Finance LLC and Hilton Worldwide Finance Corp. as issuers, Hilton Worldwide Holdings Inc., as guarantor and Wilmington Trust, National Association, as trustee. | |
4.2 | Supplemental Indenture, among the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee.* | |
4.3 | Form of 5.625% Senior Note due 2021 (included in Exhibit 4.1) | |
4.4 | Registration Rights Agreement, dated as of October 4, 2013, among Hilton Worldwide Finance LLC, Hilton Worldwide Finance Corp., Hilton Worldwide Holdings Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the several initial purchasers. | |
4.5 | Joinder Agreement, among the subsidiary guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated as representative of the several initial purchasers.* | |
5.1 | Opinion of Simpson Thacher & Bartlett LLP regarding validity of the shares of common stock registered * |
II-2
10.1 | Credit Agreement, among Hilton Worldwide Holdings Inc., as parent, Hilton Worldwide Finance LLC, as borrower, the guarantors from time to time party thereto, Deutsche Bank AG, New York Branch, as administrative agent, collateral agent, L/C issuer and swing line lender, Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs Bank USA, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, Wells Fargo Securities, LLC, as joint bookrunner, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Syndication Agent and the other agents and lenders from time to time party thereto. * | |
10.2 | Security Agreement, among the grantors identified therein and Deutsche Bank AG New York Branch, as collateral agent. * | |
10.3 | Loan Agreement, among the subsidiaries party thereto, collectively, as borrower and JPMorgan Chase Bank, National Association, German American Capital Corporation, Bank of America, N.A., GS Commercial Real Estate LP and Morgan Stanley Mortgage Capital Holdings LLC, collectively, as lender. * | |
10.4 | Guaranty Agreement, among the guarantors named therein and JPMorgan Chase Bank, National Association, German American Capital Corporation, Bank of America, N.A., GS Commercial Real Estate LP and Morgan Stanley Mortgage Capital Holdings LLC, collectively, as lender * | |
10.5 | Loan Agreement, among HLT NY Waldorf LLC, as borrower, HSBC Bank USA, National Association, as agent, the lenders named therein, HSBC Bank USA, National Association and DekaBank Deutsche Girozentrale, as lead arrangers and HSBC Bank USA, National Association, as syndication agent. * | |
10.6 | Guaranty of Recourse Carveouts, among the guarantors named therein and HSBC Bank USA, National Association, as agent * | |
10.7 | Receivables Loan Agreement, dated as of May 9, 2013, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities intermediary, the persons from time to time party thereto as conduit lenders, the financial institutions from time to time party thereto as committed lenders, the financial institutions from time to time party thereto as managing agents, and Deutsche Bank Securities, Inc., as administrative agent and structuring agent. | |
10.8 | Form of Stockholders Agreement * | |
10.9 | Form of Registration Rights Agreement among Hilton Worldwide Holdings Inc. and certain of its stockholders * | |
10.10 | Form of Omnibus Incentive Plan * | |
10.11 | Employment Agreement, dated January 4, 2011, between Hilton Worldwide, Inc. and Christopher J. Nassetta. * | |
10.12 | Employment Agreement, dated September 15, 2008, between Hilton Hotels Corporation and Thomas C. Kennedy. * | |
10.13 | Employment Agreement, dated January 1, 2010, between Hilton Worldwide, Inc. and Ian R. Carter. * | |
10.14 | Employment Agreement, dated November 13, 2008, between Hilton Worldwide, Inc. and Paul J. Brown. * | |
10.15 | Separation Agreement and Release dated as of September 24, 2013, between Hilton Worldwide, Inc. and Thomas C. Kennedy * | |
10.16 | Separation Agreement and Release dated as of October 31, 2012, between Hilton Worldwide, Inc. and Paul J. Brown * |
II-3
21.1 | Subsidiaries of the Registrant * | |
23.1 | Consent of Ernst & Young LLP | |
23.2 | Consent of Simpson Thacher & Bartlett LLP (included as part of Exhibit 5.1) * | |
24.1 | Power of Attorney (included on signature pages to this Registration Statement) | |
99.1 | Section 13(r) Disclosure* |
* | To be filed by amendment. |
(b) Financial Statement Schedule
All schedules are omitted because the required information is either not present, not present in material amounts or presented within the consolidated financial statements included in the prospectus and are incorporated herein by reference.
ITEM 17. | UNDERTAKINGS |
(1) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. |
(2) | The undersigned Registrant hereby undertakes that: |
(A) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(B) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in McLean, Virginia, on the 18th day of October, 2013.
HILTON WORLDWIDE HOLDINGS INC. | ||||
By: |
/s/ Christopher J. Nassetta |
|||
Name: | Christopher J. Nassetta | |||
Title: | President and Chief Executive Officer |
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below hereby constitutes and appoints Christopher J. Nassetta, Kevin J. Jacobs and Kristin A. Campbell, and each of them, any of whom may act without joinder of the other, the individuals true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any or all amendments, including post-effective amendments to the Registration Statement, including a prospectus or an amended prospectus therein and any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and Power of Attorney have been signed by the following persons in the capacities indicated on the 12th day of September, 2013.
II-5
Signature |
Title |
|
* |
Director | |
William J. Stein | ||
/s/ Kevin J. Jacobs |
Executive Vice President and Chief Financial Officer (principal financial officer) |
|
Kevin J. Jacobs | ||
/s/ Paula A. Kuykendall |
Senior Vice President and Chief Accounting Officer (principal accounting officer) |
|
Paula A. Kuykendall |
*By: | /s/ Christopher J. Nassetta | |||
Name: | Christopher J. Nassetta | |||
Title: | Attorney-in-Fact |
II-6
Exhibit 4.1
INDENTURE
Dated as of October 4, 2013
Among
HILTON WORLDWIDE FINANCE LLC, as the Issuer,
HILTON WORLDWIDE FINANCE CORP., as the Co-Issuer,
the Guarantors from time to time party hereto
and
WILMINGTON TRUST, NATIONAL ASSOCIATION,
as Trustee
5.625% SENIOR NOTES DUE 2021
CROSS-REFERENCE TABLE*
Trust Indenture Act Section |
Indenture Section |
|
310(a)(1) |
7.10 | |
(a)(2) |
7.10 | |
(a)(3) |
N.A. | |
(a)(4) |
N.A. | |
(a)(5) |
7.10 | |
(b) |
7.03; 7.10 | |
311(a) |
7.11 | |
(b) |
7.11 | |
312(a) |
2.05 | |
(b) |
13.03 | |
(c) |
13.03 | |
313(a) |
7.06 | |
(b)(1) |
N.A. | |
(b)(2) |
7.06; 7.07 | |
(c) |
7.06; 13.02 | |
(d) |
7.06 | |
314(a) |
4.03; 13.05 | |
(b) |
N.A. | |
(c)(1) |
13.04 | |
(c)(2) |
13.04 | |
(c)(3) |
N.A. | |
(d) |
N.A. | |
(e) |
13.05 | |
(f) |
N.A. | |
315(a) |
7.01 | |
(b) |
7.05; 13.02 | |
(c) |
7.01 | |
(d) |
7.01 | |
(e) |
6.14 | |
316(a)(last sentence) |
2.09 | |
(a)(1)(A) |
6.05 | |
(a)(1)(B) |
6.04 | |
(a)(2) |
N.A. | |
(b) |
6.07 | |
(c) |
2.12; 9.04 | |
317(a)(1) |
6.08 | |
(a)(2) |
6.12 | |
(b) |
2.04 | |
318(a) |
13.01 | |
(b) |
N.A. | |
(c) |
13.01 |
N.A. means not applicable.
* | This Cross-Reference Table is not part of this Indenture. |
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 | ||||||
DEFINITIONS AND INCORPORATION BY REFERENCE | ||||||
SECTION 1.01. |
DEFINITIONS |
1 | ||||
SECTION 1.02. |
OTHER DEFINITIONS |
38 | ||||
SECTION 1.03. |
INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT |
38 | ||||
SECTION 1.04. |
RULES OF CONSTRUCTION |
39 | ||||
SECTION 1.05. |
ACTS OF HOLDERS |
40 | ||||
SECTION 1.06. |
TIMING OF PAYMENT |
41 | ||||
ARTICLE 2 | ||||||
THE NOTES | ||||||
SECTION 2.01. |
FORM AND DATING; TERMS |
41 | ||||
SECTION 2.02. |
EXECUTION AND AUTHENTICATION |
42 | ||||
SECTION 2.03. |
REGISTRAR, TRANSFER AGENT AND PAYING AGENT |
42 | ||||
SECTION 2.04. |
PAYING AGENT TO HOLD MONEY IN TRUST |
43 | ||||
SECTION 2.05. |
HOLDER LISTS |
43 | ||||
SECTION 2.06. |
TRANSFER AND EXCHANGE |
43 | ||||
SECTION 2.07. |
REPLACEMENT NOTES |
54 | ||||
SECTION 2.08. |
OUTSTANDING NOTES |
54 | ||||
SECTION 2.09. |
TREASURY NOTES |
54 | ||||
SECTION 2.10. |
TEMPORARY NOTES |
54 | ||||
SECTION 2.11. |
CANCELLATION |
55 | ||||
SECTION 2.12. |
DEFAULTED INTEREST |
55 | ||||
SECTION 2.13. |
CUSIP NUMBERS; ISINS |
55 | ||||
ARTICLE 3 | ||||||
REDEMPTION | ||||||
SECTION 3.01. |
NOTICES TO TRUSTEE |
55 | ||||
SECTION 3.02. |
SELECTION OF NOTES TO BE REDEEMED |
55 | ||||
SECTION 3.03. |
NOTICE OF REDEMPTION |
56 | ||||
SECTION 3.04. |
EFFECT OF NOTICE OF REDEMPTION |
57 | ||||
SECTION 3.05. |
DEPOSIT OF REDEMPTION PRICE |
57 | ||||
SECTION 3.06. |
NOTES REDEEMED IN PART |
57 | ||||
SECTION 3.07. |
OPTIONAL REDEMPTION |
57 | ||||
SECTION 3.08. |
SPECIAL MANDATORY REDEMPTION |
58 | ||||
SECTION 3.09. |
OFFERS TO REPURCHASE BY APPLICATION OF EXCESS PROCEEDS |
59 | ||||
ARTICLE 4 | ||||||
COVENANTS | ||||||
SECTION 4.01. |
PAYMENT OF NOTES |
60 | ||||
SECTION 4.02. |
MAINTENANCE OF OFFICE OR AGENCY |
61 | ||||
SECTION 4.03. |
REPORTS AND OTHER INFORMATION |
61 | ||||
SECTION 4.04. |
COMPLIANCE CERTIFICATE |
63 | ||||
SECTION 4.05. |
TAXES |
63 | ||||
SECTION 4.06. |
STAY, EXTENSION AND USURY LAWS |
63 | ||||
SECTION 4.07. |
LIMITATION ON RESTRICTED PAYMENTS |
63 |
-i-
Page | ||||||
SECTION 4.08. |
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES |
71 | ||||
SECTION 4.09. |
LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK AND PREFERRED STOCK |
73 | ||||
SECTION 4.10. |
ASSET SALES |
78 | ||||
SECTION 4.11. |
TRANSACTIONS WITH AFFILIATES |
81 | ||||
SECTION 4.12. |
LIENS |
83 | ||||
SECTION 4.13. |
COMPANY EXISTENCE |
83 | ||||
SECTION 4.14. |
OFFER TO REPURCHASE UPON CHANGE OF CONTROL TRIGGERING EVENT |
84 | ||||
SECTION 4.15. |
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES |
85 | ||||
SECTION 4.16. |
LIMITATION ON BUSINESS ACTIVITIES OF THE CO-ISSUER |
86 | ||||
SECTION 4.17. |
TERMINATION OF COVENANTS |
86 | ||||
ARTICLE 5 | ||||||
SUCCESSORS | ||||||
SECTION 5.01. |
MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS |
86 | ||||
SECTION 5.02. |
SUCCESSOR PERSON SUBSTITUTED |
88 | ||||
SECTION 5.03. |
CORPORATE REALIGNMENT |
89 | ||||
ARTICLE 6 | ||||||
DEFAULTS AND REMEDIES | ||||||
SECTION 6.01. |
EVENTS OF DEFAULT |
89 | ||||
SECTION 6.02. |
ACCELERATION |
91 | ||||
SECTION 6.03. |
OTHER REMEDIES |
91 | ||||
SECTION 6.04. |
WAIVER OF PAST DEFAULTS |
91 | ||||
SECTION 6.05. |
CONTROL BY MAJORITY |
92 | ||||
SECTION 6.06. |
LIMITATION ON SUITS |
92 | ||||
SECTION 6.07. |
RIGHTS OF HOLDERS TO RECEIVE PAYMENT |
92 | ||||
SECTION 6.08. |
COLLECTION SUIT BY TRUSTEE |
92 | ||||
SECTION 6.09. |
RESTORATION OF RIGHTS AND REMEDIES |
92 | ||||
SECTION 6.10. |
RIGHTS AND REMEDIES CUMULATIVE |
92 | ||||
SECTION 6.11. |
DELAY OR OMISSION NOT WAIVER |
93 | ||||
SECTION 6.12. |
TRUSTEE MAY FILE PROOFS OF CLAIM |
93 | ||||
SECTION 6.13. |
PRIORITIES |
93 | ||||
SECTION 6.14. |
UNDERTAKING FOR COSTS |
93 | ||||
ARTICLE 7 | ||||||
TRUSTEE | ||||||
SECTION 7.01. |
DUTIES OF TRUSTEE |
94 | ||||
SECTION 7.02. |
RIGHTS OF TRUSTEE |
94 | ||||
SECTION 7.03. |
INDIVIDUAL RIGHTS OF TRUSTEE |
96 | ||||
SECTION 7.04. |
TRUSTEES DISCLAIMER |
96 | ||||
SECTION 7.05. |
NOTICE OF DEFAULTS |
96 | ||||
SECTION 7.06. |
REPORTS BY TRUSTEE TO HOLDERS |
96 | ||||
SECTION 7.07. |
COMPENSATION AND INDEMNITY |
96 | ||||
SECTION 7.08. |
REPLACEMENT OF TRUSTEE |
97 | ||||
SECTION 7.09. |
SUCCESSOR TRUSTEE BY MERGER, ETC. |
98 | ||||
SECTION 7.10. |
ELIGIBILITY; DISQUALIFICATION |
98 | ||||
SECTION 7.11. |
PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUERS |
98 |
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Page | ||||||
ARTICLE 8 | ||||||
LEGAL DEFEASANCE AND COVENANT DEFEASANCE | ||||||
SECTION 8.01. |
OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE |
98 | ||||
SECTION 8.02. |
LEGAL DEFEASANCE AND DISCHARGE |
98 | ||||
SECTION 8.03. |
COVENANT DEFEASANCE |
99 | ||||
SECTION 8.04. |
CONDITIONS TO LEGAL OR COVENANT DEFEASANCE |
99 | ||||
SECTION 8.05. |
DEPOSITED MONEY AND U.S. GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS |
100 | ||||
SECTION 8.06. |
REPAYMENT TO ISSUERS |
101 | ||||
SECTION 8.07. |
REINSTATEMENT |
101 | ||||
ARTICLE 9 | ||||||
AMENDMENT, SUPPLEMENT AND WAIVER | ||||||
SECTION 9.01. |
WITHOUT CONSENT OF HOLDERS |
101 | ||||
SECTION 9.02. |
WITH CONSENT OF HOLDERS |
102 | ||||
SECTION 9.03. |
COMPLIANCE WITH TRUST INDENTURE ACT |
103 | ||||
SECTION 9.04. |
REVOCATION AND EFFECT OF CONSENTS |
103 | ||||
SECTION 9.05. |
NOTATION ON OR EXCHANGE OF NOTES |
104 | ||||
SECTION 9.06. |
TRUSTEE TO SIGN AMENDMENTS, ETC. |
104 | ||||
ARTICLE 10 | ||||||
GUARANTEES | ||||||
SECTION 10.01. |
GUARANTEE |
104 | ||||
SECTION 10.02. |
LIMITATION ON GUARANTOR LIABILITY |
105 | ||||
SECTION 10.03. |
EXECUTION AND DELIVERY |
106 | ||||
SECTION 10.04. |
SUBROGATION |
106 | ||||
SECTION 10.05. |
BENEFITS ACKNOWLEDGED |
106 | ||||
SECTION 10.06. |
RELEASE OF GUARANTEES |
106 | ||||
ARTICLE 11 | ||||||
SATISFACTION AND DISCHARGE | ||||||
SECTION 11.01. |
SATISFACTION AND DISCHARGE |
107 | ||||
SECTION 11.02. |
APPLICATION OF TRUST MONEY |
108 | ||||
ARTICLE 12 | ||||||
ESCROW MATTERS | ||||||
SECTION 12.01. |
ESCROW ACCOUNT |
108 | ||||
SECTION 12.02. |
SPECIAL MANDATORY REDEMPTION |
109 | ||||
SECTION 12.03. |
RELEASE OF ESCROWED PROPERTY |
109 | ||||
SECTION 12.04. |
TRUSTEE DIRECTION TO EXECUTE ESCROW AGREEMENT |
109 | ||||
ARTICLE 13 | ||||||
MISCELLANEOUS | ||||||
SECTION 13.01. |
TRUST INDENTURE ACT CONTROLS |
109 | ||||
SECTION 13.02. |
NOTICES |
109 | ||||
SECTION 13.03. |
COMMUNICATION BY HOLDERS WITH OTHER HOLDERS |
110 | ||||
SECTION 13.04. |
CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT |
110 | ||||
SECTION 13.05. |
STATEMENTS REQUIRED IN CERTIFICATE OR OPINION |
110 | ||||
SECTION 13.06. |
RULES BY TRUSTEE AND AGENTS |
111 |
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Page | ||||||
SECTION 13.07. |
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS |
111 | ||||
SECTION 13.08. |
GOVERNING LAW |
111 | ||||
SECTION 13.09. |
WAIVER OF JURY TRIAL |
111 | ||||
SECTION 13.10. |
FORCE MAJEURE |
111 | ||||
SECTION 13.11. |
NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS |
111 | ||||
SECTION 13.12. |
SUCCESSORS |
111 | ||||
SECTION 13.13. |
SEVERABILITY |
111 | ||||
SECTION 13.14. |
COUNTERPART ORIGINALS |
112 | ||||
SECTION 13.15. |
TABLE OF CONTENTS, HEADINGS, ETC. |
112 | ||||
SECTION 13.16. |
QUALIFICATION OF INDENTURE |
112 | ||||
SECTION 13.17. |
USA PATRIOT ACT |
112 |
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EXHIBITS
Exhibit A | FORM OF NOTE | |
Exhibit B | FORM OF CERTIFICATE OF TRANSFER | |
Exhibit C | FORM OF CERTIFICATE OF EXCHANGE | |
Exhibit D | FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS | |
Exhibit E | FORM OF SPECIAL MANDATORY REDEMPTION NOTICE |
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INDENTURE, dated as of October 4, 2013, among Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), Hilton Worldwide Finance Corp., a Delaware corporation wholly owned by the Issuer (the Co-Issuer and, together with the Issuer, the Issuers ), the Guarantors (as defined herein) from time to time party hereto and Wilmington Trust, National Association, a national banking association, as Trustee.
W I T N E S S E T H
WHEREAS, the Issuers have duly authorized the creation of an issue of $1,500,000,000 aggregate principal amount of the Issuers 5.625% Senior Notes due 2021 (the Initial Notes );
WHEREAS, the Issuers will be jointly and severally liable for all obligations under the Notes; and
WHEREAS, each of the Issuers and each of the Guarantors has duly authorized the execution and delivery of this Indenture (as defined herein).
NOW, THEREFORE, each of the Issuers, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined herein).
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions .
144A Global Note means a Global Note, substantially in the form of Exhibit A hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of Notes sold in reliance on Rule 144A.
Acquired Indebtedness means, with respect to any specified Person,
(a) Indebtedness of any other Person existing at the time such other Person is merged or consolidated with or into or became a Restricted Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging or consolidating with or into or becoming a Restricted Subsidiary of such specified Person, and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
Additional Interest means all additional interest then owing pursuant to the Registration Rights Agreement.
Additional Notes means any additional Notes (other than the Initial Notes or any Exchange Notes issued in exchange for such Initial Notes) issued from time to time under this Indenture in accordance with Sections 2.01, 2.02 and 4.09 hereof.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling , controlled by and under common control with ), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Agent means any Registrar, Transfer Agent or Paying Agent.
Agents Message means a message transmitted by DTC to, and received by, the Depositary and forming a part of the book-entry confirmation, which states that DTC has received an express acknowledgment from each participant in DTC tendering the Notes and that such participants have received the Letter of Transmittal and agree to be bound by the terms of the Letter of Transmittal and the Issuers may enforce such agreement against such participants.
Applicable Premium means, with respect to any Note on any Redemption Date, the greater of:
(a) 1.0% of the principal amount of such Note; and
(b) the excess, if any, of (i) the present value at such Redemption Date of (A) the redemption price of such Note at October 15, 2016 (such redemption price being set forth in the table set forth in Section 3.07(c) hereof), plus (B) all required remaining scheduled interest payments due on such Note through October 15, 2016 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points over (ii) the then outstanding principal amount of such Note.
Applicable Procedures means, with respect to any transfer or exchange of or for, redemption of, or notice with respect to beneficial interests in any Global Note or the redemption or repurchase of any Global Note, the rules and procedures of the Depositary, Euroclear and/or Clearstream that apply to such transfer, exchange, redemption or repurchase.
Asset Sale means:
(a) the sale, conveyance, transfer or other disposition, whether in a single transaction or a series of related transactions (including by way of a Sale and Lease-Back Transaction), of property or assets of the Issuer or any of its Restricted Subsidiaries (each referred to in this definition as a disposition ); or
(b) the issuance or sale of Equity Interests of any Restricted Subsidiary (other than Preferred Stock of Restricted Subsidiaries issued in compliance with Section 4.09 hereof), whether in a single transaction or a series of related transactions;
in each case, other than:
(i) any disposition of Cash Equivalents or Investment Grade Securities or obsolete or worn out property or equipment in the ordinary course of business or any disposition of inventory or goods (or other assets, including timeshare and residential assets) held for sale or no longer used or useful in the ordinary course of business;
(ii) the disposition of all or substantially all of the assets of the Issuer in a manner permitted pursuant to Section 5.01 hereof or any disposition that constitutes a Change of Control Triggering Event pursuant to this Indenture;
(iii) the making of any Restricted Payment that is permitted to be made, and is made, under Section 4.07 hereof or any Permitted Investment;
(iv) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary in any transaction or series of related transactions with an aggregate fair market value of less than $150.0 million;
(v) any disposition of property or assets or issuance of securities by a Restricted Subsidiary to the Issuer or the Co-Issuer, or by the Issuer, the Co-Issuer or a Restricted Subsidiary to a Restricted Subsidiary;
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(vi) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, as amended, or comparable law or regulation, any exchange of like property (excluding any boot thereon) for use in a Similar Business;
(vii) the lease, assignment, sub-lease, license or sub-license of any real or personal property in the ordinary course of business;
(viii) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, (A) any PropCo entity or its Subsidiaries (or a Restricted Subsidiary that owns any PropCo entity, provided that such Restricted Subsidiary owns no assets other than Capital Stock of PropCo entities or their Subsidiaries); and (B) an Unrestricted Subsidiary;
(ix) foreclosures, condemnation, expropriation, forced dispositions or any similar action with respect to assets or the granting of Liens not prohibited by this Indenture;
(x) sales of accounts receivable, or participations therein, or Securitization Assets (other than royalties or other revenues (except accounts receivable)) or related assets, or any disposition of the Equity Interests in a Subsidiary, substantially all the assets of which are Securitization Assets, in each case in connection with any Qualified Securitization Facility or the disposition of an account receivable in connection with the collection or compromise thereof in the ordinary course of business;
(xi) any financing transaction with respect to property built or acquired by the Issuer or any Restricted Subsidiary after the Issue Date, including Sale and Lease-Back Transactions and asset securitizations permitted by this Indenture;
(xii) the sale, discount or other disposition of inventory, accounts receivable or notes receivable in the ordinary course of business or the conversion of accounts receivable to notes receivable;
(xiii) the licensing or sub-licensing of intellectual property or other general intangibles in the ordinary course of business;
(xiv) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(xv) the unwinding of any Hedging Obligations;
(xvi) sales, transfers and other dispositions of Investments in joint ventures to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture parties set forth in joint venture arrangements and similar binding arrangements;
(xvii) the abandonment of intellectual property rights in the ordinary course of business, which in the reasonable good faith determination of the Issuer are not material to the conduct of the business of the Issuer and its Restricted Subsidiaries taken as a whole;
(xviii) the issuance by a Restricted Subsidiary of Preferred Stock or Disqualified Stock that is permitted under Section 4.09 hereof;
(xix) the granting of a Lien that is permitted under Section 4.12 hereof;
(xx) the issuance of directors qualifying shares and shares issued to foreign nationals as required by applicable law;
(xxi) any conversions of hotel properties into timeshare or residential properties and the sale or other disposition of assets created in such conversions;
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(xxii) Permitted Intercompany Activities, the Corporate Realignment and related transactions;
(xxiii) a Timeshare Disposition; provided, however , that if the net proceeds therefrom (determined in accordance with the definition of Net Proceeds as if a Timeshare Disposition were an Asset Sale) are not applied in accordance with clause (xvii) of Section 4.07(b) hereof within the time period provided for the application of Net Proceeds in Section 4.10(b) hereof (without giving effect to any extensions of such period permitted thereunder in connection with binding commitments), such disposition shall be deemed an Asset Sale, and the Net Proceeds therefrom shall be applied in accordance with Section 4.10 hereof; and
(xxiv) transfers of property subject to Casualty Events upon receipt of the Net Proceeds of such Casualty Event; provided that any Cash Equivalents received by the Issuer or any of its Restricted Subsidiaries in respect of such Casualty Event shall be deemed to be Net Proceeds of an Asset Sale, and such Net Proceeds shall be applied in accordance with Section 4.10(b) hereof.
In the event that a transaction (or a portion thereof) meets the criteria of a permitted Asset Sale and would also be a permitted Restricted Payment or Permitted Investment, the Issuer, in its sole discretion, will be entitled to divide and classify such transaction (or a portion thereof) as an Asset Sale and/or one or more the types of permitted Restricted Payments or Permitted Investments.
Bank Products means any facilities or services related to cash management, including treasury, depository, overdraft, credit or debit card, purchase card, electronic funds transfer and other cash management arrangements.
Bankruptcy Law means Title 11, U.S. Code, as amended, or any similar federal or state law for the relief of debtors.
Blackstone Funds means, individually or collectively, Blackstone Capital Partners V, L.P., BCP V-S L.P., Blackstone Capital Partners V-AC L.P., BCP V Co-Investors L.P., Blackstone Family Investment Partnership V L.P., Blackstone Family Investment Partnership V-SMD L.P. and Blackstone Participation Partnership V L.P., each a Delaware limited partnership, Blackstone Real Estate Partners International II (AIV) L.P., Blackstone Real Estate Holdings International II-Q L.P. and Blackstone Family Real Estate Partnership International II-SMD L.P., each an English partnership, Blackstone Real Estate Partners VI L.P., Blackstone Real Estate Holdings VI L.P., Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners VI.TE.2 L.P., Blackstone Real Estate Partners (AIV) VI L.P., Blackstone Real Estate Partners VI.F L.P., Blackstone Family Real Estate Partnership VI-SMD L.P. and Blackstone HLT Principal Transaction Partners L.P., each a Delaware limited partnership, and any other investment fund managed by an Affiliate of The Blackstone Group L.P., in each case, or any of their respective successors.
Board of Directors means, with respect to any Person, (i) in the case of any corporation, the board of directors of such Person, (ii) in the case of any limited liability company, the managing member or board of managers of such Person, (iii) in the case of any partnership, the board of directors of the general partner of such Person and (iv) in any other case, the functional equivalent of the foregoing or, in each case, any duly authorized committee of such body.
Business Day means each day which is not a Legal Holiday.
Capital Stock means:
(a) in the case of a corporation, corporate stock or shares in the capital of such corporation;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
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(c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
Capitalized Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) prepared in accordance with GAAP; provided that any obligations of the Issuer or its Restricted Subsidiaries either existing on the Issue Date or created prior to any recharacterization described below (i) that were not included on the consolidated balance sheet of the Issuer as capital lease obligations and (ii) that are subsequently recharacterized as capital lease obligations or indebtedness due to a change in accounting treatment or otherwise, shall for all purposes under this Indenture (including, without limitation, the calculation of Consolidated Net Income and EBITDA) not be treated as capital lease obligations, Capitalized Lease Obligations or Indebtedness.
Capitalized Software Expenditures means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a Person and its Restricted Subsidiaries during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in conformity with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of a Person and its Restricted Subsidiaries.
Captive Insurance Subsidiary means (i) any Subsidiary established by the Issuer for the primary purpose of insuring the businesses or properties owned or operated by the Issuer or any of its Subsidiaries or (ii) any Subsidiary of any such insurance subsidiary established for the same primary purpose described in clause (i) above.
Cash Equivalents means:
(a) United States dollars;
(b) (i) Canadian dollars, pounds sterling, yen, euros or any national currency of any participating member state of the EMU; or
(ii) in such local currencies held by the Issuer or any Restricted Subsidiary from time to time in the ordinary course of business;
(c) securities issued or directly and fully and unconditionally guaranteed or insured by the U.S. government or any agency or instrumentality thereof the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 24 months or less from the date of acquisition;
(d) certificates of deposit, time deposits and eurodollar time deposits with maturities of 24 months or less from the date of acquisition, demand deposits, bankers acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic or foreign commercial bank having capital and surplus of not less than $250.0 million in the case of U.S. banks and $100.0 million (or the U.S. dollar equivalent as of the date of determination) in the case of non-U.S. banks;
(e) repurchase obligations for underlying securities of the types described in clauses (c), (d), (g) and (h) of this definition entered into with any financial institution or recognized securities dealer meeting the qualifications specified in clause (d) above;
(f) commercial paper and variable or fixed rate notes rated at least P-2 by Moodys or at least A-2 by S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in each case maturing within 24 months after the date of creation thereof;
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(g) marketable short-term money market and similar funds having a rating of at least P-2 or A-2 from either Moodys or S&P, respectively (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency);
(h) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision or taxing authority thereof having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(i) readily marketable direct obligations issued by any foreign government or any political subdivision or public instrumentality thereof, in each case having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(j) Investments with average maturities of 12 months or less from the date of acquisition in money market funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moodys (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency);
(k) securities with maturities of 12 months or less from the date of acquisition backed by standby letters of credit issued by any financial institution or recognized securities dealer meeting the qualifications specified in clause (d) above;
(l) Indebtedness or Preferred Stock issued by Persons with a rating of A or higher from S&P or A2 or higher from Moodys with maturities of 24 months or less from the date of acquisition; and
(m) investment funds investing at least 90% of their assets in securities of the types described in clauses (a) through (l) above.
In the case of Investments by any Foreign Subsidiary that is a Restricted Subsidiary or Investments made in a country outside the United States of America, Cash Equivalents shall also include (i) investments of the type and maturity described in clauses (a) through (h) and clauses (j), (k), (l) and (m) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies and (ii) other short-term investments utilized by Foreign Subsidiaries that are Restricted Subsidiaries in accordance with normal investment practices for cash management in investments analogous to the foregoing investments in clauses (a) through (m) and in this paragraph.
Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (a) and (b) above, provided that such amounts are converted into any currency listed in clauses (a) and (b) as promptly as practicable and in any event within ten Business Days following the receipt of such amounts.
For the avoidance of doubt, any items identified as Cash Equivalents under this definition will be deemed to be Cash Equivalents for all purposed under this Indenture regardless of the treatment of such items under GAAP.
Casualty Event means any event that gives rise to the receipt by the Issuer or any Restricted Subsidiary of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.
Change of Control means the occurrence of any of the following after the Issue Date:
(a) the sale, lease, transfer, conveyance or other disposition in one or a series of related transactions (other than by merger, consolidation or amalgamation), of all or substantially all of the assets of the Issuer and its Subsidiaries, taken as a whole, to any Person other than any Permitted Holder or any Subsidiary Guarantor; or
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(b) the Issuer becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by (A) any Person (other than any Permitted Holder) or (B) Persons (other than any Permitted Holders) that are together a group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any such group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of more than 50.0% of the total voting power of the Voting Stock of the Issuer directly or indirectly through any of its direct or indirect parent holding companies, in each case, other than in connection with any transaction or series of transactions in which the Issuer shall become the Wholly Owned Subsidiary of a Parent Company.
For the avoidance of doubt, PropCo entities and their Subsidiaries and the Timeshare Disposition (individually or in the aggregate) shall be deemed not to constitute all or substantially all of the Issuers properties or assets for the purposes of this definition.
Change of Control Triggering Event means the occurrence of a Change of Control, unless (a) a Ratings Improvement has occurred prior to the date of the completion of the transaction constituting the Change of Control or (b) pro forma for the Change of Control, the Consolidated Total Debt Ratio is less than 5.0 to 1.0.
Clearstream means Clearstream Banking, Société Anonyme or any successor securities clearing agency.
Co-Issuer means Hilton Worldwide Finance Corp., a Delaware corporation and a direct Subsidiary of the Issuer until a successor Person or Persons shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Co-Issuer shall mean such successor Person or Persons.
Completion Date means the Issue Date or, if the Escrow Conditions have not been satisfied on or prior to the Issue Date, the Escrow Release Date.
consolidated when used with respect to any Person refers to such Person consolidated with its Restricted Subsidiaries.
Consolidated Depreciation and Amortization Expense means with respect to any Person for any period, the total amount of depreciation and amortization expense and capitalized fees related to any Qualified Securitization Facility of such Person, including the amortization of intangible assets, deferred financing costs, debt issuance costs, commissions, fees and expenses and Capitalized Software Expenditures of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.
Consolidated Interest Expense means, with respect to any Person for any period, without duplication, the sum of:
(a) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted (and not added back) in computing Consolidated Net Income (including (i) amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers acceptances, (iii) non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments pursuant to GAAP), (iv) the interest component of Capitalized Lease Obligations, and (v) net payments, if any made (less net payments, if any, received), pursuant to interest rate Hedging Obligations with respect to Indebtedness, and excluding (r) annual agency fees paid to the administrative agents and collateral agents under any Credit Facilities, (s) costs associated with obtaining Hedging Obligations, (t) any expense
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resulting from the discounting of any Indebtedness in connection with the application of recapitalization accounting or, if applicable, purchase accounting in connection with the Transactions or any acquisition, (u) penalties and interest relating to taxes, (v) any Additional Interest and any additional interest or liquidated damages with respect to other securities for failure to timely comply with registration rights obligations, (w) amortization or expensing of deferred financing fees, amendment and consent fees, debt issuance costs, commissions, fees and expenses and discounted liabilities, (x) any expensing of bridge, commitment and other financing fees and any other fees related to the Transactions or any acquisitions after the Issue Date, (y) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Qualified Securitization Facility and (z) any accretion of accrued interest on discounted liabilities and any prepayment premium or penalty); plus
(b) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; less
(c) interest income of such Person and its Restricted Subsidiaries for such period.
For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP; provided that, without duplication:
(a) any after-tax effect of extraordinary, non-recurring or unusual gains or losses (less all fees and expenses relating thereto), charges or expenses (including relating to any multi-year strategic initiatives), Transaction Expenses, restructuring and duplicative running costs, relocation costs, integration costs, facility consolidation and closing costs, severance costs and expenses, one-time compensation charges, costs relating to pre-opening and opening costs for facilities, signing, retention and completion bonuses, costs incurred in connection with any strategic initiatives, transition costs, costs incurred in connection with acquisitions and non-recurring product and intellectual property development, other business optimization expenses (including costs and expenses relating to business optimization programs and new systems design, retention charges, system establishment costs and implementation costs) and operating expenses attributable to the implementation of cost-savings initiatives, and curtailments or modifications to pension and post-retirement employee benefit plans shall be excluded;
(b) the cumulative effect of a change in accounting principles and changes as a result of the adoption or modification of accounting policies during such period shall be excluded;
(c) any net after-tax effect of gains or losses on disposal, abandonment or discontinuance of disposed, abandoned or discontinued operations, as applicable, shall be excluded;
(d) any net after-tax effect of gains or losses (less all fees, expenses and charges relating thereto) attributable to asset dispositions (including, for the avoidance of doubt, bulk subscriber contract sales) or abandonments or the sale or other disposition of any Capital Stock of any Person other than in the ordinary course of business shall be excluded;
(e) the Net Income for such period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting shall be excluded; provided that Consolidated Net Income of such Person shall be increased by the amount of dividends or distributions or other payments (other than Excluded Contributions) that are actually paid in cash (or to the extent converted into cash) to such Person or a Restricted Subsidiary thereof in respect of such period;
(f) solely for the purpose of determining the amount available for Restricted Payments under clause (C)(1) of Section 4.07(a) hereof, the Net Income for such period of any Restricted Subsidiary (other
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than any Guarantor) shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Restricted Subsidiary or its stockholders (other than restrictions in the Notes or this Indenture), unless such restriction with respect to the payment of dividends or similar distributions has been legally waived, provided that Consolidated Net Income of such Person will be increased by the amount of dividends or other distributions or other payments actually paid in Cash Equivalents (or to the extent converted into Cash Equivalents) to such Person or a Restricted Subsidiary thereof in respect of such period, to the extent not already included therein;
(g) effects of adjustments (including the effects of such adjustments pushed down to such Person and its Restricted Subsidiaries) in such Persons consolidated financial statements pursuant to GAAP (including in the inventory (including any impact of changes to inventory valuation policy methods, including changes in capitalization of variances), property and equipment, software, goodwill, intangible assets, in-process research and development, deferred revenue and debt line items thereof) resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Transactions or any consummated acquisition or joint venture investment or the amortization or write-off or write-down of any amounts thereof, net of taxes, shall be excluded;
(h) any after-tax effect of income (loss) from the early extinguishment or conversion of (i) Indebtedness, (ii) Hedging Obligations or (iii) other derivative instruments shall be excluded;
(i) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities and investments recorded using the equity method or as a result of a change in law or regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded;
(j) any equity-based or non-cash compensation charge or expense including any such charge or expense arising from grants of stock appreciation or similar rights, stock options, restricted stock, profits interests or other rights or equity- or equity-based incentive programs ( equity incentives ), any one-time cash charges associated with the equity incentives or other long-term incentive compensation plans (including under the Issuers Tier I equity sharing award agreements and/or deferred compensation arrangements), rollover, acceleration, or payout of Equity Interests by management, other employees or business partners of the Issuer or any of its direct or indirect parent companies, shall be excluded;
(k) any fees, expenses or charges incurred during such period, or any amortization thereof for such period, in connection with any acquisition, recapitalization, Investment, Asset Sale, disposition, incurrence or repayment of Indebtedness (including such fees, expenses or charges related to the offering and issuance of the Notes and other securities and the syndication and incurrence of any Credit Facilities), issuance of Equity Interests, refinancing transaction or amendment or modification of any debt instrument (including any amendment or other modification of the Notes and other securities and any Credit Facilities) and including, in each case, any such transaction consummated on or prior to the Issue Date and any such transaction undertaken but not completed, and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful or consummated (including, for the avoidance of doubt the effects of expensing all transaction related expenses in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 805, Business Combinations ), shall be excluded;
(l) accruals and reserves that are established or adjusted within twelve months after the Issue Date that are so required to be established or adjusted as a result of the Transactions (or within 24 months after the closing of any acquisition that are so required to be established as a result of such acquisition) in accordance with GAAP or changes as a result of modifications of accounting policies shall be excluded;
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(m) any expenses, charges or losses to the extent covered by insurance or indemnity and actually reimbursed, or, so long as such Person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer or indemnifying party and only to the extent that such amount is in fact reimbursed within 365 days of the date of the insurable or indemnifiable event (net of any amount so added back in any prior period to the extent not so reimbursed within the applicable 365-day period), shall be excluded;
(n) any noncash compensation expense resulting from the application of Accounting Standards Codification Topic No. 718, Compensation Stock Compensation , shall be excluded;
(o) the following items shall be excluded:
(i) any net unrealized gain or loss (after any offset) resulting in such period from Hedging Obligations and the application of Accounting Standards Codification Topic No. 815, Derivatives and Hedging ;
(ii) any net unrealized gain or loss (after any offset) resulting in such period from currency translation gains or losses including those related to currency remeasurements of Indebtedness (including any net loss or gain resulting from Hedging Obligations for currency exchange risk) and any other foreign currency translation gains and losses, to the extent such gain or losses are non-cash items;
(iii) any adjustments resulting for the application of Accounting Standards Codification Topic No. 460, Guarantees, or any comparable regulation;
(iv) effects of adjustments to accruals and reserves during a prior period relating to any change in the methodology of calculating reserves for returns, rebates and other chargebacks; and
(v) earn-out and contingent consideration obligations (including to the extent accounted for as bonuses or otherwise) and adjustments thereof and purchase price adjustments;
(p) reserves established for the benefit of landlords of leased hotel properties for the acquisition of capitalized assets and equipment at such properties shall be excluded; and
(q) if such Person is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period or any portion thereof, the amount of distributions actually made to any direct or indirect parent company of such Person in respect of such period in accordance with clause (xv)(B) under Section 4.07(b) shall be included in calculating Consolidated Net Income as though such amounts had been paid as taxes directly by such Person for such period.
In addition, to the extent not already included in the Consolidated Net Income of such Person and its Restricted Subsidiaries, notwithstanding anything to the contrary in the foregoing, Consolidated Net Income shall include the amount of proceeds received from business interruption insurance and reimbursements of any expenses and charges that are covered by indemnification or other reimbursement provisions in connection with any acquisition, Investment or any sale, conveyance, transfer or other disposition of assets permitted under this Indenture.
Notwithstanding the foregoing, for the purpose of Section 4.07 hereof only (other than clause (C)(4) of Section 4.07(a) hereof), there shall be excluded from Consolidated Net Income any income arising from any sale or other disposition of Restricted Investments made by the Issuer and its Restricted Subsidiaries, any repurchases and redemptions of Restricted Investments from the Issuer and its Restricted Subsidiaries, any repayments of loans and advances which constitute Restricted Investments by the Issuer or any of its Restricted Subsidiaries, any sale of the stock of an Unrestricted Subsidiary or any distribution or dividend from an Unrestricted Subsidiary, in each case only to the extent such amounts increase the amount of Restricted Payments permitted under such covenant pursuant to clause (C)(4) of Section 4.07(a) hereof.
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Consolidated Secured Debt Ratio as of any date of determination means, the ratio of (a) Consolidated Total Indebtedness of the Issuer and its Restricted Subsidiaries that is secured by Liens on the property of the Issuer and its Restricted Subsidiaries as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur minus Cash Equivalents included on the consolidated balance sheet of the Issuer as of the end of such most recent fiscal quarter to (b) EBITDA of the Issuer for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness, Cash Equivalents and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.
Consolidated Total Debt Ratio as of any date of determination means, the ratio of (a) Consolidated Total Indebtedness of the Issuer and its Restricted Subsidiaries as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur minus Cash Equivalents included on the consolidated balance sheet of the Issuer as of the end of such most recent fiscal quarter to (b) EBITDA of the Issuer for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness, Cash Equivalents and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.
Consolidated Total Indebtedness means, as at any date of determination, an amount equal to the sum of (a) the aggregate amount of all outstanding Indebtedness of the Issuer and its Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, Obligations in respect of Capitalized Lease Obligations and debt obligations evidenced by promissory notes and similar instruments, as determined in accordance with GAAP (excluding for the avoidance of doubt all undrawn amounts under revolving credit facilities and letters of credit, and all obligations relating to Qualified Securitization Facilities) and (b) the aggregate amount of all outstanding Disqualified Stock of the Issuer and all Preferred Stock of its Restricted Subsidiaries on a consolidated basis, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP (but excluding the effects of any discounting of Indebtedness resulting from the application of repurchase or purchase accounting in connection with the Transactions or any acquisition); provided that Consolidated Total Indebtedness shall not include Indebtedness in respect of (A) any letter of credit, except to the extent of unreimbursed amounts under standby letters of credit and (B) Hedging Obligations existing on the Issue Date or otherwise permitted by Section 4.09(b)(x) hereof. For purposes hereof, the maximum fixed repurchase price of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be determined reasonably and in good faith by the Issuer. The U.S. Dollar Equivalent principal amount of any Indebtedness denominated in a foreign currency will reflect the currency translation effects, determined in accordance with GAAP, of Hedging Obligations for currency exchange risks with respect to the applicable currency in effect on the date of determination of the U.S. Dollar Equivalent principal amount of such Indebtedness.
Contingent Obligations means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness ( primary obligations ) of any other Person (the primary obligor ) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(a) to purchase any such primary obligation or any property constituting direct or indirect security therefor;
(b) to advance or supply funds:
(i) for the purchase or payment of any such primary obligation; or
(ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
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Controlled Investment Affiliate means, as to any Person, any other Person, other than any Investor, which directly or indirectly is in control of, is controlled by, or is under common control with such Person and is organized by such Person (or any Person controlling such Person) primarily for making direct or indirect equity or debt investments in the Issuer and/or other companies.
Corporate Trust Office means the office of the Trustee at which any time its corporate trust business related to this Indenture shall be administered, which office at the date hereof is Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890, Attention: W. Thomas Morris, II, or such other address as the Trustee may designate from time to time by notice to the Holders and the Issuers, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Issuers).
Corporate Realignment means a corporate realignment of the non-U.S. assets and operations of the Issuer and its subsidiaries, substantially on the terms described in the Offering Memorandum under SummaryCorporate Realignment, including but not limited to transfers of certain assets and liabilities to non-U.S. Subsidiaries of the Issuer.
Credit Agreement means that certain Credit Agreement, to be dated on or about the Completion Date, by and among the Issuer, Holdings, Deutsche Bank AG, New York Branch, as administrative agent, and the lenders and other parties party thereto.
Credit Facilities means, with respect to the Issuer or any of its Restricted Subsidiaries, one or more debt facilities, including the Senior Secured Credit Facilities, or other financing arrangements (including, without limitation, commercial paper facilities or indentures) providing for revolving credit loans, term loans, letters of credit or other long-term indebtedness, including any notes, mortgages, guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof, in whole or in part, and any indentures or credit facilities or commercial paper facilities that replace, refund, supplement or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding, supplemental or refinancing facility, arrangement or indenture that increases the amount permitted to be borrowed or issued thereunder or alters the maturity thereof ( provided that such increase in borrowings or issuances is permitted under Section 4.09 hereof) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, trustee, lender or group of lenders or other holders.
Custodian means the Trustee, as custodian with respect to the Notes, each in global form, or any successor entity thereto.
Cut-Off Date means February 1, 2014 or, if such day is not a Business Day, the first following day that is a Business Day.
Default means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
Definitive Note means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06(c) hereof, substantially in the form of Exhibit A hereto, except that such Note shall not bear the Global Note Legend and shall not have the Schedule of Exchanges of Interests in the Global Note attached thereto.
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Depositary means, with respect to the Notes issuable or issued in whole or in part in global form, any Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
Designated Non-cash Consideration means the fair market value of non-cash consideration received by the Issuer or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers Certificate, setting forth the basis of such valuation, executed by the principal financial officer of the Issuer, less the amount of Cash Equivalents received in connection with a subsequent sale, redemption or repurchase of or collection or payment on such Designated Non-cash Consideration.
Designated Preferred Stock means Preferred Stock of the Issuer or any direct or indirect parent company thereof (in each case other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary or an employee stock ownership plan or trust established by the Issuer or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers Certificate executed by the principal financial officer of the Issuer or the applicable parent company thereof, as the case may be, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof.
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person which, by its terms, or by the terms of any security into which it is convertible or for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely as a result of a change of control or asset sale) pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than solely as a result of a change of control or asset sale), in whole or in part, in each case prior to the date 91 days after the earlier of the maturity date of the Notes or the date the Notes are no longer outstanding; provided that if such Capital Stock is issued to any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations; provided , further , that any Capital Stock held by any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries, any of its direct or indirect parent companies or any other entity in which the Issuer or a Restricted Subsidiary has an Investment and is designated in good faith as an affiliate by the Board of Directors of the Issuer (or the compensation committee thereof), in each case pursuant to any stock subscription or shareholders agreement, management equity plan or stock option plan or any other management or employee benefit plan or agreement shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer or its Subsidiaries or in order to satisfy applicable statutory or regulatory obligations.
EBITDA means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period:
(a) increased (without duplication) by the following, in each case (other than with respect to clauses (viii) and (xi)) to the extent deducted (and not added back) in determining Consolidated Net Income for such period:
(i) (A) provision for taxes based on income or profits or capital, including, without limitation, federal, state, franchise, and similar taxes (such as the Delaware franchise tax, the Pennsylvania capital tax, Texas margin tax and provincial capital taxes paid in Canada) and foreign withholding taxes (including any future taxes or other levies which replace or are intended to be in lieu of such taxes and any penalties and interest related to such taxes or arising from tax examinations), (B) if such Person is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period or any portion thereof, the amount of distributions actually made to any direct or indirect parent company of such Person in respect of such period in accordance with clause (xv)(B) under Section 4.07(b) and (C) the net tax expense associated with any adjustments made pursuant to clauses (a) through (q) of the definition of Consolidated Net Income ; plus
(ii) Fixed Charges of such Person for such period (including (x) net losses on Hedging Obligations or other derivative instruments entered into for the purpose of hedging interest rate
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risk, (y) bank fees and other financing fees and (z) costs of surety bonds in connection with financing activities, plus amounts excluded from Consolidated Interest Expense as set forth in clauses (a)(r) through (z) in the definition thereof); plus
(iii) Consolidated Depreciation and Amortization Expense of such Person for such period; plus
(iv) the amount of any restructuring charges or reserves, equity-based or non-cash compensation charges or expenses including any such charges or expenses arising from grants of stock appreciation or similar rights, stock options, restricted stock or other rights, retention charges (including charges or expenses in respect of incentive plans), start-up or initial costs for any project or new production line, division or new line of business or other business optimization expenses or reserves including, without limitation, costs or reserves associated with improvements to IT and accounting functions, integration and facilities opening costs or any one-time costs incurred in connection with acquisitions and Investments and costs related to the closure and/or consolidation of facilities; plus
(v) any other non-cash charges, including any write-offs or write-downs reducing Consolidated Net Income for such period ( provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, (A) the Issuer may elect not to add back such non-cash charge in the current period and (B) to the extent the Issuer elects to add back such non-cash charge, the cash payment in respect thereof in such future period shall be subtracted from EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period); plus
(vi) the amount of any non-controlling interest or minority interest expense consisting of Subsidiary income attributable to minority equity interests of third parties in any non-Wholly Owned Subsidiary; plus
(vii) the amount of management, monitoring, consulting, advisory fees and other fees (including termination fees) and indemnities and expenses paid or accrued in such period under the Support and Services Agreement (and related agreements or arrangements) or otherwise to the Investors to the extent otherwise permitted under Section 4.11 hereof; plus
(viii) the amount of run-rate cost savings, operating expense reductions and synergies projected by the Issuer in good faith to result from actions taken, committed to be taken or expected in good faith to be taken no later than 24 months after the end of such period (calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period for which EBITDA is being determined and as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period), net of the amount of actual benefits realized during such period from such actions; provided that such cost savings and synergies are reasonably identifiable and factually supportable (it is understood and agreed that run-rate means the full recurring benefit for a period that is associated with any action taken, committed to be taken or expected to be taken, net of the amount of actual benefits realized during such period from such actions); plus
(ix) the amount of loss or discount on sale of receivables, Securitization Assets and related assets to any Securitization Subsidiary in connection with a Qualified Securitization Facility; plus
(x) any costs or expense incurred by the Issuer or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of the Issuer or net cash proceeds of an issuance of Equity Interest of the Issuer (other than Disqualified Stock) solely to the extent that such net cash proceeds are excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof; plus
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(xi) cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Consolidated Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to clause (b) below for any previous period and not added back; plus
(xii) any net loss from disposed, abandoned or discontinued operations; and
(b) decreased (without duplication) by the following, in each case to the extent included in determining Consolidated Net Income for such period:
(i) non-cash gains increasing Consolidated Net Income of such Person for such period, excluding any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced EBITDA in any prior period and any non-cash gains with respect to cash actually received in a prior period so long as such cash did not increase EBITDA in such prior period; plus
(ii) any net income from disposed, abandoned or discontinued operations.
EMU means economic and monetary union as contemplated in the Treaty on European Union.
Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.
Equity Offering means any public or private sale or issuance of common stock or Preferred Stock (excluding Disqualified Stock) of the Issuer or any of its direct or indirect parent companies, other than:
(a) public offerings with respect to the Issuers or any direct or indirect parent companys common stock registered on Form S-4 or Form S-8;
(b) issuances to any Subsidiary of the Issuer; and
(c) any such public or private sale or issuance that constitutes an Excluded Contribution.
Escrow Account means a segregated account, under the control of the Trustee, that includes only cash and U.S. Government Securities, the proceeds thereof and interest earned thereon, free from all Liens other than the Lien in favor of the Trustee for its benefit and the benefit of the holders of the Notes pursuant to the Escrow Agreement.
Escrow Agent means Wilmington Trust, National Association, in its capacity as escrow agent.
Escrow Agreement means the escrow agreement, dated as of October 4, 2013, among the Issuers, the Trustee and the Escrow Agent, relating to the proceeds received by the Issuers from the offer and sale of the Notes.
Escrow Conditions has the meaning assigned to such term in the Escrow Agreement.
Escrowed Property has the meaning assigned to such term in the Escrow Agreement.
Escrow Redemption Date means a day specified in an Escrow Redemption Notice to redeem all the Notes that is not more than 30 days following the date notice of redemption is provided pursuant to this Indenture and no later than the Final Escrow Redemption Date.
Escrow Redemption Notice has the meaning assigned to such term in the Escrow Agreement.
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Escrow Redemption Price means a price equal to 100% of the principal amount of the Notes offered hereby, plus accrued and unpaid interest thereon from the Issue Date to, but excluding, the Escrow Redemption Date.
Escrow Release Date means the date, if any, when the Escrow Conditions are satisfied.
euro means the single currency of participating member states of the EMU.
Euroclear means Euroclear Bank S.A./N.V., as operator of the Euroclear system, or any successor securities clearing agency.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes means any Notes issued in an Exchange Offer pursuant to Section 2.06(f) hereof.
Exchange Offer has the meaning assigned to such term in the Registration Rights Agreement.
Exchange Offer Registration Statement has the meaning assigned to such term in the Registration Rights Agreement.
Excluded Contribution means net cash proceeds, marketable securities or Qualified Proceeds received by the Issuer from:
(a) contributions to its common equity capital;
(b) dividends, distributions, fees and other payments from (i) any PropCo entity and its Subsidiaries and (ii) any joint ventures that are not Restricted Subsidiaries; and
(c) the sale (other than to a Subsidiary of the Issuer or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Issuer) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Issuer,
in each case designated as Excluded Contributions pursuant to an Officers Certificate executed by the principal financial officer of the Issuer within 180 days of the date such capital contributions are made, such dividends, distributions, fees or other payments are paid, or the date such Equity Interests are sold, as the case may be, which are excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof.
Existing Debt Agreements means, collectively, the Existing Mortgage Loan Agreement and the Existing Mezzanine Loan Agreements (in each case as amended, restated, supplemented or modified from time to time).
Existing Mezzanine Loan Agreements means, collectively: (i) that certain Mezzanine A Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (ii) that certain Mezzanine B Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (iii) that certain Mezzanine C Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (iv) that certain Mezzanine D Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (v) that certain Mezzanine E Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (vi) that certain Mezzanine F Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (vii) that certain Mezzanine G Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities
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listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (viii) that certain Mezzanine H Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (ix) that certain Mezzanine I Loan Agreement, dated as of October 24, 2007, among the entities listed thereto as lender and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009 and April 7, 2010; (x) that certain Second Amended and Restated Mezzanine J Loan Agreement, dated as of April 7, 2010, among Hilton Worldwide Holdings Inc., as lender, and each of the entities listed thereto as borrower, as assigned from Hilton Worldwide Holdings Inc. to Hilton Worldwide, Inc. pursuant to that certain Omnibus Assignment and Assumption of Mezzanine J Loan Agreement and Loan Documents, dated as of June 30, 2013, among Hilton Worldwide Holdings Inc., as assignor, and Hilton Worldwide, Inc., as assignee; and (xi) that certain Second Amended and Restated Mezzanine K Loan Agreement, dated as of April 7, 2010, among Hilton Worldwide Holdings Inc., as lender, and each of the entities listed thereto as borrower, as assigned from Hilton Worldwide Holdings Inc. to Hilton Worldwide, Inc. pursuant to that certain Omnibus Assignment and Assumption of Mezzanine K Loan Agreement and Loan Documents, dated as of June 30, 2013, among Hilton Worldwide Holdings Inc., as assignor, and Hilton Worldwide, Inc., as assignee.
Existing Mortgage Loan Agreement means that certain Loan Agreement, dated as of October 24, 2007, among Bear Stearns Commercial Mortgage, Inc., Bank of America, N.A., German American Capital Corporation, Goldman Sachs Mortgage Company, Morgan Stanley Mortgage Capital Holdings LLC, Merrill Lynch Mortgage Lending Inc. and Lehman Brothers Holdings Inc., collectively, as lender, Bear, Stearns International Limited, as security agent, and the entities listed thereto as borrower, as amended on December 15, 2007, May 30, 2008, January 27, 2009, May 7, 2009 and April 7, 2010.
fair market value means, with respect to any asset or liability, the fair market value of such asset or liability as determined by the Issuer in good faith.
Final Escrow Redemption Date means February 4, 2014.
Fixed Charge Coverage Ratio means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Issuer or any Restricted Subsidiary incurs, assumes, guarantees, redeems, repays, retires or extinguishes any Indebtedness (other than Indebtedness incurred or repaid under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) or issues or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to or simultaneously with the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Fixed Charge Coverage Ratio Calculation Date ), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption, repayment, retirement or extinguishment of Indebtedness, or such issuance or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period; provided, however , that the pro forma calculation of Fixed Charges for purposes of Section 4.09(a) (and for the purposes of other provisions of this Indenture that refer to Section 4.09(a)) shall not give effect to any Indebtedness being incurred on such date (or expected to be incurred thereafter) pursuant to Section 4.09(b).
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (as determined in accordance with GAAP) that have been made by the Issuer or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Fixed Charge Coverage Ratio Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (and the change in any associated fixed charge obligations and the change in EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into the Issuer or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation had occurred at the beginning of the applicable four-quarter period.
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For purposes of this definition, whenever pro forma effect is to be given to an Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation (including the Transactions), the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Issuer (and may include, for the avoidance of doubt, cost savings, synergies and operating expense reductions resulting from such Investment, acquisition, merger, amalgamation or consolidation (including the Transactions) which is being given pro forma effect that have been or are expected to be realized based on actions taken, committed to be taken or expected in good faith to be taken within 18 months). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Fixed Charge Coverage Ratio Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period except as set forth in the first paragraph of this definition. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate.
Fixed Charges means, with respect to any Person for any period, the sum of, without duplication:
(a) Consolidated Interest Expense of such Person for such period;
(b) all cash dividends or other distributions paid (excluding items eliminated in consolidation) on any series of Preferred Stock during such period; and
(c) all cash dividends or other distributions paid (excluding items eliminated in consolidation) on any series of Disqualified Stock during such period.
Foreign Subsidiary means, with respect to any Person, any Restricted Subsidiary of such Person that is not organized or existing under the laws of the United States, any state thereof or the District of Columbia, and any Restricted Subsidiary of such Foreign Subsidiary.
GAAP means (1) generally accepted accounting principles in the United States of America which are in effect on the Issue Date or (2) if elected by the Issuer by written notice to the Trustee in connection with the delivery of financial statements and information, the accounting standards and interpretations ( IFRS ) adopted by the International Accounting Standard Board, as in effect on the first date of the period for which the Issuer is making such election; provided that (a) any such election once made shall be irrevocable, (b) all financial statements and reports required to be provided after such election pursuant to this Indenture shall be prepared on the basis of IFRS, (c) from and after such election, all ratios, computations and other determinations based on GAAP contained in this Indenture shall be computed in conformity with IFRS, (d) in connection with the delivery of financial statements (x) for any of its first three financial quarters of any financial year, it shall restate its consolidated interim financial statements for such interim financial period and the comparable period in the prior year to the extent previously prepared in accordance with GAAP as in effect on the Issue Date and (y) for delivery of audited annual financial information, it shall provide consolidated historical financial statements prepared in accordance with IFRS for the prior most recent fiscal year to the extent previously prepared in accordance with GAAP as in effect on the Issue Date.
Global Note Legend means the legend set forth in Section 2.06(g)(ii) hereof, which is required to be placed on all Global Notes issued under this Indenture.
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Global Notes means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A hereto, issued in accordance with Section 2.01, 2.06(b), 2.06(d) or 2.06(f) hereof.
guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
Guarantee means the guarantee by any Guarantor of the Issuers Obligations under this Indenture and the Notes.
Guarantor means (i) Holdings and (ii) each Subsidiary of the Issuer, if any, that Guarantees the Notes in accordance with the terms of this Indenture. On the Issue Date, Holdings will be the only Guarantor. As of the Completion Date as one of the Escrow Conditions, each Restricted Subsidiary that guarantees any Indebtedness of the Issuer under the Senior Secured Credit Facilities will be required to execute and deliver a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, pursuant to which such Restricted Subsidiary shall Guarantee the Notes.
Hedging Obligations means, with respect to any Person, the obligations of such Person under any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, commodity swap agreement, commodity cap agreement, commodity collar agreement, foreign exchange contract, currency swap agreement or similar agreement providing for the transfer, modification or mitigation of interest rate, currency or commodity risks either generally or under specific contingencies.
Holder means the Person in whose name a Note is registered on the Registrars books.
Holdings means Hilton Worldwide Holdings Inc., a Delaware corporation and the direct parent of the Issuer, and its successors.
Immediate Family Members means with respect to any individual, such individuals child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, qualified domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships) and any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
Indebtedness means, with respect to any Person, without duplication:
(a) any indebtedness (including principal and premium) of such Person, whether or not contingent:
(i) in respect of borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers acceptances (or, without duplication, reimbursement agreements in respect thereof);
(iii) representing the balance deferred and unpaid of the purchase price of any property (including Capitalized Lease Obligations), except (A) any such balance that constitutes an obligation in respect of a commercial letter of credit, a trade payable or similar obligation to a trade creditor, in each case accrued in the ordinary course of business and (B) any earn-out obligations until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and is not paid after becoming due and payable; or
(iv) representing the net obligations under any Hedging Obligations,
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if and to the extent that any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP; provided that Indebtedness of any direct or indirect parent of the Issuer appearing upon the balance sheet of the Issuer solely by reason of push-down accounting under GAAP shall be excluded;
(b) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, the obligations of the type referred to in clause (a) of a third Person (whether or not such items would appear upon the balance sheet of such obligor or guarantor), other than by endorsement of negotiable instruments for collection in the ordinary course of business; and
(c) to the extent not otherwise included, the obligations of the type referred to in clause (a) of a third Person secured by a Lien on any asset owned by such first Person, whether or not such Indebtedness is assumed by such first Person;
provided that notwithstanding the foregoing, Indebtedness shall be deemed not to include (a) Contingent Obligations incurred in the ordinary course of business, or (b) obligations under or in respect of Qualified Securitization Facilities, operating leases or Sale and Lease-Back Transactions (except any resulting Capitalized Lease Obligations); provided, further , that Indebtedness shall be calculated without giving effect to the effects of Financial Accounting Standards Board Accounting Standards Codification Topic No. 815 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness.
Indenture means this Indenture, as amended, supplemented or otherwise modified from time to time.
Independent Financial Advisor means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the good faith judgment of the Issuer, qualified to perform the task for which it has been engaged.
Indirect Participant means a Person who holds a beneficial interest in a Global Note through a Participant.
Initial Notes has the meaning set forth in the recitals hereto.
Initial Purchasers means the initial purchasers of the Notes on the Issue Date pursuant to the purchase agreement, dated as of September 20, 2013, among the Issuers, Holdings and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of such initial purchasers.
Interest Payment Date means April 15 and October 15 of each year to stated maturity.
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, or if the applicable securities are not then rated by Moodys or S&P, an equivalent rating by any other Rating Agency.
Investment Grade Securities means:
(a) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents);
(b) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Issuer and its Subsidiaries;
(c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment or distribution; and
(d) corresponding instruments in countries other than the United States customarily utilized for high quality investments.
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Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit, advances to customers, commission, travel and similar advances to employees, directors, officers, managers and consultants, in each case made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet (excluding the footnotes) of the Issuer in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of Unrestricted Subsidiary and Section 4.07 hereof:
(a) Investments shall include the portion (proportionate to the Issuers equity interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary; and
(b) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer.
The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in Cash Equivalents by the Issuer or a Restricted Subsidiary in respect of such Investment.
Investors means any of the Blackstone Funds and any of their Affiliates but not including, however, any of its or such Affiliates portfolio companies.
Issue Date means October 4, 2013.
Issuer and Issuers has the meaning set forth in the recitals hereto until a successor Person or Persons shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Issuer and Issuers shall mean such successor Person or Persons.
Issuers Order means a written request or order signed on behalf of each of the Issuer and the Co-Issuer by an Officer of the Issuer and the Co-Issuer, as applicable, who must be the principal executive officer, the principal financial officer, the treasurer, the secretary, the principal accounting officer or an executive vice president of the Issuer and the Co-Issuer, as applicable, and delivered to the Trustee.
Legal Holiday means a Saturday, a Sunday or a day on which commercial banking institutions are not required to be open in the State of New York or at the place of payment. If a payment date is on a Legal Holiday, payment will be made on the next succeeding day that is not a Legal Holiday and no interest shall accrue for the intervening period.
Letter of Transmittal means the letter of transmittal to be prepared by the Issuers and sent to all Holders for use by such Holders in connection with an Exchange Offer.
Lien means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.
Management Stockholders means the employees and members of management (and their Controlled Investment Affiliates and Immediate Family Members) of the Issuer (or its parent entities) who are holders of Equity Interests of any direct or indirect parent companies of the Issuer on the Issue Date.
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Market Capitalization means an amount equal to (a) the total number of issued and outstanding shares of common Equity Interests of Holdings on the date of the declaration of a Restricted Payment permitted pursuant to clause (ix) of Section 4.07(b) hereof, multiplied by (b) the arithmetic mean of the closing prices per share of such common Equity Interests on the principal securities exchange on which such common Equity Interests are traded for the 30 consecutive trading days immediately preceding the date of declaration of such Restricted Payment.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Net Income means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
Net Proceeds means the aggregate Cash Equivalents proceeds received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale, including any Cash Equivalents received upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale, net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration, including legal, accounting and investment banking fees, payments made in order to obtain a necessary consent or required by applicable law, and brokerage and sales commissions, any relocation expenses incurred as a result thereof, other fees and expenses, including title and recordation expenses, taxes paid or payable as a result thereof or any transactions occurring or deemed to occur to effectuate a payment under this Indenture (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of principal, premium, if any, and interest on Senior Indebtedness or amounts required to be applied to the repayment of Indebtedness secured by a Lien on such assets and required (other than required by clause (i) of Section 4.10(b) hereof) to be paid as a result of such transaction and any deduction of appropriate amounts to be provided by the Issuer or any of its Restricted Subsidiaries as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Issuer or any of its Restricted Subsidiaries after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
Non-U.S. Person means a Person who is not a U.S. Person.
Notes means the Initial Notes and more particularly means any Note authenticated and delivered under this Indenture. Unless the context requires otherwise, all references to Notes for all purposes of this Indenture shall include any Additional Notes that are actually issued. The Notes offered by the Issuers and any Additional Notes subsequently issued under this Indenture will be treated as a single class for all purposes under this Indenture, including waivers, amendments, redemptions and offers to purchase, except for certain waivers and amendments as set forth herein.
Obligations means any principal, interest (including any interest accruing on or subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law), premium, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and bankers acceptances), damages and other liabilities, and guarantees of payment of such principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Indebtedness; provided that any of the foregoing (other than principal and interest) shall no longer constitute Obligations after payment in full of such principal and interest except to the extent such obligations are fully liquidated and non-contingent on or prior to such payment in full.
Offering Memorandum means the offering memorandum, dated September 20, 2013, relating to the sale of the Initial Notes.
Officer means the Chairman of the Board of Directors, the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of any Person, or any other officer of such Person designated by any such individuals. Unless otherwise indicated, Officer shall refer to an Officer of the Issuer.
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Officers Certificate means a certificate signed on behalf of a Person by an Officer of such Person that meets the requirements set forth in this Indenture. Unless otherwise indicated, Officers Certificate shall refer to an Officers Certificate of an Officer of each Issuer.
Opinion of Counsel means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer, the Co-Issuer or the Trustee.
Outside Date means the earlier of (a) the Cut-off Date, and (b) such earlier date as the Issuers determine (as notified to the Trustee and the Escrow Agent in writing by the Issuers pursuant to the Escrow Agreement) in their sole discretion that any of the Escrow Conditions cannot be satisfied.
Parent Company means any Person so long as such Person directly or indirectly holds 100.0% of the total voting power of the Capital Stock of the Issuer, and at the time such Person acquired such voting power, no Person and no group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision), including any such group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) (other than any Permitted Holder), shall have beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), directly or indirectly, of 50.0% or more of the total voting power of the Voting Stock of such Person.
Participant means, with respect to the Depositary, a Person who has an account with the Depositary (and, with respect to DTC, shall include Euroclear and Clearstream).
Participating Broker-Dealer has the meaning set forth in the Registration Rights Agreement.
Permitted Asset Swap means the substantially concurrent purchase and sale or exchange of Related Business Assets or a combination of Related Business Assets and Cash Equivalents between the Issuer or any of its Restricted Subsidiaries and another Person; provided that any Cash Equivalents received must be applied in accordance with Section 4.10 hereof.
Permitted Holders means any of the Investors and Management Stockholders and any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) of which any of the foregoing are members; provided that in the case of such group and without giving effect to the existence of such group or any other group, such Investors and Management Stockholders, collectively, have beneficial ownership of more than 50.0% of the total voting power of the Voting Stock of the Issuer or any of its direct or indirect parent companies. Any Person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of this Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.
Permitted Intercompany Activities means any transactions between or among the Issuer and its Subsidiaries (for the avoidance of doubt, including Unrestricted Subsidiaries) that are entered into in the ordinary course of business of the Issuer and its Subsidiaries and, in the good faith judgment of the Issuer are necessary or advisable in connection with the ownership or operation of the business of the Issuer and its Subsidiaries, including, but not limited to, (a) payroll, cash management, purchasing, insurance and hedging arrangements; (b) management, technology and licensing arrangements; and (c) HHonors and similar customer loyalty and rewards programs.
Permitted Investments means:
(a) any Investment in the Issuer or any of its Restricted Subsidiaries;
(b) any Investment in Cash Equivalents or Investment Grade Securities;
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(c) any Investment by the Issuer or any of its Restricted Subsidiaries in a Person (including, to the extent constituting an Investment, in assets of a Person that represent substantially all of its assets or a division, business unit or product line, including research and development and related assets in respect of any product) that is engaged directly or through entities that will be Restricted Subsidiaries in a Similar Business if as a result of such Investment:
(i) such Person becomes a Restricted Subsidiary; or
(ii) such Person, in one transaction or a series of related transactions, is amalgamated, merged or consolidated with or into, or transfers or conveys substantially all of its assets (or such division, business unit or product line) to, or is liquidated into, the Issuer or a Restricted Subsidiary,
and, in each case, any Investment held by such Person; provided that such Investment was not acquired by such Person in contemplation of such acquisition, merger, amalgamation, consolidation or transfer;
(d) any Investment in securities or other assets, including earn-outs, not constituting Cash Equivalents or Investment Grade Securities and received in connection with an Asset Sale made pursuant to Section 4.10(a) hereof or any other disposition of assets not constituting an Asset Sale;
(e) any Investment existing on the Issue Date or made pursuant to binding commitments in effect on the Issue Date or an Investment consisting of any extension, modification or renewal of any such Investment or binding commitment existing on the Issue Date; provided that the amount of any such Investment may be increased in such extension, modification or renewal only (i) as required by the terms of such Investment or binding commitment as in existence on the Issue Date (including as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities) or (ii) as otherwise permitted under this Indenture;
(f) any Investment acquired by the Issuer or any of its Restricted Subsidiaries:
(i) consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business;
(ii) in exchange for any other Investment or accounts receivable, endorsements for collection or deposit held by the Issuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable (including any trade creditor or customer); or
(iii) in satisfaction of judgments against other Persons; or
(iv) as a result of a foreclosure by the Issuer or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(g) Hedging Obligations permitted under Section 4.09(b)(x) hereof;
(h) any Investment in a Similar Business taken together with all other Investments made pursuant to this clause (h) that are at that time outstanding not to exceed 4.0% of Total Assets (in each case, determined on the date such Investment is made, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided , however , that if any Investment pursuant to this clause (h) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (a) above and shall cease to have been made pursuant to this clause (h);
(i) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of the Issuer, or any of its direct or indirect parent companies; provided that such Equity Interests will not increase the amount available for Restricted Payments under clause (C) of Section 4.07(a) hereof;
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(j) guarantees of Indebtedness permitted under Section 4.09 hereof, performance guarantees and Contingent Obligations incurred in the ordinary course of business or consistent with past practice and the creation of Liens on the assets of the Issuer or any Restricted Subsidiary in compliance with Section 4.12 hereof;
(k) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of Section 4.11(b) hereof (except transactions described in clauses (ii), (v), (ix) and (xxiii) of Section 4.11(b) hereof);
(l) Investments consisting of purchases or other acquisitions of inventory, supplies, material or equipment or the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(m) Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (m) that are at that time outstanding (without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities), not to exceed 4.0% of Total Assets (in each case, determined on the date such Investment is made, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided, however , that if any Investment pursuant to this clause (m) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary after such date, such investment shall thereafter be deemed to have been made pursuant to clause (a) above and shall cease to have been made pursuant to this clause (m);
(n) Investments in or relating to a Securitization Subsidiary that, in the good faith determination of the Issuer are necessary or advisable to effect any Qualified Securitization Facility (including any contribution of replacement or substitute assets to such subsidiary) or any repurchase obligation in connection therewith;
(o) advances to, or guarantees of Indebtedness of, employees not in excess of $25.0 million outstanding in the aggregate;
(p) loans and advances to employees, directors, officers, managers and consultants (i) for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices or (ii) to fund such Persons purchase of Equity Interests of the Issuer or any direct or indirect parent company thereof;
(q) advances, loans or extensions of trade credit in the ordinary course of business or consistent with past practice by the Issuer or any of its Restricted Subsidiaries;
(r) any Investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business or consistent with past practice;
(s) Investments consisting of purchases and acquisitions of assets or services in the ordinary course of business or consistent with past practice;
(t) Investments made in the ordinary course of business or consistent with past practice in connection with obtaining, maintaining or renewing client contacts;
(u) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business or consistent with past practice;
(v) repurchases of Notes;
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(w) Investments in the ordinary course of business or consistent with past practice consisting of Uniform Commercial Code Article 3 endorsements for collection of deposit and Article 4 customary trade arrangements with customers consistent with past practices;
(x) Investments consisting of promissory notes issued by the Issuer or any Guarantor to future, present or former officers, directors and employees, members of management, or consultants of the Issuer or any of its Subsidiaries or their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Issuer or any direct or indirect parent thereof, to the extent the applicable Restricted Payment is a permitted by Section 4.07 hereof;
(y) Investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or consistent with past practice or upon the foreclosure with respect to any secured Investment or other transfer of title with respect to any secured Investment;
(z) Investments (i) by the Captive Insurance Subsidiary made in the ordinary course of its business or consistent with past practice, and (ii) in the Captive Insurance Subsidiary in the ordinary course of business or required under statutory or regulatory authority applicable to such Captive Insurance Subsidiary;
(aa) Investments made in connection with Permitted Intercompany Activities and the Corporate Realignment and related transactions;
(bb) Investments in joint ventures of the Issuer or any of its Restricted Subsidiaries existing on the Issue Date; and
(cc) Investments in joint ventures of the Issuer or any of its Restricted Subsidiaries, taken together with all other Investments made pursuant to this clause (cc) that are at that time outstanding, not to exceed 2.0% of Total Assets (in each case, determined on the date such Investment is made, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value).
Permitted Liens means, with respect to any Person:
(a) pledges, deposits or security by such Person under workmens compensation laws, unemployment insurance, employers health tax, and other social security laws or similar legislation or other insurance-related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;
(b) Liens imposed by law, such as landlords, carriers, warehousemens, materialmens, repairmens and mechanics Liens, in each case for sums not yet overdue for a period of more than 45 days or, if more than 45 days overdue, that are unfiled and no other action has been taken to enforce such Lien or that are being contested in good faith by appropriate actions or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
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(c) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than 30 days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(d) Liens in favor of issuers of performance, surety, bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit or bankers acceptances issued, and completion guarantees provided for, in each case, issued pursuant to the request of and for the account of such Person in the ordinary course of its business or consistent with past practice prior to the Issue Date;
(e) minor survey exceptions, minor encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights-of-way, servitudes, sewers, electric lines, drains, telegraph, telephone and cable television lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects and irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental, to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries, taken as a whole, and exceptions on title policies insuring liens granted on Mortgaged Properties (as defined in the Senior Secured Credit Facilities);
(f) Liens securing Obligations relating to any Indebtedness permitted to be incurred pursuant to clause (iv), (xii), (xiii), (xiv), (xxiii) or (xxv) of Section 4.09(b) hereof; provided that (a) Liens securing Obligations relating to any Indebtedness, Disqualified Stock or Preferred Stock to be incurred pursuant to clause (iv) of Section 4.09(b) hereof extend only to the assets so purchased, leased or improved; (b) Liens securing Obligations relating to any Indebtedness permitted to be incurred pursuant to clause (xiii) of Section 4.09(b) hereof relate only to Obligations relating to Refinancing Indebtedness that (x) is secured by Liens on the same assets as the assets securing the Refinancing Indebtedness or (y) extends, replaces, refunds, refinances, renews or defeases Indebtedness incurred or Disqualified Stock or Preferred Stock issued under clauses (iii), (iv) or (xii) of Section 4.09(b) hereof; (c) Liens securing Indebtedness permitted to be incurred pursuant to clause (xiv) of Section 4.09(b) hereof shall only be permitted if such Liens are limited to all or part of the same property or assets, including Capital Stock (plus improvements, accessions, proceeds or dividends or distributions in respect thereof, or replacements of any thereof) acquired, or of any Person acquired or merged or consolidated with or into the Issuer or any Restricted Subsidiary, in any transaction to which such Indebtedness relates; and (d) Liens securing Indebtedness permitted to be incurred pursuant to clauses (xxiii) and (xxv) of Section 4.09(b) hereof shall only be permitted if such Liens extend only to the assets of Restricted Subsidiaries of the Issuer that are not Guarantors;
(g) Liens existing on the Issue Date (excluding Liens securing the Credit Agreement), including Liens securing any Refinancing Indebtedness of any Indebtedness secured by such Liens;
(h) Liens on property or shares of stock or other assets of a Person at the time such Person becomes a Subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided , further , that such Liens may not extend to any other property or other assets owned by the Issuer or any of its Restricted Subsidiaries;
(i) Liens on property or other assets at the time the Issuer or a Restricted Subsidiary acquired the property or such other assets, including any acquisition by means of a merger, amalgamation or consolidation with or into the Issuer or any of its Restricted Subsidiaries; provided that such Liens are not created or incurred in connection with, or in contemplation of, such acquisition, amalgamation, merger or consolidation; provided , further , that the Liens may not extend to any other property owned by the Issuer or any of its Restricted Subsidiaries;
(j) Liens securing Obligations relating to any Indebtedness or other obligations of a Restricted Subsidiary owing to the Issuer or another Restricted Subsidiary permitted to be incurred in accordance with Section 4.09 hereof;
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(k) Liens securing (x) Hedging Obligations and (y) obligations in respect of Bank Products;
(l) Liens on specific items of inventory or other goods and proceeds of any Person securing such Persons accounts payable or similar trade obligations in respect of bankers acceptances or documentary letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(m) leases, sub-leases, licenses or sub-licenses granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries, taken as a whole, and do not secure any Indebtedness;
(n) Liens arising from Uniform Commercial Code (or equivalent statute) financing statement filings regarding operating leases or consignments entered into by the Issuer and its Restricted Subsidiaries in the ordinary course of business or purported Liens evidenced by the filing of precautionary Uniform Commercial Code financing statements or similar public filings;
(o) Liens in favor of the Issuer, the Co-Issuer or any Subsidiary Guarantor;
(p) Liens on equipment of the Issuer or any of its Restricted Subsidiaries granted in the ordinary course of business to the Issuers clients;
(q) Liens on accounts receivable, Securitization Assets and related assets incurred in connection with a Qualified Securitization Facility;
(r) Liens to secure any modification, refinancing, refunding, extension, renewal or replacement (or successive refinancing, refunding, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (f), (g), (h), (i), this clause (r) and clause (nn) below; provided that (i) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and proceeds and products thereof, and (ii) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (f), (g), (h), (i), this clause (r) and clause (nn) below at the time the original Lien became a Permitted Lien under this Indenture, and (B) an amount necessary to pay any fees and expenses (including original issue discount, upfront fees or similar fees) and premiums (including tender premiums and accrued and unpaid interest), related to such modification, refinancing, refunding, extension, renewal or replacement;
(s) deposits made or other security provided in the ordinary course of business to secure liability to insurance carriers;
(t) Liens securing obligations in an aggregate principal amount outstanding which does not exceed 2.0% of Total Assets (in each case, determined as of the date of such incurrence);
(u) security given to a public utility or any municipality or governmental authority when required by such utility or authority in connection with the operations of that Person in the ordinary course of business;
(v) Liens securing judgments for the payment of money not constituting an Event of Default under clause (v) of Section 6.01(a) hereof;
(w) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(x) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable or successor provision on items in the course of collection, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business,
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and (iii) in favor of banking institutions arising as a matter of law or under general terms and conditions encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(y) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 4.09 hereof;
(z) Liens encumbering reasonable customary deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(aa) Liens that are contractual rights of set-off or rights of pledge (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Issuer or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Issuer or any of its Restricted Subsidiaries in the ordinary course of business;
(bb) Liens securing obligations owed by the Issuer or any Restricted Subsidiary to any lender under the Senior Secured Credit Facilities or any Affiliate of such a lender in respect of any overdraft and related liabilities arising from treasury, depository and cash management services or any automated clearing house transfers of funds;
(cc) any encumbrance or restriction (including put and call arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;
(dd) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale or purchase of goods entered into by the Issuer or any Restricted Subsidiary in the ordinary course of business;
(ee) Liens solely on any cash earnest money deposits made by the Issuer or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted by this Indenture;
(ff) ground leases in respect of real property on which facilities owned or leased by the Issuer or any of its Subsidiaries are located;
(gg) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(hh) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(ii) Liens on the assets of non-guarantor Restricted Subsidiaries securing Indebtedness of such Subsidiaries that were permitted by the terms of this Indenture to be incurred;
(jj) Liens on cash advances in favor of the seller of any property to be acquired in an Investment permitted under this Indenture to be applied against the purchase price for such Investment;
(kk) any interest or title of a lessor, sub-lessor, licensor or sub-licensor or secured by a lessors, sub-lessors, licensors or sub-licensors interest under leases or licenses entered into by the Issuer or any of the Restricted Subsidiaries in the ordinary course of business;
(ll) (i) deposits of cash with the owner or lessor of premises leased and operated by the Issuer or any of its Subsidiaries in the ordinary course of business of the Issuer and such Subsidiary to secure the
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performance of the Issuers or such Subsidiarys obligations under the terms of the lease for such premises and (ii) Liens with respect to property or assets of the Issuer and its Restricted Subsidiaries (including accounts receivable or other revenue streams and other rights to payment and any other assets related thereto) in connection with a property managers obligations in respect of hotel collection accounts, operating accounts and reserve accounts;
(mm) prior to the Escrow Redemption Date, Liens on Escrowed Property securing the Notes (and the Guarantees thereof);
(nn) Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) permitted to be incurred pursuant to Section 4.09 (including, without limitation, Indebtedness incurred under one or more Credit Facilities) so long as after giving effect to such incurrence and such Liens the Consolidated Secured Debt Ratio of the Issuer and its Restricted Subsidiaries shall be equal to or less than 5.20 to 1.00 for the Issuers most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Lien is incurred; and
(oo) Liens securing obligations in respect of (i) Indebtedness and other Obligations permitted to be incurred under Credit Facilities, including any letter of credit facility relating thereto, that was permitted to be incurred pursuant to clause (i) of Section 4.09(b) and (ii) obligations of the Issuer or any Subsidiary in respect of any Bank Products or Hedging Obligation provided by any lender party to any Credit Facility or any Affiliate of such lender (or any Person that was a lender or an Affiliate of a lender at the time the applicable agreements pursuant to which such Bank Products are provided were entered into).
For purposes of this definition, the term Indebtedness shall be deemed to include interest on such Indebtedness.
Person means any individual, corporation, limited liability company, partnership (including a limited partnership), joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
Preferred Stock means any Equity Interest with preferential rights of payment of dividends or upon liquidation, dissolution, or winding up.
Private Placement Legend means the legend set forth in Section 2.06(g)(i) hereof to be placed on all Notes issued under this Indenture, except where otherwise permitted by the provisions of this Indenture.
PropCo means the entities which, as of the Escrow Release Date, own the following hotels located in the United States (or Capital Stock of entities that own such hotels): (i) Pointe Hilton Squaw Peak Resort (Phoenix, AZ); (ii) DoubleTree Hotel San Jose (San Jose, CA); (iii) Hilton Garden Inn LAX/El Segundo (El Segundo, CA); (iv) Hilton San Francisco Union Square (San Francisco, CA); (v) Embassy Suites Washington D.C. (Washington, D.C.); (vi) Hilton Miami Airport (Miami, FL); (vii) Hilton Orlando Lake Buena Vista (Orlando, FL); (viii) Hilton Atlanta Airport (Atlanta, GA); (ix) Hilton Hawaiian Village Beach Resort & Spa (Honolulu, HI); (x) Hilton Waikoloa Village (Waikoloa, HI); (xi) Hilton Chicago (Chicago, IL); (xii) Hilton Garden Inn Chicago/Oak Brook (Oakbrook Terrace, IL); (xiii) Hilton Suites Chicago/Oak Brook (Oakbrook Terrace, IL); (xiv) Hilton New Orleans Airport (Kenner, LA); (xv) Hilton New Orleans Riverside (New Orleans, LA); (xvi) Hilton Boston Logan Airport (Boston, MA); (xvii) Hilton Short Hills (Short Hills, NJ); (xviii) Hilton New York (New York, NY); (xix) The Waldorf=Astoria New York (New York, NY); (xx) Caribe Hilton (San Juan, PR); (xxi) Hampton Inn & Suites MemphisShady Grove (Memphis, TN); (xxii) DoubleTree Hotel Crystal CityNational Airport (Arlington, VA); (xxiii) Hilton McLean Tysons Corner (McLean, VA); and (xxiv) Hilton Seattle Airport & Conference Center (Seattle, WA).
Purchase Money Obligations means any Indebtedness incurred to finance or refinance the acquisition, leasing, construction or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets, or otherwise (including through the purchase of Capital Stock of any Person owning such property or assets).
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QIB means a qualified institutional buyer as defined in Rule 144A.
Qualified Proceeds means the fair market value of assets that are used or useful in, or Capital Stock of any Person engaged in, a Similar Business.
Qualified Securitization Facility means (a) any timeshare loan backed notes (such as notes issued by Hilton Grand Vacations Trust 2013-A pursuant to the indenture, dated as of August 8, 2013, between Hilton Grand Vacations Trust 2013-A, as issuer, and Wells Fargo Bank, National Association, as indenture trustee)and similar facilities; (b) any revolving non-recourse timeshare notes credit facility (such as the receivables loan agreement, dated May 9, 2013, among Hilton Grand Vacations Trust I LLC, Wells Fargo Bank, National Association, as paying agent, a commercial paper conduit lender, Deutsche Bank AG, New York Branch and Bank of America, N.A., as committed lenders and Deutsche Bank Securities Inc., as administrative agent) and similar facilities; and (c) any other Securitization Facility (i) constituting a securitization financing facility that meets the following conditions: (A) the Board of Directors or management of the Issuer shall have determined in good faith that such Securitization Facility is in the aggregate economically fair and reasonable to the Issuer and (B) all sales and/or contributions of Securitization Assets and related assets to the applicable Securitization Subsidiary are made at fair market value (as determined in good faith by the Issuer) or (ii) constituting a receivables or payables financing or factoring facility.
Rating Agencies means Moodys and S&P or if Moodys or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuers which shall be substituted for Moodys or S&P or both, as the case may be.
Rating Categories means:
(a) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and
(b) with respect to Moodys, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).
Ratings Improvement means, with respect to a Change of Control, the obtaining of a rating of the Notes, taking into account the applicable transaction, representing an increase in the rating of the Notes by either Moodys or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories, but not including ratings outlook changes) over such rating as of the Issue Date. In determining whether the rating of the Notes has increased by one or more gradations, gradations within Ratings Categories, namely + or - for S&P, and 1, 2, and 3 for Moodys, will be taken into account; for example, in the case of S&P, a rating change either from BB to BB+ or from B+ to BB- will constitute an increase of one gradation.
Record Date means, for the interest payable on any applicable Interest Payment Date, the April 1 and October 1 (whether or not a Business Day) immediately preceding such Interest Payment Date.
Registration Rights Agreement means a registration rights agreement with respect to the Initial Notes dated as of the Issue Date, among Holdings, the Issuers and the representative of the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Issuers and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Issuers to the purchasers of Additional Notes to register such Additional Notes under the Securities Act.
Regulation S means Regulation S promulgated under the Securities Act.
Regulation S Global Note means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as applicable.
Regulation S Permanent Global Note means a permanent Global Note, substantially in the form of Exhibit A hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf
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of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the applicable Restricted Period.
Regulation S Temporary Global Note means a temporary Global Note, substantially in the form of Exhibit A hereto, bearing the Global Note Legend and the Private Placement Legend and the Regulation S Temporary Global Note Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903.
Regulation S Temporary Global Note Legend means the legend set forth in Section 2.06(g)(iii) hereof.
Related Business Assets means assets (other than Cash Equivalents) used or useful in a Similar Business or any securities of a Person received by the Issuer or a Restricted Subsidiary in exchange for assets transferred by the Issuer or a Restricted Subsidiary; provided that any such securities shall not be deemed to be Related Business Assets, unless (a) upon receipt of the securities of such Person, such Person would become a Restricted Subsidiary or (b) such securities are received in respect of a transfer of the Specified Real Property Assets.
Release Request has the meaning assigned to such term in the Escrow Agreement.
Responsible Officer means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Persons knowledge of and familiarity with the particular subject and, in each case, who shall have direct responsibility for the administration of this Indenture.
Restricted Definitive Note means a Definitive Note bearing, or that is required to bear, the Private Placement Legend.
Restricted Global Note means a Global Note bearing, or that is required to bear, the Private Placement Legend.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Period means, in respect of any Note issued under Regulation S, the 40-day distribution compliance period as defined in Regulation S applicable to such Note.
Restricted Subsidiary means, at any time, any direct or indirect Subsidiary of the Issuer (including the Co-Issuer and any Foreign Subsidiary) that is not then an Unrestricted Subsidiary; provided that upon an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of Restricted Subsidiary .
Rule 144 means Rule 144 promulgated under the Securities Act.
Rule 144A means Rule 144A promulgated under the Securities Act.
Rule 903 means Rule 903 promulgated under the Securities Act.
Rule 904 means Rule 904 promulgated under the Securities Act.
S&P means Standard & Poors, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.
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Sale and Lease-Back Transaction means any arrangement providing for the leasing by the Issuer or any of its Restricted Subsidiaries of any real or tangible personal property, which property has been or is to be sold or transferred by the Issuer or such Restricted Subsidiary to a third Person in contemplation of such leasing.
SEC means the U.S. Securities and Exchange Commission.
Secured Indebtedness means any Indebtedness of the Issuers or any of its Restricted Subsidiaries secured by a Lien.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Securitization Assets means the accounts receivable, royalty or other revenue streams and other rights to payment and any other assets related thereto subject to a Qualified Securitization Facility and the proceeds thereof.
Securitization Facility means any of one or more receivables or securitization financing facilities as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to the Issuer or any of its Restricted Subsidiaries (other than a Securitization Subsidiary) pursuant to which the Issuer or any of its Restricted Subsidiaries sells or grants a security interest in its accounts receivable or Securitization Assets or assets related thereto to either (a) a Person that is not a Restricted Subsidiary or (b) a Securitization Subsidiary that in turn sells its accounts receivable to a Person that is not a Restricted Subsidiary.
Securitization Fees means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Securitization Subsidiary in connection with, any Qualified Securitization Facility.
Securitization Subsidiary means any Subsidiary formed for the purpose of, and that solely engages only in one or more Qualified Securitization Facilities and other activities reasonably related thereto.
Senior Indebtedness means:
(a) all Indebtedness of the Issuers or any Guarantor outstanding under the Senior Secured Credit Facilities and the related guarantees and Notes and related Guarantees (including interest accruing on or after the filing of any petition in bankruptcy or similar proceeding or for reorganization of the Issuers or any Guarantor (at the rate provided for in the documentation with respect thereto, regardless of whether or not a claim for post-filing interest is allowed in such proceedings)), and any and all other fees, expense reimbursement obligations, indemnification amounts, penalties, and other amounts (whether existing on the Issue Date or thereafter created or incurred) and all obligations of the Issuers or any Guarantor to reimburse any bank or other Person in respect of amounts paid under letters of credit, acceptances or other similar instruments;
(b) all (x) Hedging Obligations (and guarantees thereof) and (y) obligations in respect of Bank Products (and guarantees thereof) owing to a lender under the Senior Secured Credit Facilities or any Affiliate of such lender (or any Person that was a lender or an Affiliate of such lender at the time the applicable agreement giving rise to such Hedging Obligation was entered into); provided that such Hedging Obligations and obligations in respect of Bank Products, as the case may be, are permitted to be incurred under the terms of this Indenture;
(c) any other Indebtedness of the Issuers or any Guarantor permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes or any related Guarantee; and
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(d) all Obligations with respect to the items listed in the preceding clauses (a), (b) and (c); provided that Senior Indebtedness shall not include:
(i) any obligation of such Person to the Issuers or any of the Issuers Subsidiaries;
(ii) any liability for federal, state, local or other taxes owed or owing by such Person;
(iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business;
(iv) any Indebtedness or other Obligation of such Person which is subordinate or junior in any respect to any other Indebtedness or other Obligation of such Person; or
(v) that portion of any Indebtedness which at the time of incurrence is incurred in violation of this Indenture.
Senior Secured Credit Facilities means the revolving credit facility and other credit facilities under the Credit Agreement, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings, refinancings or replacements thereof and any one or more indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that replace, refund, supplement or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof ( provided that such increase in borrowings is permitted under Section 4.09 hereof) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, trustee, lender or group of lenders or holders.
Shelf Registration Statement means a Shelf Registration Statement as defined in the Registration Rights Agreement.
Significant Subsidiary means any Restricted Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act, as such regulation is in effect on the Issue Date.
Similar Business means (a) any business conducted or proposed to be conducted by the Issuer or any of its Restricted Subsidiaries on the Issue Date, and any reasonable extension thereof, or (b) any business or other activities that are reasonably similar, ancillary, incidental, complementary or related to, or a reasonable extension, development or expansion of, the businesses in which the Issuer and its Restricted Subsidiaries are engaged or propose to be engaged on the Issue Date.
Specified Real Property Assets means any real property or assets of the Issuer or its Restricted Subsidiaries with an aggregate book value not to exceed 7.5% of Total Assets of the Issuer and its Restricted Subsidiaries.
Subordinated Indebtedness means, with respect to the Notes,
(1) any Indebtedness of the Issuers which is by its terms subordinated in right of payment to the Notes, and
(2) any Indebtedness of any Guarantor which is by its terms subordinated in right of payment to the Guarantee of such entity of the Notes.
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Subsidiary means, with respect to any Person:
(a) any corporation, association, or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50.0% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; and
(b) any partnership, joint venture, limited liability company or similar entity of which:
(i) more than 50.0% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise; and
(ii) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
For the avoidance of doubt, any entity that is owned at a 50.0% or less level (as described above) shall not be a Subsidiary for any purpose under this Indenture, regardless of whether such entity is consolidated on the Issuers or any Restricted Subsidiarys financial statements.
Subsidiary Guarantor means each Guarantor other than Holdings.
Support and Services Agreement means the management services or similar agreements between certain of the management companies associated with one or more of the Investors or their advisors, if applicable, and the Issuer (and/or its direct or indirect parent companies), as in effect from time to time; provided that any management, monitoring, consulting and advisory fees payable in advance by the Issuer (and/or its direct or indirect parent companies) and its Restricted Subsidiaries shall not exceed an amount equal to (a) with respect to the period from the Closing Date to December 31, 2013, 2.0% of EBITDA for such period and (b) with respect to any fiscal year thereafter, 2.0% of EBITDA for such fiscal year.
Timeshare Disposition means any future direct or indirect sale, transfer or other disposition of all or a portion of the timeshare business of the Issuer and its Restricted Subsidiaries, or all or substantially all of the assets thereof (for the avoidance of doubt, including a sale, transfer or other disposition of Capital Stock of any Person owning such assets, so long as substantially all of the assets of such Person consists of such assets).
Total Assets means the total assets of the Issuer and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as shown on the most recent balance sheet of the Issuer or such other Person.
Transaction Expenses means any fees or expenses incurred or paid by the Blackstone Funds, Holdings, the Issuer or any of its (or their) Subsidiaries in connection with the Transactions (including expenses in connection with hedging transactions related to the Senior Secured Credit Facilities and any original issue discount or upfront fees), the Support and Services Agreement (to the extent accrued on or prior to the closing of the Senior Secured Credit Facilities), the Indenture, the Loan Documents (as defined in the Senior Secured Credit Facilities) and the transactions contemplated hereby and thereby.
Transactions means the issuance of the Notes and the Guarantees thereof on the Issue Date, the borrowings under the Senior Secured Credit Facilities on or prior to the Completion Date, the repayment and refinancing of certain Indebtedness on the Completion Date as described in the Offering Memorandum, and the payment of Transaction Expenses.
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Treasury Rate means, as of any Redemption Date, the yield to maturity as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to October 15, 2016; provided that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended (15 U.S.C. §§ 77aaa-77bbbb).
Trustee means Wilmington Trust, National Association, as trustee, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
Uniform Commercial Code means the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of New York.
Unrestricted Definitive Note means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend.
Unrestricted Global Note means a permanent Global Note, substantially in the form of Exhibit A hereto, bearing the Global Note Legend and that has the Schedule of Exchanges of Interests in the Global Note attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing Notes that do not bear the Private Placement Legend.
Unrestricted Subsidiary means:
(a) any PropCo entity or any Subsidiary of the Issuer which at the time of determination is an Unrestricted Subsidiary (as designated by the Issuer, as provided below); and
(b) any Subsidiary of a PropCo entity or any other Unrestricted Subsidiary.
The Issuer may designate any Subsidiary of the Issuer other than the Co-Issuer (including any existing Subsidiary and any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of, the Issuer or any Subsidiary of the Issuer (other than solely any Subsidiary of the Subsidiary to be so designated); provided that:
(i) any Unrestricted Subsidiary must be an entity of which the Equity Interests entitled to cast at least a majority of the votes that may be cast by all Equity Interests having ordinary voting power for the election of directors or Persons performing a similar function are owned, directly or indirectly, by the Issuer;
(ii) such designation complies with Section 4.07 hereof; and
(iii) each of (A) the Subsidiary to be so designated and (B) its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer or any Restricted Subsidiary, in each case, except any Permitted Intercompany Activities.
The Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation, no Default shall have occurred and be continuing and either:
(a) the Issuer could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test; or
(b) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries would be equal to or greater than such ratio for the Issuer and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation.
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Any such designation by the Issuer shall be notified by the Issuer to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of the Issuer or any committee thereof giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing provisions.
U.S. Dollar Equivalent means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the Exchange Rates column under the heading Currency Trading on the date two business days prior to such determination.
U.S. Government Securities means securities that are:
(a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged; or
(b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America,
which, in either case, are not callable or redeemable at the option of the issuers thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Securities or a specific payment of principal of or interest on any such U.S. Government Securities held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Securities or the specific payment of principal of or interest on the U.S. Government Securities evidenced by such depository receipt.
U.S. Person means a U.S. person as defined in Rule 902(k) under the Securities Act.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, at any date, the quotient obtained by dividing:
(a) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amount of such payment; by
(b) the sum of all such payments;
provided that for purposes of determining the Weighted Average Life to Maturity of any Indebtedness that is being extended, replaced, refunded, refinanced, renewed or defeased (the Applicable Indebtedness ), the effects of any amortization or prepayments made on such Applicable Indebtedness prior to the date of the applicable extension, replacement, refunding, refinancing, renewal or defeasance shall be disregarded.
Wholly Owned Subsidiary of any Person means a Subsidiary of such Person, 100.0% of the outstanding Equity Interests of which (other than directors qualifying shares and shares issued to foreign nationals as required by applicable law) shall at the time be owned by such Person and/or by one or more Wholly Owned Subsidiaries of such Person.
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Section 1.02. Other Definitions .
Term |
Defined in Section |
|
Acceptable Commitment |
4.10 | |
Affiliate Transaction |
4.11 | |
Applicable Indebtedness |
1.01 | |
Applicable Premium Deficit |
8.04 | |
Asset Sale Offer |
4.10 | |
Authentication Order |
2.02 | |
Change of Control Offer |
4.14 | |
Change of Control Payment |
4.14 | |
Change of Control Payment Date |
4.14 | |
Covenant Defeasance |
8.03 | |
DTC |
2.03 | |
ERISA |
2.06 | |
equity incentives |
1.01 | |
Event of Default |
6.01 | |
Excess Proceeds |
4.10 | |
Fixed Charge Coverage Test |
4.07 | |
incur and incurrence |
4.09 | |
Legal Defeasance |
8.02 | |
Note Register |
2.03 | |
Offer Amount |
3.09 | |
Offer Period |
3.09 | |
Pari Passu Indebtedness |
4.10 | |
Paying Agent |
2.03 | |
Purchase Date |
3.09 | |
Redemption Date |
3.01 | |
Refinancing Indebtedness |
4.09 | |
Refunding Capital Stock |
4.07 | |
Registrar |
2.03 | |
Restricted Payments |
4.07 | |
Second Commitment |
4.10 | |
Successor Company |
5.01 | |
Successor Person |
5.01 | |
Transfer Agent |
2.03 | |
Treasury Capital Stock |
4.07 |
Section 1.03. Incorporation by Reference of Trust Indenture Act . At all times after the effectiveness of a registration statement under the Registration Rights Agreement, this Indenture will be subject to the mandatory provisions of the Trust Indenture Act, which unless otherwise indicated are incorporated by reference in and made a part of this Indenture upon the effectiveness of any such registration statement. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms if used in this Indenture have the following meanings:
indenture securities means the Notes and the Guarantees;
indenture security Holder means a Holder of a Note;
indenture to be qualified means this Indenture;
indenture trustee or institutional trustee means the Trustee; and obligor on the Notes and the Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively.
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All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by SEC rule under the Trust Indenture Act have the meanings so assigned to them.
Section 1.04. Rules of Construction . Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) or is not exclusive;
(d) the words including, includes and similar words shall be deemed to be followed by without limitation;
(e) words in the singular include the plural, and in the plural include the singular;
(f) shall and will shall be interpreted to express a command;
(g) provisions apply to successive events and transactions;
(h) references to sections of, or rules under, the Securities Act or the Exchange Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time;
(i) unless the context otherwise requires, any reference to an Article, Section or clause refers to an Article, Section or clause, as the case may be, of this Indenture;
(j) the words herein, hereof and hereunder and other words of similar import refer to this Indenture as a whole and not any particular Article, Section, clause or other subdivision;
(k) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the Issuer dated such date prepared in accordance with GAAP;
(l) words used herein implying any gender shall apply to both genders;
(m) in the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding and the word through means to and including;
(n) the principal amount of any Preferred Stock at any time shall be (i) the maximum liquidation value of such Preferred Stock at such time or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock at such time, whichever is greater; and
(o) all references to any interest or other amount payable on or with respect to the Notes shall be deemed to include any Additional Interest.
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Section 1.05. Acts of Holders .
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Issuers. Proof of execution of any such instrument or of a writing appointing any such agent, or the holding by any Person of a Note, shall be sufficient for any purpose of this Indenture and (subject to Section 7.01 hereof) conclusive in favor of the Trustee and the Issuers, if made in the manner provided in this Section 1.05.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by or on behalf of any legal entity other than an individual, such certificate or affidavit shall also constitute proof of the authority of the Person executing the same. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of any action taken, suffered or omitted by the Trustee or the Issuers in reliance thereon, whether or not notation of such action is made upon such Note.
(e) The Issuers may, in the circumstances permitted by the Trust Indenture Act, set a record date for purposes of determining the identity of Holders entitled to give any request, demand, authorization, direction, notice, consent, waiver or take any other act, or to vote or consent to any action by vote or consent authorized or permitted to be given or taken by Holders. Unless otherwise specified, if not set by the Issuers prior to the first solicitation of a Holder made by any Person in respect of any such action, or in the case of any such vote, prior to such vote, any such record date shall be the later of 10 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation.
(f) Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Any notice given or action taken by a Holder or its agents with regard to different parts of such principal amount pursuant to this Section 1.05(f) shall have the same effect as if given or taken by separate Holders of each such different part.
(g) Without limiting the generality of the foregoing, a Holder, including DTC, that is a Holder of a Global Note, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders, and any Person, that is a Holder of a Global Note, including DTC, may provide its proxy or proxies to the beneficial owners of interests in any such Global Note through such Depositarys standing instructions and customary practices.
(h) The Issuers may fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any Global Note held by DTC entitled under the procedures of such Depositary to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be valid or effective if made, given or taken more than 120 days after such record date.
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Section 1.06. Timing of Payment . Notwithstanding anything herein to the contrary, if the date on which any payment is to be made pursuant to this Indenture or the Notes is not a Business Day, the payment otherwise payable on such date shall be payable on the next succeeding Business Day with the same force and effect as if made on such scheduled date and ( provided such payment is made on such succeeding Business Day) no interest shall accrue on the amount of such payment from and after such scheduled date to the time of such payment on such next succeeding Business Day and the amount of any such payment that is an interest payment will reflect accrual only through the original payment date and not through the next succeeding Business Day.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating; Terms .
(a) General . The Notes and the Trustees certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued in minimum denominations of $2,000 and any integral multiple of $1,000 in excess of $2,000.
(b) Global Notes . Notes issued in global form shall be substantially in the form of Exhibit A hereto, including the Global Note Legend thereon and the Schedule of Exchanges of Interests in the Global Note attached thereto. Notes issued in definitive form shall be substantially in the form of Exhibit A hereto, but without the Global Note Legend thereon and without the Schedule of Exchanges of Interests in the Global Note attached thereto. Each Global Note shall represent such of the outstanding Notes as shall be specified in the Schedule of Exchanges of Interests in the Global Note attached thereto and each shall provide that it shall represent up to the aggregate principal amount of Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as applicable, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes . Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Custodian and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided.
Following (i) the termination of the applicable Restricted Period and (ii) the receipt by the Trustee of (A) a certification or other evidence in a form reasonably acceptable to the Issuers of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who shall take delivery of a beneficial ownership interest in a 144A Global Note bearing the Private Placement Legend, all as contemplated by Section 2.06(b) hereof) and (B) an Officers Certificate from the Issuers, the Trustee shall remove the Regulation S Temporary Global Note Legend from the Regulation S Temporary Global Note, following which temporary beneficial interests in the Regulation S Temporary Global Note shall automatically become beneficial interests in the Regulation S Permanent Global Note pursuant to the Applicable Procedures.
The aggregate principal amount of a Regulation S Temporary Global Note and a Regulation S Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided.
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(d) Terms . The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is unlimited.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Issuers, the Guarantors from time to time party hereto and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
The Notes shall be subject to repurchase by the Issuers pursuant to an Asset Sale Offer as provided in Section 4.10 hereof or a Change of Control Offer as provided in Section 4.14 hereof. The Notes shall not be redeemable, other than as provided in Article 3 hereof.
Subject to compliance with Section 4.09 hereof, the Issuers may issue Additional Notes from time to time ranking pari passu with the Initial Notes without notice to or consent of the Holders, and such Additional Notes shall be consolidated with and form a single class with the Initial Notes and shall have the same terms as to status, redemption or otherwise as the Initial Notes, except that interest may accrue on the Additional Notes from their date of issuance (or such other date specified by the Issuers); provided that if any Additional Notes are not fungible with the Initial Notes for U.S. federal income tax purposes, such Additional Notes will have a separate CUSIP number. Any Additional Notes may be issued with the benefit of an indenture supplemental to this Indenture.
(e) Euroclear and Clearstream Applicable Procedures . The provisions of the Operating Procedures of the Euroclear System and Terms and Conditions Governing Use of Euroclear and the General Terms and Conditions of Clearstream Banking and Customer Handbook of Clearstream shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearstream.
Section 2.02. Execution and Authentication . At least one Officer of each of the Issuer and the Co-Issuer shall execute the Notes on behalf of the Issuer and the Co-Issuer, as applicable, by manual, facsimile or electronic (including .pdf) signature.
If an Officer of the Issuer or the Co-Issuer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated substantially in the form of Exhibit A hereto, by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been duly authenticated and delivered under this Indenture.
On the Issue Date, the Trustee shall, upon receipt of an Issuers Order (an Authentication Order ), authenticate and deliver the Initial Notes in the aggregate principal amount or amounts specified in such Authentication Order. In addition, at any time, from time to time, the Trustee shall, upon receipt of an Authentication Order, authenticate and deliver any Additional Notes or Exchange Notes for an aggregate principal amount specified in such Authentication Order for such Additional Notes or Exchange Notes issued or increased hereunder.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.
Section 2.03. Registrar, Transfer Agent and Paying Agent . The Issuers shall maintain (i) an office or agency where Notes may be presented for registration ( Registrar ), (ii) an office or agency where Notes may be presented for transfer or for exchange ( Transfer Agent ) and (iii) an office or agency where Notes may be presented for payment ( Paying Agent ). The Registrar shall keep a register of the Notes ( Note Register ) and of their transfer and exchange. The registered Holder of a Note will be treated as the owner of such Note for all purposes and only registered Holders shall have rights under this Indenture and the Notes. The Issuers may appoint one
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or more co-registrars, one or more co-transfer agents and one or more additional paying agents. The term Registrar includes any co-registrar, the term Transfer Agent includes any co-transfer agent and the term Paying Agent includes any additional paying agents. The Issuers may change any Paying Agent, Transfer Agent or Registrar without prior notice to any Holder. The Issuers shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar, Transfer Agent or Paying Agent, the Trustee shall act as such. The Issuer or any of its Subsidiaries may act as Paying Agent, Transfer Agent or Registrar.
The Issuers initially appoint The Depository Trust Company, its nominees and successors ( DTC ) to act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Paying Agent, Transfer Agent and Registrar for the Notes and to act as Custodian with respect to the Global Notes.
If any Notes are listed on an exchange and the rules of such exchange so require, the Issuers will satisfy any requirement of such exchange as to paying agents, registrars and transfer agents and will comply with any notice requirements required under such exchange in connection with any change of paying agent, registrar or transfer agent.
Section 2.04. Paying Agent to Hold Money in Trust . The Issuers shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, interest or Additional Interest, if any, on the Notes, and will notify the Trustee in writing of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee. The Issuers at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Issuer or a Subsidiary or the Trustee) shall have no further liability for the money. If the Issuer or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Issuer or the Co-Issuer, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists . The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with Section 312(a) of the Trust Indenture Act. If the Trustee is not the Registrar, the Issuers shall furnish to the Trustee at least two Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders and the Issuers shall otherwise comply with Section 312(a) of the Trust Indenture Act.
Section 2.06. Transfer and Exchange .
(a) Transfer and Exchange of Global Notes . Except as otherwise set forth in this Section 2.06, a Global Note may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor thereto or a nominee of such successor thereto. A beneficial interest in a Global Note may not be exchanged for a Definitive Note unless, and, if applicable, subject to the limitation on issuance of Definitive Notes set forth in Section 2.06(c)(ii), (i) the Depositary (x) notifies the Issuers that it is unwilling or unable to continue as Depositary for such Global Note or (y) has ceased to be a clearing agency registered under the Exchange Act, and, in either case, a successor Depositary is not appointed by the Issuers within 120 days, (ii) the Issuers, at their option, notify the Trustee in writing that they elect to cause the issuance of Definitive Notes (although Regulation S Temporary Global Notes may not be exchanged for Definitive Notes prior to (A) the expiration of the applicable Restricted Period and (B) the receipt by the Registrar of any certification of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B)), (iii) upon the request of a Holder if there shall have occurred and be continuing an Event of Default with respect to the Notes, or (iv) the Trustee has received a written request by or on behalf of the Depositary to issue Definitive Notes. Upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) above, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07
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and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Sections 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note, except for Definitive Notes issued subsequent to any of the events described in clause (i), (ii), (iii) or (iv) above and pursuant to Section 2.06(c) hereof. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a); provided , however , beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes . The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note . Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person other than pursuant to Rule 144A. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes . In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) hereof, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in a Regulation S Temporary Global Note prior to (x) the expiration of the applicable Restricted Period therefor and (y) the receipt by the Registrar of any certification of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B). Upon consummation of an Exchange Offer by the Issuers in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the applicable Letter of Transmittal or through an Agents Message delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global Note . A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) hereof and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in a 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; or
(B) if the transferee will take delivery in the form of a beneficial interest in a Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof.
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(iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note . A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) hereof and:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) such Notes are sold or exchanged pursuant to an effective registration statement under the Securities Act;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes .
(i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes . If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof;
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(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to the Issuer, the Co-Issuer or any of their Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) (except transfers pursuant to clause (F) above) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes . Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the applicable Restricted Period therefor and (B) the receipt by the Registrar of any certifications of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B) of the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes . A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
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(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes . If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from or through the Depositary and the Participant or Indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests .
(i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes . If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
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(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to the Issuer, the Co-Issuer or any of their Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the applicable Restricted Global Note, in the case of clause (B) above, the applicable 144A Global Note, and in the case of clause (C) above, the applicable Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
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Upon satisfaction of the applicable conditions of this Section 2.06(d)(ii), the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraph (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes . Upon request by a Holder of Definitive Notes and such Holders compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer or exchange in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e):
(i) Restricted Definitive Notes to Restricted Definitive Notes . Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made to a QIB in accordance with Rule 144A, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; or
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes . Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
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(C) any such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes . A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer . Upon the occurrence of an Exchange Offer in accordance with the Registration Rights Agreement, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal or through an Agents Message through the DTC Automated Tender Offer program that (x) they are not participating in a distribution of the Exchange Notes and (y) they are not affiliates (as defined in Rule 144) of the Issuer or the Co-Issuer, and accepted for exchange in an Exchange Offer and (ii) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not participating in a distribution of the Exchange Notes and (y) they are not affiliates (as defined in Rule 144) of the Issuer or the Co-Issuer, and accepted for exchange in an Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuers shall execute and the Trustee shall authenticate and mail to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the applicable principal amount. Any Notes that remain outstanding after the consummation of an Exchange Offer, and Exchange Notes issued in connection with such Exchange Offer, shall be treated as a single class of securities under this Indenture.
(g) Legends . The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture:
(i) Private Placement Legend .
(A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
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MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (RULE 144A)), OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER SUCH NOTE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD THEN IMPOSED BY RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) ONLY (A) TO THE ISSUER OR THE CO-ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION PURSUANT TO REGULATION S UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS AND THE TRUSTEES RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
Except as permitted by subparagraph (B) below, each Global Note and Definitive Note issued in a transaction exempt from registration pursuant to Regulation S shall also bear the legend in substantially the following form:
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION ORIGINALLY EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.
(B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraph (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend . Each Global Note shall bear a legend in substantially the following form (with appropriate changes in the last sentence if DTC is not the Depositary):
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06(h) OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT
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TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (DTC) TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
BY ACCEPTING THIS NOTE, EACH HOLDER AND EACH TRANSFEREE IS DEEMED TO REPRESENT AND AGREE THAT AT THE TIME OF ITS ACQUISITION AND THROUGHOUT THE PERIOD THAT IT HOLDS THIS NOTE (I) IT IS NOT, AND IS NOT ACQUIRING THE NOTES WITH THE ASSETS OF, OR FOR OR ON BEHALF OF, ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA)), OR OTHER ARRANGEMENT OR PLAN THAT IS SUBJECT TO ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ASSETS OF A PLAN PURSUANT TO 29 C.F.R. SECTION 2510.3-101 OR (II) ITS ACQUISITION AND HOLDING OF THE NOTES FOR EXCHANGE NOTES (AND THE EXCHANGE OF NOTES FOR EXCHANGE NOTES) IS IN ACCORDANCE WITH AN APPLICABLE STATUTORY, CLASS OR INDIVIDUAL PROHIBITED TRANSACTION CLASS EXEMPTION OR DOES NOT OTHERWISE CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF THE CODE OR ERISA.
(iii) Regulation S Temporary Global Note Legend . The Regulation S Temporary Global Note shall bear a legend in substantially the following form:
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
(h) Cancellation and/or Adjustment of Global Notes . At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part, each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial
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interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges .
(i) To permit registrations of transfers and exchanges, the Issuers shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 hereof or at the Registrars request.
(ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.07, 2.10, 3.06, 3.09, 4.10, 4.14 and 9.05 hereof).
(iii) Neither the Registrar nor the Issuers shall be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Notes to be redeemed under Section 3.03 or Section 3.08 hereof and ending at the close of business on the day of such mailing, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part, (C) to register the transfer or exchange of a Note between a Record Date and the next succeeding Interest Payment Date or (D) to register the transfer or exchange of any Notes tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer.
(iv) Neither the Registrar nor the Issuers shall be required to register the transfer or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
(v) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers shall deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuers shall be affected by notice to the contrary.
(vii) Upon surrender for registration of transfer of any Note at the office or agency of the Issuers designated pursuant to Section 4.02 hereof, the Issuers shall execute, and the Trustee shall authenticate and mail, in the name of the designated transferee or transferees, one or more replacement Notes of any authorized denomination or denominations of a like aggregate principal amount.
(viii) At the option of the Holder, subject to Section 2.06(a) hereof, Notes may be exchanged for other Notes of any authorized denomination or denominations of a like aggregate principal amount upon surrender of the Notes to be exchanged at such office or agency. Whenever any Global Notes or Definitive Notes are so surrendered for exchange, the Issuers shall execute, and the Trustee shall authenticate and mail, the replacement Global Notes and Definitive Notes which the Holder making the exchange is entitled to in accordance with the provisions of Section 2.02 hereof.
(ix) All certifications, certificates and Opinions of Counsel required to be submitted pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
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Section 2.07. Replacement Notes . If either (x) any mutilated Note is surrendered to the Trustee, the Registrar or the Issuers, or (y) the Issuers and the Trustee receive evidence to their satisfaction of the ownership and destruction, loss or theft of any Note, then the Issuers shall issue and the Trustee, upon receipt of an Authentication Order and satisfaction of any other requirements of the Trustee, shall authenticate a replacement Note. If required by the Trustee or the Issuers, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of both (i) the Trustee to protect the Trustee and (ii) the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers and the Trustee may charge the Holder for their expenses in replacing a Note.
Every replacement Note is a contractual obligation of the Issuers and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes . The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser (as defined in Section 8-303 of the Uniform Commercial Code).
Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture shall not be deemed to be outstanding for purposes hereof.
If the principal amount of any Note is considered paid under Section 4.01 hereof, such Note shall cease to be outstanding and interest thereon shall cease to accrue.
If the Paying Agent (other than the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor) holds, on a Redemption Date or maturity date, money sufficient to pay Notes (or portions thereof) payable on that date, then on and after that date such Notes (or portions thereof) shall be deemed to be no longer outstanding (including for accounting purposes) and shall cease to accrue interest on and after such date.
Section 2.09. Treasury Notes . In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, the Co-Issuer or by any Affiliate of the Issuer or the Co-Issuer, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgees right to deliver any such direction, waiver or consent with respect to such pledged Notes and that the pledgee is not the Issuer, the Co-Issuer or a Guarantor or any Affiliate of the Issuer, the Co-Issuer or a Guarantor.
Section 2.10. Temporary Notes . Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes. Without unreasonable delay, the Issuers shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders and beneficial holders, as the case may be, of temporary Notes shall be entitled to all of the benefits accorded to Holders, or beneficial holders, respectively, of Notes under this Indenture.
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Section 2.11. Cancellation . The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of such cancelled Notes in its customary manner (subject to the record retention requirements of the Exchange Act). Certification of the cancellation of all cancelled Notes shall be delivered to the Issuers upon their written request therefor. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest . If the Issuers default in a payment of interest on the Notes, they shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Issuers shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section 2.12. The Issuers shall fix or cause to be fixed any such special record date and payment date; provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. The Issuers shall promptly notify the Trustee of any such special record date. At least 15 days before any such special record date, the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the expense of the Issuers) shall mail or cause to be mailed, first-class postage prepaid, or otherwise deliver in accordance with the Applicable Procedures, to each Holder, with a copy to the Trustee, a notice at his or her address as it appears in the Note Register that states the special record date, the related payment date and the amount of such interest to be paid.
Subject to the foregoing provisions of this Section 2.12 and for greater certainty, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note.
Section 2.13. CUSIP Numbers; ISINs . The Issuers in issuing the Notes may use CUSIP numbers and ISINs (in each case, if then generally in use) and, if so, the Trustee shall use CUSIP numbers and ISINs in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuers will as promptly as practicable notify the Trustee in writing of any change in the CUSIP numbers and ISINs.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee . If the Issuers elect to redeem Notes pursuant to Section 3.07 hereof, they shall furnish to the Trustee, at least two Business Days (unless a shorter notice shall be agreed to by the Trustee) before notice of redemption is required to be delivered or mailed to Holders pursuant to Section 3.03 hereof, an Officers Certificate setting forth (a) the paragraph or subparagraph of such Note and/or Section of this Indenture pursuant to which the redemption shall occur, (b) the date of redemption (the Redemption Date ), (c) the principal amount of the Notes to be redeemed and (d) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed . If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed (a) if the Notes are listed on a securities exchange (and such listing is known to the Trustee), in compliance with the requirements of such exchange on which such Notes are listed or (b) on a pro rata basis to the extent practicable, or, if the pro rata basis is not practicable for any reason, by lot or by such other method as the Trustee shall deem fair and appropriate and otherwise in accordance with the Applicable Procedures. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for redemption.
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The Trustee shall promptly notify the Issuers in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in integral multiples of $1,000 (but in a minimum amount of $2,000) and no Notes of $2,000 or less can be redeemed in part, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder shall be redeemed, even if not in a principal amount of at least $2,000. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption . Subject to Section 3.08 and Section 3.09 hereof, the Issuers shall send electronically, mail or cause to be mailed by first-class mail, postage prepaid, notices of redemption at least 15 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holders registered address stated in the Note Register or otherwise in accordance with the Applicable Procedures, except that redemption notices may be delivered or mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with Article 8 or Article 11 hereof. Notices of redemption may, at the Issuers discretion, be conditional.
The notice shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the redemption price;
(c) if any Definitive Note is to be redeemed in part only, the portion of the principal amount of that Note that is to be redeemed and that, after the Redemption Date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion of the original Note representing the same indebtedness to the extent not redeemed will be issued in the name of the Holder upon cancellation of the original Note; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date;
(g) the paragraph or subparagraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed;
(h) the CUSIP number and ISIN, if any, printed on the Notes being redeemed and that no representation is made as to the correctness or accuracy of any such CUSIP number and ISIN that is listed in such notice or printed on the Notes; and
(i) any condition to such redemption.
At the Issuers request, the Trustee shall give the notice of redemption in the Issuers name and at their expense; provided that the Issuers shall have delivered to the Trustee, at least two Business Days before notice of redemption is required to be delivered electronically, mailed or caused to be mailed to Holders pursuant to this Section 3.03 (unless a shorter notice shall be agreed to by the Trustee), an Officers Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
If the Notes are listed on an exchange, for so long as the Notes are so listed and the rules of such exchange so require, the Issuers shall notify the exchange of any such redemption and, if applicable, of the principal amount of any Notes outstanding following any partial redemption of Notes.
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Section 3.04. Effect of Notice of Redemption . A notice of redemption, if delivered electronically, mailed or caused to be mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to deliver such notice or any defect in the notice to the Holder of any Note designated for redemption in whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Notes or portions of Notes called for redemption shall become due and payable on the Redemption Date, subject to satisfaction of any conditions specified in the notice. Subject to Section 3.05 hereof, on and after the Redemption Date, interest shall cease to accrue on Notes or portions of Notes called for redemption.
Section 3.05. Deposit of Redemption Price .
(a) Prior to 11:00 a.m. (New York City time) on the Redemption Date, the Issuers shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes to be redeemed on that Redemption Date. The Trustee or the Paying Agent shall promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption price of, and accrued and unpaid interest on, all Notes to be redeemed.
(b) If the Issuers comply with the provisions of the preceding paragraph (a), on and after the Redemption Date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an applicable Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest to the Redemption Date shall be paid to the Person in whose name such Note was registered at the close of business on such Record Date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the Redemption Date until such principal is paid, and to the extent lawful on any interest accrued to the Redemption Date not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part . Upon surrender of a Definitive Note that is redeemed in part, the Issuers shall issue and the Trustee shall authenticate for the Holder, at the expense of the Issuers, a new Note equal in principal amount to the unredeemed portion of the Note surrendered representing the same indebtedness to the extent not redeemed; provided that each new Note will be in a minimum principal amount of $2,000 and any integral multiple of $1,000 in excess of $2,000. It is understood that, notwithstanding anything to the contrary in this Indenture, only an Authentication Order and not an Opinion of Counsel or Officers Certificate is required for the Trustee to authenticate such new Note.
Section 3.07. Optional Redemption .
(a) Except as set forth in clauses (b), (d) and (e) of this Section 3.07, the Notes will not be redeemable at the Issuers option prior to October 15, 2016.
(b) At any time prior to October 15, 2016, the Issuers may on one or more occasions redeem all or a part of the Notes, upon notice in accordance with Section 3.03 hereof, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the Notes redeemed, plus (B) the Applicable Premium as of the Redemption Date, plus (C) accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date.
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(c) On and after October 15, 2016, the Issuers may redeem the Notes, in whole or in part, upon notice in accordance with Section 3.03 hereof, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but excluding, the applicable Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:
Year |
Percentage | |||
2016 |
102.813 | % | ||
2017 |
101.406 | % | ||
2018 and thereafter |
100.000 | % |
(d) Prior to October 15, 2016, the Issuers may, at their option, and on one or more occasions, redeem up to 40.0% of the aggregate principal amount of Notes issued under this Indenture at a redemption price equal to 105.625% of the aggregate principal amount of the Notes redeemed, plus accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date, with the net cash proceeds received by the Issuer from one or more Equity Offerings or a contribution to the Issuers common equity capital made with the net cash proceeds of an Equity Offering; provided that (A) at least 50.0% of (x) the aggregate principal amount of Notes originally issued under this Indenture on the Issue Date and (y) the aggregate principal amount of any Additional Notes issued under this Indenture after the Issue Date remains outstanding immediately after the occurrence of each such redemption; and (B) each such redemption occurs within 180 days of the date of closing of each such Equity Offering.
(e) In connection with any tender offer for the Notes, if Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in such tender offer and the Issuers, or any third party making such tender offer in lieu of the Issuers, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuers or such third party will have the right upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the Redemption Date.
(f) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Notice of any redemption, whether in connection with an Equity Offering, other transaction or otherwise, may be given prior to the completion thereof, and any such redemption or notice may, at the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering or other transaction. The Issuers, the Investors and their respective Affiliates may acquire the Notes by means other than a redemption pursuant to this Section 3.07, whether by tender offer, open market purchases, negotiated transactions or otherwise.
(g) The Trustee shall have no duty to calculate or verify the calculation of the Applicable Premium.
Section 3.08. Special Mandatory Redemption .
(a) In the event that the Issuers provide an Escrow Redemption Notice pursuant to Section 3(b) of the Escrow Agreement on or prior to the Cut-Off Date, the Issuers shall, on such date, send electronically, mail or cause to be mailed by first-class mail, postage prepaid, a notice of redemption to each Holder of Notes, substantially in the form attached as Exhibit E hereto, and shall be required to redeem the Notes on the Escrow Redemption Date specified in such notice of redemption at the Escrow Redemption Price. The Escrow Redemption Date shall be at least three and not more than 30 days after the date of such notice (and in any event shall not be later than the Final Escrow Redemption Date).
(b) If the Issuers have not notified the Trustee that the Escrow Conditions have been satisfied or issued an Escrow Redemption Notice prior to 10:00 a.m. (New York City time) on the Cut-Off Date, the Trustee shall, on such date, send electronically, mail or cause to be mailed by first-class mail, postage prepaid, notices of redemption to each Holder of Notes, substantially in the form attached as Exhibit E hereto, to the effect that the Escrow Redemption Date shall be the Final Escrow Redemption Date and the redemption price shall be the Escrow Redemption Price. The Trustee shall, on such Escrow Redemption Date, deliver an Escrow Redemption Notice pursuant to Section 3(b) of the Escrow Agreement. The Trustee will be paid by the Escrow Agent all amounts from the Escrow Account necessary to pay the Escrow Redemption Price on such Escrow Redemption Date, and to the extent of funds withdrawn from the Escrow Account, shall redeem the Notes on such date at the Escrow Redemption Price.
(c) Any redemption made pursuant to this Section 3.08 shall be made pursuant to the procedures set forth in this Indenture and the Escrow Agreement, except to the extent inconsistent with this paragraph. The Issuers shall not be required to make any mandatory redemption or sinking fund payments with respect to the Notes, except pursuant to Section 3.08(a) or (b) hereof.
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Section 3.09. Offers to Repurchase by Application of Excess Proceeds .
(a) In the event that, pursuant to Section 4.10 hereof, the Issuers shall be required to commence an Asset Sale Offer, the Issuers shall follow the procedures specified below.
(b) The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the Offer Period ). No later than five Business Days after the termination of the Offer Period (the Purchase Date ), the Issuers shall apply all Excess Proceeds (the Offer Amount ) to the purchase of Notes and, if required, Pari Passu Indebtedness (on a pro rata basis, if applicable, with adjustments as necessary so that no Notes or Pari Passu Indebtedness will be repurchased in part in an unauthorized denomination), or, if less than the Offer Amount has been tendered, all Notes and Pari Passu Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made.
(c) If the Purchase Date is on or after a Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest and Additional Interest, if any, up to but excluding the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such Record Date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
(d) Upon the commencement of an Asset Sale Offer, the Issuers shall send electronically or by first-class mail, a notice to each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders and holders of such Pari Passu Indebtedness. The notice, which shall govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open;
(ii) the Offer Amount, the purchase price and the Purchase Date;
(iii) that any Note not tendered or accepted for payment shall continue to accrue interest;
(iv) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest on and after the Purchase Date;
(v) that any Holder electing to have less than all of the aggregate principal amount of its Notes purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in an amount not less than $2,000 and in integral multiples of $1,000 in excess thereof;
(vi) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled Option of Holder to Elect Purchase attached to the Note completed, or transfer such Note by book-entry transfer, to the Issuers, the Depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice at least two Business Days before the Purchase Date;
(vii) that Holders shall be entitled to withdraw their election if the Issuers, the Depositary or the Paying Agent, as the case may be, receives, not later than the close of business on the second Business Day prior to the expiration date of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
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(viii) that, if the aggregate principal amount of Notes or the Pari Passu Indebtedness, as the case may be, surrendered by the holders thereof exceeds the Offer Amount, the Issuers shall purchase such Notes and such Pari Passu Indebtedness, as the case may be, on a pro rata basis based on the accreted value or principal amount of the Notes or such Pari Passu Indebtedness, as the case may be, tendered (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in an amount not less than $2,000 or integral multiples of $1,000 in excess thereof are purchased); and
(ix) that Holders whose certificated Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer) representing the same indebtedness to the extent not repurchased; provided that new Notes will only be issued in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
(e) On or before the Purchase Date, the Issuers shall, to the extent lawful, (1) accept for payment, on a pro rata basis as described in clause (d)(viii) of this Section 3.09, the Offer Amount of Notes or portions thereof validly tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered and (2) deliver or cause to be delivered to the Trustee the Notes properly accepted, together with an Officers Certificate stating the aggregate principal amount of Notes or portions thereof so tendered.
(f) The Issuers, the Depositary or the Paying Agent, as the case may be, shall promptly mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes properly tendered by such Holder and accepted by the Issuers for purchase, and the Issuers shall promptly issue a new Note, and the Trustee, upon receipt of an Authentication Order, shall authenticate and mail or deliver (or cause to be transferred by book-entry) such new Note to such Holder (it being understood that, notwithstanding anything in this Indenture to the contrary, no Opinion of Counsel or Officers Certificate is required for the Trustee to authenticate and mail or deliver such new Note) in a principal amount equal to any unpurchased portion of the Note surrendered representing the same indebtedness to the extent not repurchased; provided , that each such new Note shall be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers shall publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Purchase Date.
(g) Prior to noon (New York City time) on the purchase date, the Issuers shall deposit with the Trustee or with the Paying Agent money sufficient to pay the purchase price of and accrued and unpaid interest on all Notes to be purchased on that purchase date. The Trustee or the Paying Agent shall promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the purchase price of, and accrued and unpaid interest on, all Notes to be redeemed.
Other than as specifically provided in this Section 3.09 or Section 4.10 hereof, any purchase pursuant to this Section 3.09 shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06 hereof, and references therein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase, Purchase Date and similar words, as applicable.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes . The Issuers, jointly and severally, shall pay or cause to be paid the principal of, premium, if any, Additional Interest, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. Principal, premium, if any, Additional Interest, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor, holds as of noon New York City time on the due date money deposited by the Issuers in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due.
The Issuers shall pay all Additional Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.
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The Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to the then applicable interest rate on the Notes to the extent lawful; the Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency . The Issuers shall maintain the offices or agencies (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or Transfer Agent) required under Section 2.03 hereof where Notes may be surrendered for registration of transfer or for exchange or presented for payment and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office.
The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Issuers of their obligation to maintain such offices or agencies as required by Section 2.03 hereof for such purposes. The Issuers shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office as one such office or agency of the Issuers in accordance with Section 2.03 hereof.
Section 4.03. Reports and Other Information .
(a) Notwithstanding that the Issuer may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Issuer shall file with the SEC from and after the Issue Date:
(i) within 90 days after the end of each fiscal year (or 120 days for the first fiscal year ending after the Issue Date), annual reports on Form 10-K, or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), containing substantially all the information that would be required to be contained therein, or required in such successor or comparable form;
(ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or 60 days for the first three fiscal quarters for which reports are required after the Issue Date), reports on Form 10-Q, or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), containing substantially all the quarterly information that would be required to be contained in Form 10-Q, or any successor or comparable form;
(iii) promptly after the occurrence of a material event which would have been required to be reported on a Form 8-K or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), a current report relating to such event on Form 8-K or any successor or comparable form;
in each case, in a manner that complies in all material respects with the requirements specified in such form (except as described above or below and subject to exceptions consistent with the presentation of information in the Offering Memorandum); provided , however , that the Issuer shall not be so obligated to file such reports referred to in clauses (i), (ii) and (iii) above with the SEC (A) if the SEC does not permit such filing or (B) prior to the consummation of an Exchange Offer or the effectiveness of a Shelf Registration Statement as required by the Registration Rights Agreement, in which event the Issuer shall make available such information to the Trustee, the Holders and prospective purchasers of Notes, in each case within 15 days after the time the Issuer would be required to file such information
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with the SEC if it were subject to Section 15(d) of the Exchange Act; provided, further , that until such time as the consummation of an Exchange Offer or the effectiveness of a Shelf Registration Statement as required by the Registration Rights Agreement, the Issuer shall not be required to (i) in the case of (x) clauses (i) and (ii) provide any information beyond the financial information that would be required to be contained in an annual or quarterly report on Form 10-K or 10-Q, as applicable, including a Managements Discussion and Analysis of Financial Condition and Results of Operations section and (y) clause (iii) make available any information regarding director and management compensation or the occurrence of any of the events set forth in Items 1.04, 2.01, 2.05, 2.06, 3 (other than Item 3.03), 5.01, 5.02(e)-(f), 5.03-5.08, 6, 7, 8 or 9 of Form 8-K, (ii) make available any information regarding the occurrence of any of the events set forth in Items 1.01 or 1.02 of Form 8-K if the Issuer determines in its good faith judgment that the event that would otherwise be required to be disclosed is not material to the holders of the Notes or the business, assets, operations, financial positions or prospects of the Issuer and its Restricted Subsidiaries taken as a whole, (iii) comply with Regulation G under the Exchange Act or Item 10(e) of Regulation S-K with respect to any non-GAAP financial information contained therein (other than providing reconciliations of such non-GAAP information to extent included in the Offering Memorandum), (iv) comply with Regulation S-X or (v) provide any information that is not otherwise similar to information currently included in the Offering Memorandum. In addition, notwithstanding the foregoing, the Issuer will not be required to (i) comply with Sections 302, 906 and 404 of the Sarbanes-Oxley Act of 2002 or (ii) otherwise furnish any information, certificates or reports required by Items 307 or 308 of Regulation S-K prior to the consummation of an Exchange Offer or the effectiveness of a Shelf Registration Statement. In addition, to the extent not satisfied by the foregoing, for so long as any Notes are outstanding, the Issuer shall furnish to Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(b) The Issuer may satisfy its obligations under this Section 4.03 with respect to financial information relating to the Issuer by furnishing financial information relating to Holdings (or any parent entity of Holdings) as long as Holdings (or any such parent entity of Holdings) provides a Guarantee of the Notes.
(c) If with respect to any reporting period(s) covered in the applicable report, the Issuers Unrestricted Subsidiaries would, individually or in the aggregate, constitute a significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act (as such regulation is in effect on the Issue Date)), then the applicable annual and quarterly financial information required by clauses (a)(i) and (a)(ii) above shall include a supplemental section in Managements Discussion and Analysis of Financial Condition and Results of Operations presenting (in a manner consistent with the presentation of information in the Offering Memorandum) selected financial measures of such Unrestricted Subsidiaries in the aggregate (separate from the financial information of the Issuer and its Restricted Subsidiaries).
(d) Notwithstanding the foregoing, such requirements of this Section 4.03 shall be deemed satisfied prior to the commencement of the Exchange Offer or the effectiveness of the Shelf Registration Statement for the Initial Notes by (i) the filing with the SEC of the Exchange Offer Registration Statement or the Shelf Registration Statement (or any other similar registration statement), and any amendments thereto, with such financial information that satisfies Regulation S-X of the Securities Act, subject to exceptions consistent with the presentation of financial information in the Offering Memorandum, to the extent filed within the time periods specified above, or (ii) by posting on the Issuers website or providing to the Trustee for distribution to the Holders within 15 days of the time periods after the Issuer would have been required to file annual and interim reports with the SEC, the financial information (including the Managements Discussion and Analysis of Financial Condition and Results of Operations section) that would be required to be included in such reports, subject to exceptions consistent with the presentation of financial information in the Offering Memorandum, to the extent filed or posted within the times specified above.
(e) Notwithstanding anything herein to the contrary, the Issuer will not be deemed to have failed to comply with any of its obligations hereunder for purposes of clause (iii) of Section 6.01(a) hereof until 120 days after the receipt of the written notice delivered thereunder.
To the extent any information is not provided within the time periods specified in this Section 4.03 and such information is subsequently provided, the Issuer will be deemed to have satisfied its obligations with respect thereto at such time and any Default with respect thereto shall be deemed to have been cured.
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Section 4.04. Compliance Certificate .
(a) The Issuer shall deliver to the Trustee, within 90 days after the end of each fiscal year ending after the Issue Date (or 120 days for the first fiscal year ending after the Issue Date), a certificate from its principal executive officer, principal financial officer or principal accounting officer stating that a review of the activities of the Issuer and its Restricted Subsidiaries (including the Co-Issuer) during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Issuer and its Restricted Subsidiaries have kept, observed, performed and fulfilled their respective obligations under this Indenture, and further stating, as to such Officer signing such certificate, that to the best of his or her knowledge, on behalf of the Issuer, the Issuer and its Restricted Subsidiaries have kept, observed, performed and fulfilled in all material respects each and every condition and covenant contained in this Indenture during such fiscal year and no Default has occurred and is continuing with respect to any of the terms, provisions, covenants and conditions of this Indenture (or, if a Default shall have occurred and is continuing, describing all such Defaults of which he or she may have knowledge and what action the Issuer is taking or proposes to take with respect thereto).
(b) When any Default has occurred and is continuing under this Indenture, or if the Trustee or the holder of any other evidence of Indebtedness of the Issuer or any Subsidiary gives any notice or takes any other action with respect to a claimed Default, the Issuer shall promptly (which shall be no more than 20 Business Days after becoming aware of such Default) deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers Certificate specifying such event and what action the Issuer proposes to take with respect thereto.
Section 4.05. Taxes . The Issuer shall pay or discharge, and shall cause each of its Restricted Subsidiaries to pay or discharge, prior to delinquency, all material taxes, lawful assessments, and governmental levies except such as are contested in good faith and by appropriate actions or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders.
Section 4.06. Stay, Extension and Usury Laws . The Issuer, the Co-Issuer and each of the Guarantors covenant (to the extent that they may lawfully do so) that they shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture and the Notes; and the Issuer, the Co-Issuer and each of the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and (to the extent that they may lawfully do so) covenant that they shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.07. Limitation on Restricted Payments .
(a) The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any payment or distribution on account of the Issuers or any of its Restricted Subsidiaries Equity Interests (in each case, solely in such Persons capacity as holder of such Equity Interests), including any dividend, payment or distribution payable in connection with any merger, amalgamation or consolidation, other than:
(A) dividends and distributions by the Issuer payable solely in Equity Interests (other than Disqualified Stock) of the Issuer or in options, warrants or other rights to purchase such Equity Interests; or
(B) dividends and distributions by a Restricted Subsidiary so long as, in the case of any dividend, payment or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Subsidiary, the Issuer or a Restricted Subsidiary receives at least its pro rata share of such dividend, payment or distribution in accordance with its Equity Interests in such class or series of securities;
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(ii) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Issuer or any direct or indirect parent company of the Issuer, including any purchase, redemption, defeasance, acquisition or retirement in connection with any merger, amalgamation or consolidation;
(iii) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case, prior to any scheduled repayment, sinking fund payment or maturity, any Subordinated Indebtedness, other than:
(A) Indebtedness permitted under clauses (vii), (viii) and (ix) of Section 4.09(b) hereof; or
(B) the purchase, repurchase or other acquisition of Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above (other than any exceptions thereto) being collectively referred to as Restricted Payments ), unless, at the time of such Restricted Payment:
(A) no Default shall have occurred and be continuing or would occur as a consequence thereof;
(B) immediately after giving effect to such transaction on a pro forma basis, the Issuer could incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof (the Fixed Charge Coverage Test ); and
(C) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after the Issue Date (including Restricted Payments permitted by clauses (i), (vi)(C) and (ix) of Section 4.07(b) hereof (to the extent not deducted in calculating Consolidated Net Income), but excluding all other Restricted Payments permitted by Section 4.07(b) hereof), is less than the sum of (without duplication):
(1) 50.0% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period and including the predecessor of the Issuer) beginning on July 1, 2013 to the end of the Issuers most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, or, in the case such Consolidated Net Income for such period is a deficit, minus 100.0% of such deficit; plus
(2) 100.0% of the aggregate net cash proceeds and the fair market value of marketable securities or other property received by the Issuer since immediately after the Issue Date (other than net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness or issue Disqualified Stock or Preferred Stock pursuant to clause (xii)(A) of Section 4.09(b) hereof) from the issue or sale of:
(i) (A) Equity Interests of the Issuer, including Treasury Capital Stock, but excluding cash proceeds and the fair market value of marketable securities or other property received from the sale of:
(x) Equity Interests to any future, present or former employees, directors, officers, managers or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any direct or indirect parent company of the Issuer or any of the Issuers Subsidiaries after the Issue Date to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of Section 4.07(b) hereof; and
(y) Designated Preferred Stock; and
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(B) to the extent such net cash proceeds are actually contributed to the Issuer, Equity Interests of any of the Issuers direct or indirect parent companies (excluding contributions of the proceeds from the sale of Designated Preferred Stock of any such companies or contributions to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of Section 4.07(b) hereof); or
(ii) Indebtedness of the Issuer or a Restricted Subsidiary that has been converted into or exchanged for such Equity Interests of the Issuer;
provided that this clause (2) shall not include the proceeds from (w) Refunding Capital Stock applied in accordance with clause (ii) of Section 4.07(b) hereof, (x) Equity Interests or convertible debt securities of the Issuer sold to a Restricted Subsidiary, (y) Disqualified Stock or debt securities that have been converted into Disqualified Stock or (z) Excluded Contributions; plus
(3) 100.0% of the aggregate amount of cash and the fair market value of marketable securities or other property contributed to the capital of the Issuer following the Issue Date (other than (i) net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness or issue Disqualified Stock or Preferred Stock pursuant to clause (xii)(A) of Section 4.09(b) hereof, (ii) contributions by a Restricted Subsidiary and (iii) any Excluded Contributions); plus
(4) 100.0% of the aggregate amount received in cash and the fair market value of marketable securities or other property received by the Issuer or any Restricted Subsidiary by means of:
(i) the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) of, or other returns on Investments from, Restricted Investments made by the Issuer or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from the Issuer or its Restricted Subsidiaries and repayments of loans or advances, and releases of guarantees, which constitute Restricted Investments made by the Issuer or its Restricted Subsidiaries, in each case after the Issue Date; or
(ii) the sale (other than to the Issuer or a Restricted Subsidiary) of the stock of an Unrestricted Subsidiary or a dividend or distribution (other than an Excluded Contribution) from an Unrestricted Subsidiary (other than, in each case, to the extent the Investment in such Unrestricted Subsidiary was made by the Issuer or a Restricted Subsidiary pursuant to clause (vii) of Section 4.07(b) hereof or to the extent such Investment constituted a Permitted Investment), in each case, after the Issue Date; plus
(5) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary or the merger, amalgamation or consolidation of an Unrestricted Subsidiary into the Issuer or a Restricted Subsidiary or the transfer of all or substantially all of the assets of an Unrestricted Subsidiary to the Issuer or a Restricted Subsidiary after the Issue Date, the fair market value (as determined by the Issuer in good faith) of the Investment in such Unrestricted Subsidiary (or the assets transferred) at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary or at the time of such merger, amalgamation, consolidation or transfer of assets, other than to the extent the Investment in such Unrestricted Subsidiary was made by the Issuer or a Restricted Subsidiary pursuant to clause (vii) of Section 4.07(b) hereof or to the extent such Investment constituted a Permitted Investment.
(b) The foregoing provisions of Section 4.07(a) hereof shall not prohibit:
(i) the payment of any dividend or other distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or other distribution or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or other distribution or redemption payment would have complied with the provisions of this Indenture;
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(ii) (A) the redemption, repurchase, defeasance, retirement or other acquisition of any Equity Interests, including any accrued and unpaid dividends thereon ( Treasury Capital Stock ) or Subordinated Indebtedness of the Issuer or any Restricted Subsidiary or any Equity Interests of any direct or indirect parent company of the Issuer, in exchange for, or out of the proceeds of the substantially concurrent sale or issuance (other than to a Restricted Subsidiary) of, Equity Interests of the Issuer or any direct or indirect parent company of the Issuer to the extent contributed to the Issuer (in each case, other than any Disqualified Stock) ( Refunding Capital Stock ), (B) the declaration and payment of dividends on Treasury Capital Stock out of the proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Issuer or to an employee stock ownership plan or any trust established by the Issuer or any of its Subsidiaries) of Refunding Capital Stock, and (C) if, immediately prior to the retirement of Treasury Capital Stock, the declaration and payment of dividends thereon was permitted under clauses (vi)(A) or (B) of this Section 4.07(b), the declaration and payment of dividends on the Refunding Capital Stock (other than Refunding Capital Stock the proceeds of which were used to redeem, repurchase, retire or otherwise acquire any Equity Interests of any direct or indirect parent company of the Issuer) in an aggregate amount per year no greater than the aggregate amount of dividends per annum that were declarable and payable on such Treasury Capital Stock immediately prior to such retirement;
(iii) the prepayment, defeasance, redemption, repurchase, exchange or other acquisition or retirement (1) of Subordinated Indebtedness of the Issuers or a Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of the Issuers or a Guarantor or Disqualified Stock of the Issuers or a Guarantor or (2) Disqualified Stock of the Issuers or a Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Issuers or a Guarantor, that, in each case, is incurred or issued, as applicable, in compliance with Section 4.09 hereof so long as:
(A) the principal amount (or accreted value, if applicable) of such new Indebtedness or the liquidation preference of such new Disqualified Stock does not exceed the principal amount of (or accreted value, if applicable), plus any accrued and unpaid interest on, the Subordinated Indebtedness or the liquidation preference of, plus any accrued and unpaid dividends on, the Disqualified Stock being so prepaid, defeased, redeemed, repurchased, exchanged, acquired or retired for value, plus the amount of any premium (including tender premium) required to be paid under the terms of the instrument governing the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired, defeasance costs and any fees and expenses incurred in connection with the issuance of such new Indebtedness or Disqualified Stock;
(B) such new Indebtedness is subordinated to the Notes or the applicable Guarantee at least to the same extent as such Subordinated Indebtedness so defeased, redeemed, repurchased, exchanged, acquired or retired;
(C) such new Indebtedness or Disqualified Stock has a final scheduled maturity date equal to or later than the final scheduled maturity date of the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired (or, if earlier, the date that is 91 days after the maturity date of the Notes); and
(D) such new Indebtedness or Disqualified Stock has a Weighted Average Life to Maturity equal to or greater than the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired (or requires no or nominal payments in cash prior to the date that is 91 days after the maturity date of the Notes);
(iv) a Restricted Payment to pay for the repurchase, redemption or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Issuer or any direct or indirect parent
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company of the Issuer held by any future, present or former employee, director, officer, member of management or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any stock subscription or shareholder agreement (including, for the avoidance of doubt, any principal and interest payable on any notes issued by the Issuer or any direct or indirect parent company of the Issuer in connection with such repurchase, retirement or other acquisition); provided that the aggregate amount of Restricted Payments made under this clause (iv) do not exceed in any calendar year an amount equal to $75.0 million (which shall increase to $150.0 million subsequent to the consummation of an underwritten public Equity Offering by the Issuer or any direct or indirect parent entity of the Issuer) (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $150.0 million in any calendar year (which shall increase to $400.0 million subsequent to the consummation of an underwritten public Equity Offering by the Issuer or any direct or indirect parent corporation of the Issuer)); provided , further , that such amount in any calendar year under this clause may be increased by an amount not to exceed:
(A) the cash proceeds from the sale of Equity Interests (other than Disqualified Stock) of the Issuer and, to the extent contributed to the Issuer, the cash proceeds from the sale of Equity Interests of any of the Issuers direct or indirect parent companies, in each case to any future, present or former employees, directors, officers, members of management or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies that occurs after the Issue Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (C) of Section 4.07(a) hereof; plus
(B) the cash proceeds of key man life insurance policies received by the Issuer or its Restricted Subsidiaries (or any direct or indirect parent company to the extent contributed to the Issuer) after the Issue Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (A) and (B) of this clause (iv);
and provided , further , that (i) cancellation of Indebtedness owing to the Issuer or any Restricted Subsidiary from any future, present or former employees, directors, officers, members of management or consultants of the Issuer (or their respective Controlled Investment Affiliates or Immediate Family Members), any of the Issuers direct or indirect parent companies or any of the Issuers Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Issuer or any of its direct or indirect parent companies and (ii) the repurchase of Equity Interests deemed to occur upon the exercise of options, warrants or similar instruments if such Equity Interests represents all or a portion of the exercise price thereof or payments, in lieu of the issuance of fractional Equity Interests or withholding to pay other taxes payable in connection therewith, in the case of each of clauses (i) and (ii), will not be deemed to constitute a Restricted Payment for purposes of this Section 4.07 or any other provision of this Indenture;
(v) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Issuer or any of its Restricted Subsidiaries or any class or series of Preferred Stock of any Restricted Subsidiary issued in accordance with Section 4.09 hereof to the extent such dividends are included in the definition of Fixed Charges ;
(vi) (A) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by the Issuer or any of its Restricted Subsidiaries after the Issue Date;
(B) the declaration and payment of dividends to any direct or indirect parent company of the Issuer, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by such parent company after the Issue Date; provided that the amount of dividends paid pursuant to this clause (B) shall not exceed the aggregate amount of cash actually contributed to the Issuer from the sale of such Designated Preferred Stock; or
(C) the declaration and payment of dividends on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to clause (ii) of this Section 4.07(b);
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provided , in the case of each of (A), (B) and (C) of this clause (vi), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or the declaration of such dividends on Refunding Capital Stock that is Preferred Stock, after giving effect to such issuance or declaration on a pro forma basis, the Issuer and its Restricted Subsidiaries on a consolidated basis would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (vii) that are at the time outstanding, without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities (until such proceeds are converted to Cash Equivalents), not to exceed 3.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(viii) payments made or expected to be made by the Issuer or any Restricted Subsidiary in respect of withholding or similar taxes payable upon exercise of Equity Interests by any future, present or former employee, director, officer, member of management or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer or any Restricted Subsidiary or any direct or indirect parent company of the Issuer and any repurchases of Equity Interests deemed to occur upon exercise of stock options, warrants or other equity-based awards if such Equity Interests represent a portion of the exercise price of such options, warrants or awards;
(ix) the declaration and payment of dividends on the Issuers common stock (or the payment of dividends to any direct or indirect parent company of the Issuer to fund a payment of dividends on such companys common stock), following the first public offering of the Issuers common stock or the common stock of any direct or indirect parent company of the Issuer after the Issue Date, in an amount not to exceed the sum of (A) up to 6.0% per annum of the amount of net cash proceeds received by or contributed to the Issuer in or from any such public offering, other than public offerings with respect to the Issuers common stock registered on Form S-4 or Form S-8 and other than any public sale constituting an Excluded Contribution, and (B) an aggregate amount per annum not to exceed (x) 3.5% of Market Capitalization, if, after giving pro forma effect to the payment of any such Restricted Payment, the Consolidated Total Debt Ratio is greater than 5.50 to 1.00 and (y) 4.75% of Market Capitalization, so long as, after giving pro forma effect to the payment of any such Restricted Payment, the Consolidated Total Debt Ratio shall be less than or equal to 5.50 to 1.00;
(x) Restricted Payments that are made (a) in an amount equal to the amount of Excluded Contributions previously received or (b) without duplication with clause (a), in an amount equal to the Net Proceeds from an Asset Sale in respect of property or assets acquired after the Issue Date, if the acquisition of such property or assets was financed with Excluded Contributions;
(xi) (A) Restricted Payments in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (xi)(A) (in the case of Restricted Investments, at the time outstanding (without giving effect to the sale of an Investment to the extent the proceeds of such sale do not consist of, or have not be subsequently sold or transferred for, Cash Equivalents)) not to exceed 3.0% of Total Assets at such time; and (B) any Restricted Payments, so long as, after giving pro forma effect to the payment of any such Restricted Payment, the Consolidated Total Debt Ratio shall be no greater than 4.00 to 1.00;
(xii) distributions or payments of Securitization Fees;
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(xiii) any Restricted Payment made in connection with the Transactions and the fees and expenses related thereto or used to fund amounts owed to Affiliates (including dividends to any direct or indirect parent company of the Issuer to permit payment by such parent company of such amounts), in each case to the extent permitted by Section 4.11 hereof;
(xiv) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to the provisions similar to those described under Sections 4.10 and 4.14 hereof; provided that if the Issuer shall have been required to make a Change of Control Offer or Asset Sale Offer, as applicable, to purchase the Notes on the terms provided in this Indenture applicable to Change of Control Offers or Asset Sale Offers, respectively, all Notes validly tendered by Holders of such Notes in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed, acquired or retired for value;
(xv) the declaration and payment of dividends or distributions by the Issuer to, or the making of loans to, any direct or indirect parent company of the Issuer in amounts required for any direct or indirect parent company of the Issuer to pay, in each case without duplication:
(A) franchise, excise and similar taxes, and other fees and expenses, required to maintain their corporate existence;
(B) consolidated, combined or similar foreign, federal, state or local income or similar taxes of a tax group that includes the Issuer and/or its Subsidiaries and whose common parent is a direct or indirect parent of the Issuer, to the extent such income or similar taxes are attributable to the income of the Issuer and its Restricted Subsidiaries or, to the extent of any cash amounts actually received from its Unrestricted Subsidiaries for such purpose, to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments in respect of any fiscal year does not exceed the amount that the Issuer and/or its Restricted Subsidiaries (and, to the extent permitted above, its Unrestricted Subsidiaries), as applicable, would have been required to pay in respect of the relevant foreign, federal, state or local income or similar taxes for such fiscal year had the Issuer, its Restricted Subsidiaries and/or its Unrestricted Subsidiaries (to the extent described above), as applicable, (1) paid such taxes separately from any such parent company or (2) if the Issuer is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period, were the Issuer a taxpayer and parent of a consolidated group and had paid such taxes for the Issuer, its Restricted Subsidiaries and/or its Unrestricted Subsidiaries (to the extent described above);
(C) customary salary, bonus and other benefits payable to employees, directors, officers and managers of any direct or indirect parent company of the Issuer to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Issuer and its Restricted Subsidiaries;
(D) general corporate operating and overhead costs and expenses and, following the first public offering of the Issuers common stock or the common stock of any direct or indirect parent company of the Issuer, listing fees and other costs and expenses attributable to being a publicly traded company, of any direct or indirect parent company of the Issuer;
(E) fees and expenses other than to Affiliates of the Issuer related to any unsuccessful equity or debt offering of such parent entity;
(F) amounts payable pursuant to the Support and Services Agreement (including any amendment thereto or replacement thereof so long as any such amendment or replacement is not materially disadvantageous in the good faith judgment of the Board of Directors of the Issuer to the Holders when taken as a whole, as compared to the Support and Services Agreement as in effect immediately prior to such amendment or replacement), solely to the extent such amounts are not paid directly by the Issuer or its Subsidiaries;
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(G) cash payments in lieu of issuing fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of the Issuer or any direct or indirect parent company of the Issuer;
(H) to finance Investments that would otherwise be permitted to be made pursuant to this Section 4.07 if made by the Issuer; provided that (1) such Restricted Payment shall be made substantially concurrently with the closing of such Investment, (2) such direct or indirect parent company shall, immediately following the closing thereof, cause (x) all property acquired (whether assets or Equity Interests) to be contributed to the capital of the Issuer or one of its Restricted Subsidiaries or (y) the merger or amalgamation of the Person formed or acquired into the Issuer or one of its Restricted Subsidiaries (to the extent not prohibited by Section 5.01 hereof) in order to consummate such Investment, (3) such direct or indirect parent company and its Affiliates (other than the Issuer or a Restricted Subsidiary) receives no consideration or other payment in connection with such transaction except to the extent the Issuer or a Restricted Subsidiary could have given such consideration or made such payment in compliance with this Indenture, (4) any property received by the Issuer shall not increase amounts available for Restricted Payments pursuant to clause (C) of Section 4.07(a) hereof and (5) such Investment shall be deemed to be made by the Issuer or such Restricted Subsidiary pursuant to another provision of this Section 4.07(b) (other than pursuant to clause (x) of this Section 4.07(b)) or pursuant to the definition of Permitted Investments (other than clause (i) thereof); and
(I) amounts that would be permitted to be paid by the Issuer under clauses (iii), (iv), (vii), (viii), (xii), (xiii) and (xvi) of Section 4.11(b) hereof; provided that the amount of any dividend or distribution under this clause (xv)(I) to permit such payment shall reduce, without duplication, Consolidated Net Income of the Issuer to the extent, if any, that such payment would have reduced Consolidated Net Income of the Issuer if such payment had been made directly by the Issuer and increase (or, without duplication of any reduction of Consolidated Net Income, decrease) EBITDA to the extent, if any, that Consolidated Net Income is reduced under this clause (xv)(I) and such payment would have been added back to (or, to the extent excluded from Consolidated Net Income, would have been deducted from) EBITDA if such payment had been made directly by the Issuer, in each case, in the period such payment is made;
(xvi) the distribution, by dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Issuer or a Restricted Subsidiary by (A) any PropCo entity or its Subsidiaries (or a Restricted Subsidiary that owns any PropCo entity, provided that such Restricted Subsidiary owns no assets other than Capital Stock of PropCo entities or their Subsidiaries); and (B) Unrestricted Subsidiaries (other than Unrestricted Subsidiaries, the primary assets of which are cash and/or Cash Equivalents); and
(xvii) Restricted Payments in an amount equal to the amount of net proceeds from a Timeshare Disposition (or Timeshare Disposition to the extent it is structured to constitute a Restricted Payment); provided that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such Restricted Payment, after giving effect to any Timeshare Disposition and such Restricted Payment on a pro forma basis, the Issuer and its Restricted Subsidiaries on a consolidated basis would have had a Consolidated Total Debt Ratio of no more than 5.40 to 1.00;
provided that at the time of, and after giving effect to, any Restricted Payment permitted under clause (xi)(B) of this Section 4.07(b), no Event of Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) For purposes of determining compliance with this Section 4.07, in the event that a proposed Restricted Payment (or a portion thereof) meets the criteria of clauses (i) through (xvii) of Section 4.07(b) hereof or is entitled to be made pursuant to Section 4.07(a), the Issuer will be entitled to classify or later reclassify (based on circumstances existing on the date of such reclassification) such Restricted Payment (or a portion thereof) between such clauses (i) through (xvii) and such Section 4.07(a) in any manner that otherwise complies with this Section 4.07.
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(d) The Issuer shall not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the penultimate sentence of the definition of Unrestricted Subsidiary . For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated shall be deemed to be Restricted Payments in an amount determined as set forth in the penultimate sentence of the definition of Investments . Such designation shall be permitted only if a Restricted Payment in such amount would be permitted at such time, pursuant to this Section 4.07, or pursuant to the definition of Permitted Investments , and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries shall not be subject to any of the restrictive covenants set forth in this Indenture. For the avoidance of doubt, this Section 4.07 shall not restrict the making of any AHYDO catch up payment with respect to, and required by the terms of, any Indebtedness of the Issuer or any of its Restricted Subsidiaries permitted to be incurred under the terms of this Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries that is not a Guarantor to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:
(i) (A) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries that is a Guarantor on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits; or
(B) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries that is a Guarantor;
(ii) make loans or advances to the Issuer or any of its Restricted Subsidiaries that is a Guarantor; or
(iii) sell, lease or transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries that is a Guarantor;
(b) The restrictions in Section 4.08(a) hereof shall not apply to encumbrances or restrictions existing under or by reason of:
(i) contractual encumbrances or restrictions in effect on the Issue Date, including pursuant to Hedging Obligations and the related documentation, and contractual encumbrances or restrictions in effect on the Completion Date pursuant to the Senior Secured Credit Facilities;
(ii) this Indenture, the Notes and the Guarantees thereof;
(iii) purchase money obligations for property acquired in the ordinary course of business and capital lease obligations that impose restrictions of the nature discussed in clause (iii) of Section 4.08(a) hereof on the property so acquired;
(iv) applicable law or any applicable rule, regulation or order;
(v) (A) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary or the merger, amalgamation or consolidation of an Unrestricted Subsidiary into the Issuer or a Restricted Subsidiary or the transfer of all or substantially all of the assets of an Unrestricted Subsidiary to the Issuer or a Restricted Subsidiary, any agreement or other instrument of such Unrestricted Subsidiary (but, in any such case, not created in contemplation thereof) and (B) any agreement or other instrument of a Person acquired by or merged or consolidated with or into the Issuer or any of its Restricted Subsidiaries in existence at the time of such acquisition or at the time it merges with or into the Issuer or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person (but, in any such case, not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired and its Subsidiaries, or the property or assets of the Person so acquired and its Subsidiaries or the property or assets so acquired;
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(vi) contracts for the sale of assets, including customary restrictions with respect to a Subsidiary of the Issuer pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
(vii) Secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 hereof that limit the right of the debtor to dispose of the assets securing such Indebtedness;
(viii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business or arising in connection with any Permitted Liens;
(ix) other Indebtedness, Disqualified Stock or Preferred Stock of Restricted Subsidiaries that are not Guarantors permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.09 hereof;
(x) customary provisions in joint venture agreements and other similar agreements or arrangements relating to such joint venture;
(xi) customary provisions contained in leases, sub-leases, licenses, sub-licenses or similar agreements, including with respect to intellectual property and other agreements, in each case, entered into in the ordinary course of business;
(xii) restrictions or conditions contained in any trading, netting, operating, construction, service, supply, purchase, sale or other agreement to which the Issuer or any of its Restricted Subsidiaries is a party entered into in the ordinary course of business; provided that such agreement prohibits the encumbrance of solely the property or assets of the Issuer or such Restricted Subsidiary that are the subject to such agreement, the payment rights arising thereunder or the proceeds thereof and does not extend to any other asset or property of the Issuer or such Restricted Subsidiary or the assets or property of another Restricted Subsidiary;
(xiii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary;
(xiv) customary provisions restricting assignment of any agreement entered into in the ordinary course of business;
(xv) restrictions arising in connection with cash or other deposits permitted under Section 4.12 hereof;
(xvi) any agreement or instrument (A) relating to any Indebtedness, Disqualified or preferred stock permitted to be incurred or issued subsequent to the Issue Date pursuant to Section 4.09 hereof if the encumbrances and restrictions are not materially more disadvantageous, taken as a whole, to the Holders than is customary in comparable financings for similarly situated issuers (as determined in good faith by the Issuer) or is otherwise in effect on the Issue Date and (B) either (x) the Issuer determines that such encumbrance or restriction will not adversely affect the Issuers ability to make principal and interest payments on the Notes as and when they come due or (y) such encumbrances and restrictions apply only during the continuance of a default in respect of a payment or financial maintenance covenant relating to such Indebtedness;
(xvii) restrictions created in connection with any Qualified Securitization Facility that in the good faith determination of the Issuer are necessary or advisable to effect such Qualified Securitization Facility; and
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(xviii) any encumbrances or restrictions of the type referred to in clauses (i), (ii) and (iii) of Section 4.08(a) hereof imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (i) through (xvi) of this Section 4.08(b); provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Issuer, not materially more restrictive with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
Section 4.09. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries (including the Co-Issuer) to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise (collectively, incur and collectively, an incurrence ) with respect to any Indebtedness (including Acquired Indebtedness) and the Issuer shall not issue any shares of Disqualified Stock and shall not permit any Restricted Subsidiary to issue any shares of Disqualified Stock or any Restricted Subsidiary that is not a Guarantor to issue Preferred Stock; provided that the Issuer may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness), issue shares of Disqualified Stock and any Restricted Subsidiary that is not a Guarantor may issue shares of Preferred Stock, if the Fixed Charge Coverage Ratio on a consolidated basis of the Issuer and its Restricted Subsidiaries for the most recently ended four fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period; provided that the then outstanding aggregate principal amount of Indebtedness (including Acquired Indebtedness), Disqualified Stock and Preferred Stock that may be incurred or issued, as applicable, pursuant to this Section 4.09(a) (plus any Refinancing Indebtedness in respect thereof) by Restricted Subsidiaries that are not Guarantors shall not exceed 4.25% of Total Assets (determined on the date of such incurrence).
(b) The provisions of Section 4.09(a) hereof shall not apply to:
(i) Indebtedness incurred pursuant to any Credit Facilities by the Issuer or any Restricted Subsidiary and the issuance and creation of letters of credit and bankers acceptances thereunder (with letters of credit and bankers acceptances being deemed to have a principal amount equal to the face amount thereof); provided that immediately after giving effect to any such incurrence or issuance, the then outstanding aggregate principal amount of all Indebtedness incurred or issued under this clause (i) does not exceed $10,100.0 million;
(ii) the incurrence by the Issuer and any Guarantor of Indebtedness represented by the Notes (including any guarantee thereof) and the Exchange Notes and related Guarantees thereof to be issued in exchange for the Notes and the Guarantees thereof pursuant to the Registration Rights Agreement (but excluding any Additional Notes);
(iii) Indebtedness of the Issuer and its Restricted Subsidiaries in existence on the Issue Date (other than Indebtedness described in clauses (i) and (ii) of this Section 4.09(b));
(iv) Indebtedness consisting of Capitalized Lease Obligations and Purchase Money Obligations in an aggregate principal amount (together any Refinancing Indebtedness in respect thereof) not to exceed 5.0% of Total Assets (determined at the date of incurrence or issuance); so long as such Indebtedness exists at the date of such purchase, lease or improvement, or is created within 365 days thereafter (for the avoidance of doubt, the purchase date for any asset shall be the later of the date of completion of construction or installation and the beginning of the full productive use of such asset);
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(v) Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit, bank guarantees, bankers acceptances, warehouse receipts, or similar instruments issued or created in the ordinary course of business, including letters of credit in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 Business Days following such drawing or incurrence;
(vi) Indebtedness arising from (A) Permitted Intercompany Activities and (B) agreements of the Issuer or its Restricted Subsidiaries providing for indemnification, adjustment of purchase price, earnouts or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided that such Indebtedness is not reflected on the balance sheet of the Issuer, or any of its Restricted Subsidiaries (Contingent Obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this clause (vi));
(vii) Indebtedness of the Issuer to a Restricted Subsidiary; provided that any such Indebtedness owing to a Restricted Subsidiary that is not a Guarantor is subordinated in right of payment to the Notes (for the avoidance of doubt, any such Indebtedness owing to a Restricted Subsidiary that is not a Co-Issuer or Guarantor shall be deemed to be expressly subordinated in right of payment to the Notes unless the terms of such Indebtedness expressly provide otherwise); provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien) shall be deemed, in each case, to be an incurrence of such Indebtedness (to the extent such Indebtedness is then outstanding) not permitted by this clause (vii);
(viii) Indebtedness of a Restricted Subsidiary to the Issuer or another Restricted Subsidiary; provided that if a Subsidiary Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not a Co-Issuer or a Guarantor, such Indebtedness is subordinated in right of payment to the Guarantee of the Notes of such Subsidiary Guarantor (for the avoidance of doubt, any such Indebtedness owing to a Restricted Subsidiary that is not a Guarantor shall be deemed to be expressly subordinated in right of payment to the Notes unless the terms of such Indebtedness expressly provide otherwise); provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien) shall be deemed, in each case, to be an incurrence of such Indebtedness (to the extent such Indebtedness is then outstanding) not permitted by this clause (viii);
(ix) shares of Preferred Stock of a Restricted Subsidiary issued to the Issuer or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Issuer or another of its Restricted Subsidiaries or any pledge of such Capital Stock constituting a Permitted Lien) shall be deemed in each case to be an issuance of such shares of Preferred Stock (to the extent such Preferred Stock is then outstanding) not permitted by this clause (ix);
(x) Hedging Obligations (excluding Hedging Obligations entered into for speculative purposes) for the purpose of limiting interest rate risk with respect to any Indebtedness permitted to be incurred under this Indenture, exchange rate risk or commodity pricing risk;
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(xi) obligations in respect of self-insurance and obligations in respect of performance, bid, appeal and surety bonds and performance and completion guarantees and similar obligations provided by the Issuer or any of its Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business or consistent with past practice;
(xii) (A) Indebtedness or Disqualified Stock of the Issuer and Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or any Restricted Subsidiary in an aggregate principal amount or liquidation preference up to 200% of the net cash proceeds received by the Issuer since immediately after the Issue Date from the issue or sale of Equity Interests of the Issuer or cash contributed to the capital of the Issuer (in each case, other than Excluded Contributions, proceeds of Disqualified Stock or sales of Equity Interests to the Issuer or any of its Subsidiaries) as determined in accordance with clauses (C)(2) and (C)(3) of Section 4.07(a) hereof to the extent such net cash proceeds or cash have not been applied pursuant to such clauses to make Restricted Payments pursuant to Section 4.07(b) hereof or to make Permitted Investments specified in clauses (h), (k), (m), (bb) or (cc) of the definition thereof, and (B) Indebtedness or Disqualified Stock of the Issuer and Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or any Restricted Subsidiary in an aggregate principal amount or liquidation preference, which, when aggregated with the principal amount and liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding and incurred pursuant to this clause (xii)(B), does not at any time outstanding exceed the greater of (x) $800.0 million and (y) 4.0% of Total Assets (in each case, determined on the date of such incurrence); it being understood that any Indebtedness, Disqualified Stock or Preferred Stock incurred pursuant to this clause (xii)(B) shall cease to be deemed incurred or outstanding for purposes of this clause (xii)(B) but shall be deemed incurred for the purposes of Section 4.09(a) hereof from and after the first date on which the Issuer or such Restricted Subsidiary could have incurred such Indebtedness, Disqualified Stock or Preferred Stock under Section 4.09(a) hereof without reliance on this clause (xii)(B);
(xiii) the incurrence or issuance by the Issuer or any Restricted Subsidiary of Indebtedness, Disqualified Stock or Preferred Stock which serves to extend, replace, refund, refinance, renew or defease any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued as permitted under Section 4.09(a) hereof and clauses (ii), (iii), (iv) and (xii)(A) of this Section 4.09(b), this clause (xiii) and clause (xiv) of this Section 4.09(b) or any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued to so extend, replace, refund, refinance, renew or defease such Indebtedness, Disqualified Stock or Preferred Stock including additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums (including tender premiums), defeasance costs, and accrued interest, fees and expenses in connection therewith (the Refinancing Indebtedness ) prior to its respective maturity; provided that such Refinancing Indebtedness:
(A) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being extended, replaced, refunded, refinanced, renewed or defeased (or requires no or nominal payments in cash prior to the date that is 91 days after the maturity date of the Notes);
(B) to the extent such Refinancing Indebtedness extends, replaces, refunds, refinances, renews or defeases (i) Indebtedness subordinated in right of payment to the Notes or any Guarantee thereof, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Guarantee thereof at least to the same extent as the Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased or (ii) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness must be Disqualified Stock or Preferred Stock, respectively; and
(C) shall not include:
(1) Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the Issuer that is not the Co-Issuer or a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Issuer;
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(2) Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the Issuer that is not the Co-Issuer or a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary Guarantor; or
(3) Indebtedness or Disqualified Stock of the Issuer or Indebtedness, Disqualified Stock or Preferred Stock of a Restricted Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of an Unrestricted Subsidiary;
and, provided , further , that subclause (A) of this clause (xiii) will not apply to any extension, replacement, refunding, refinancing, renewal or defeasance of any Credit Facilities or Secured Indebtedness;
(xiv) (A) Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or a Restricted Subsidiary incurred or issued to finance an acquisition (or other purchase of assets) or (B) Indebtedness, Disqualified Stock or Preferred Stock of Persons that are acquired by the Issuer or any Restricted Subsidiary or merged into or consolidated with the Issuer or a Restricted Subsidiary in accordance with the terms of this Indenture; provided that in the case of clauses (A) and (B), after giving effect to such acquisition, merger, amalgamation or consolidation (1) the aggregate amount of such Indebtedness does not exceed $100.0 million at any time outstanding or (2) either (x) the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test set forth in Section 4.09(a) hereof, or (y) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries is equal to or greater than immediately prior to such acquisition, merger, amalgamation or consolidation;
(xv) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;
(xvi) Indebtedness of the Issuer or any of its Restricted Subsidiaries supported by a letter of credit issued pursuant to the Credit Facilities, in a principal amount not in excess of the stated amount of such letter of credit;
(xvii) (A) any guarantee by the Issuer or a Restricted Subsidiary of Indebtedness or other obligations of any Restricted Subsidiary so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under the terms of this Indenture;
(B) any guarantee by a Restricted Subsidiary of Indebtedness of the Issuer; provided that such guarantee is incurred in accordance with Section 4.15 hereof; or
(C) any incurrence by the Co-Issuer of Indebtedness as a co-issuer of Indebtedness of the Issuer that was permitted to be incurred by another provision of this Section 4.09;
(xviii) (A) Indebtedness consisting of Indebtedness issued by the Issuer or any of its Restricted Subsidiaries to future, present or former employees, directors, officers, managers and consultants thereof, their respective Controlled Investment Affiliates or Immediate Family Members, in each case to finance the purchase or redemption of Equity Interests of the Issuer or any direct or indirect parent company of the Issuer to the extent described in clause (iv) of Section 4.07(b) hereof, and (B) Indebtedness representing deferred compensation to employees of the Issuer (or any direct or indirect parent thereof) or any of its Restricted Subsidiaries incurred in the ordinary course of business;
(xix) to the extent constituting Indebtedness, customer deposits and advance payments (including progress premiums) received in the ordinary course of business from customers for goods purchased in the ordinary course of business;
(xx) (A) Indebtedness owed on a short-term basis of no longer than 30 days to banks and other financial institutions incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries with such banks or financial institutions that arises in connection with ordinary banking arrangements to manage cash balances of the Issuer and its Restricted Subsidiaries and (B) Indebtedness in respect of Bank Products;
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(xxi) Indebtedness incurred by a Restricted Subsidiary in connection with bankers acceptances, discounted bills of exchange or the discounting or factoring of receivables or payables for credit management purposes, in each case incurred or undertaken consistent with past practice or in the ordinary course of business on arms length commercial terms;
(xxii) Indebtedness of the Issuer or any of its Restricted Subsidiaries consisting of (A) the financing of insurance premiums or (B) take-or-pay obligations contained in supply arrangements, in each case incurred in the ordinary course of business;
(xxiii) the incurrence of Indebtedness of Restricted Subsidiaries of the Issuer that are not Guarantors in an amount outstanding under this clause (xxiii) not to exceed together with any other Indebtedness incurred under this clause (xxiii) 2.0% of Total Assets (in each case, determined on the date of such incurrence); it being understood that any Indebtedness deemed incurred pursuant to this clause (xxiii) shall cease to be deemed incurred or outstanding for purposes of this clause (xxiii) but shall be deemed incurred for the purposes of Section 4.09(a) hereof from and after the first date on which the Issuer or such Restricted Subsidiaries could have incurred such Indebtedness under Section 4.09(a) hereof without reliance on this clause (xxiii);
(xxiv) Indebtedness of the Issuer or any of its Restricted Subsidiaries undertaken in connection with cash management and related activities with respect to any Subsidiary or joint venture in the ordinary course of business; and
(xxv) Indebtedness of Foreign Subsidiaries of the Issuer in an amount not to exceed, at any one time outstanding and together with any other Indebtedness incurred under this clause (xxv), 10.0% of the total assets of the Foreign Subsidiaries on a consolidated basis as shown on the Issuers most recent balance sheet (it being understood that any Indebtedness incurred pursuant to this clause (xxv) shall cease to be deemed incurred or outstanding for purposes of this clause (xxv) but shall be deemed incurred for the purposes of the Section 4.09(a) hereof from and after the first date on which the Issuer or its Restricted Subsidiaries could have incurred such Indebtedness under Section 4.09(a) hereof without reliance on this clause (xxv)).
(c) For purposes of determining compliance with this Section 4.09:
(i) in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) meets the criteria of more than one of the categories of permitted Indebtedness, Disqualified Stock or Preferred Stock described in clauses (i) through (xxv) of Section 4.09(b) hereof or is entitled to be incurred pursuant to Section 4.09(a) hereof, the Issuer, in its sole discretion, may classify or reclassify such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) and shall only be required to include the amount and type of such Indebtedness, Disqualified Stock or Preferred Stock in one of the clauses under Section 4.09(b) or under Section 4.09(a) hereof; provide d that all Indebtedness outstanding under the Senior Secured Credit Facilities on the Completion Date shall be treated as incurred on the Completion Date under clause (i) of Section 4.09(b) hereof; and
(ii) the Issuer shall be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in Section 4.09(a) and Section 4.09(b) hereof.
Accrual of interest or dividends, the accretion of accreted value, the accretion or amortization of original issue discount and the payment of interest or dividends in the form of additional Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, of the same class shall not be deemed to be an incurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this Section 4.09. Any Refinancing Indebtedness and any Indebtedness permitted to be incurred under this Indenture to refinance Indebtedness incurred pursuant to clauses (i) and (xii)(B) of Section 4.09(b) hereof shall be deemed to include additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums (including reasonable tender premiums), defeasance costs, fees and expenses in connection with such refinancing.
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For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. Dollar Equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (A) the principal amount of such Indebtedness being refinanced plus (B) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums) and other costs and expenses (including original issue discount, upfront fees or similar fees) incurred in connection with such refinancing.
The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.
Notwithstanding anything to the contrary, the Issuer shall not, and shall not permit the Co-Issuer or any Subsidiary Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is contractually subordinated or junior in right of payment to any Indebtedness of the Issuer, the Co-Issuer or such Guarantor, as the case may be, unless such Indebtedness is expressly subordinated in right of payment to the Notes or such Guarantors Guarantee to the extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Issuer, the Co-Issuer or such Guarantor, as the case may be.
This Indenture shall not treat (1) unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured or (2) Indebtedness as subordinated or junior to any other Indebtedness merely because it has a junior priority with respect to the same collateral or because it is guaranteed by other obligors.
Section 4.10. Asset Sales .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale, unless:
(i) the Issuer or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Issuer at the time of contractually agreeing to such Asset Sale) of the assets sold or otherwise disposed of; and
(ii) except in the case of a Permitted Asset Swap, at least 75.0% of the consideration for such Asset Sale, together with all other Asset Sales since the Issue Date (on a cumulative basis), received by the Issuer or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents; provided that the amount of:
(A) any liabilities (as shown on the Issuers or such Restricted Subsidiarys most recent balance sheet or in the footnotes thereto or, if incurred or increased subsequent to the date of such balance sheet, such liabilities that would have been shown on the Issuers or such Restricted Subsidiarys balance sheet or in the footnotes thereto if such incurrence or increase had taken place on or prior to the date of such balance sheet, as determined by the Issuer) of the Issuer or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the Notes, that are assumed by the transferee of any such assets pursuant to a written agreement which releases or indemnifies the Issuer or such Restricted Subsidiary from such liabilities;
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(B) any securities, notes or other obligations or assets received by the Issuer or such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into Cash Equivalents (to the extent of the Cash Equivalents received) within 180 days (450 days in the case of any securities, notes or other obligations or assets received in respect of any Asset Sale of the Specified Real Property Assets) following the closing of such Asset Sale; and
(C) any Designated Non-cash Consideration received by the Issuer or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (C) that is at that time outstanding, not to exceed 5.0% of Total Assets at the time of the receipt of such Designated Non-cash Consideration, with the fair market value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value,
shall be deemed to be Cash Equivalents for purposes of this provision and for no other purpose.
(b) Within 450 days after the receipt of any Net Proceeds of any Asset Sale, the Issuer or such Restricted Subsidiary, at its option, may apply the Net Proceeds from such Asset Sale:
(i) to permanently reduce Indebtedness as follows:
(A) Obligations under the Senior Secured Credit Facilities, and to correspondingly reduce commitments with respect thereto;
(B) Obligations under Secured Indebtedness which is secured by a Lien that is permitted by this Indenture, and to correspondingly reduce commitments with respect thereto;
(C) Obligations under the Notes or any other Senior Indebtedness of the Issuer or any Restricted Subsidiary (and, in the case of other Senior Indebtedness, to correspondingly reduce any outstanding commitments with respect thereto, if applicable); provided that if the Issuer or any Restricted Subsidiary shall so repay any Senior Indebtedness other than the Notes, the Issuer will either (A) reduce Obligations under the Notes on a pro rata basis by, at its option, (x) redeeming Notes as provided under Section 3.07 hereof or (y) purchasing Notes through open-market purchases, or (B) make an offer (in accordance with the procedures set forth in Sections 3.09 and 4.10(c) hereof) to all Holders to purchase their Notes on a ratable basis with such other Senior Indebtedness for no less than 100.0% of the principal amount of such Notes, plus the amount of accrued but unpaid interest, if any, on the Notes to be repurchased, to the date of repurchase; or
(D) if the assets subject of such Asset Sale are the property or assets of a Restricted Subsidiary that is not a Guarantor, to permanently reduce Indebtedness of (i) a Restricted Subsidiary that is not a Guarantor, other than Indebtedness owed to the Issuer or any Restricted Subsidiary, or (ii) the Issuer or a Subsidiary Guarantor; or
(ii) to make (A) an Investment in any one or more businesses, provided that such Investment in any business is in the form of the acquisition of Capital Stock and results in the Issuer or any of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (B) capital expenditures or (C) acquisitions of other assets, in each of (A), (B) and (C), used or useful in a Similar Business; or
(iii) to make an Investment in (A) any one or more businesses, provided that such Investment in any business is in the form of the acquisition of Capital Stock and results in the Issuer or any of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (B) properties or (C) acquisitions of other assets that, in each of (A), (B) and (C), replace the businesses, properties and/or assets that are the subject of such Asset Sale;
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provided that a binding commitment entered into not later than such 450th day shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Issuer, or such Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within 180 days of such commitment (an Acceptable Commitment ) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Proceeds are applied in connection therewith, the Issuer or such Restricted Subsidiary enters into another Acceptable Commitment (a Second Commitment ) within 180 days of such cancellation or termination; provided further that if any Second Commitment is later cancelled or terminated for any reason before such Net Proceeds are applied, then such Net Proceeds shall constitute Excess Proceeds.
(c) Any Net Proceeds from the Asset Sale that are not invested or applied as provided and within the time period set forth in Section 4.10(b) hereof will be deemed to constitute Excess Proceeds . When the aggregate amount of Excess Proceeds exceeds $200.0 million, the Issuers shall make an offer (an Asset Sale Offer ) to all Holders of the Notes and, if required by the terms of any Indebtedness that ranks pari passu with the Notes ( Pari Passu Indebtedness ), to the holders of such Pari Passu Indebtedness, to purchase the maximum aggregate principal amount of the Notes and such Pari Passu Indebtedness that is in an amount equal to at least $2,000, or an integral multiple of $1,000 thereafter, that may be purchased out of the Excess Proceeds at an offer price, in the case of the Notes, in cash in an amount equal to 100.0% of the principal amount thereof (or accreted value thereof, if less), plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, and in the case of any Pari Passu Indebtedness at the offer price required by the terms thereof but not to exceed 100% of the principal amount thereof, plus accrued and unpaid interest, if any, in accordance with the procedures set forth in this Indenture. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceed $200.0 million by delivering the notice required pursuant to the terms of this Indenture, with a copy to the Trustee. The Issuers may satisfy the foregoing obligations with respect to any Net Proceeds from an Asset Sale by making an Asset Sale Offer with respect to such Net Proceeds prior to the expiration of the relevant 450 days (or such longer period provided above) or with respect to Excess Proceeds of $200.0 million or less.
To the extent that the aggregate amount of Notes and such Pari Passu Indebtedness, as the case may be, tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for any purposes not otherwise prohibited under this Indenture. If the aggregate principal amount of Notes or the Pari Passu Indebtedness, as the case may be, surrendered by such holders thereof exceeds the amount of Excess Proceeds, the Issuers shall purchase the Notes and such Pari Passu Indebtedness, as the case may be, on a pro rata basis based on the accreted value or principal amount of the Notes or such Pari Passu Indebtedness, as the case may be, tendered with adjustments as necessary so that no Notes or Pari Passu Indebtedness, as the case may be, will be repurchased in part in an unauthorized denomination. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds that resulted in the Asset Sale Offer shall be reset to zero (regardless of whether there are any remaining Excess Proceeds upon such completion). Additionally, the Issuers may, at their option, make an Asset Sale Offer using the proceeds from any Asset Sale at any time after the consummation of such Asset Sale. Upon consummation or expiration of any Asset Sale Offer, any remaining Net Proceeds shall not be deemed Excess Proceeds and the Issuers may use such Net Proceeds for any purpose not otherwise prohibited under this Indenture.
(d) Pending the final application of any Net Proceeds pursuant to this Section 4.10, the holder of such Net Proceeds may apply such Net Proceeds temporarily to reduce Indebtedness outstanding under a revolving credit facility, including under the Senior Secured Credit Facilities, or otherwise invest such Net Proceeds in any manner not prohibited by this Indenture.
(e) The notice, if delivered electronically or mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. If (i) the notice is delivered electronically or mailed in a manner herein provided and (ii) any Holder fails to receive such notice or a Holder receives such notice but it is defective, such Holders failure to receive such notice or such defect shall not affect the validity of the proceedings for the purchase of the Notes as to all other Holders that properly received such notice without defect. The Issuers shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase
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by the Issuers of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
The provisions of this Section 4.10 may be waived or modified with the written consent of the Holders of a majority in principal amount of all the Notes then outstanding.
Section 4.11. Transactions with Affiliates .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an Affiliate Transaction ) involving aggregate payments or consideration in excess of $50.0 million, unless:
(i) such Affiliate Transaction is on terms that are not materially less favorable to the Issuer or its relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arms-length basis; and
(ii) the Issuer delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate payments or consideration in excess of $75.0 million, a resolution adopted by the majority of the Board of Directors of the Issuer approving such Affiliate Transaction and set forth in an Officers Certificate certifying that such Affiliate Transaction complies with clause (i) of this Section 4.11(a).
(b) The provisions of Section 4.11(a) hereof shall not apply to the following:
(i) transactions between or among the Issuer or any of its Restricted Subsidiaries;
(ii) Restricted Payments permitted by Section 4.07 hereof and the definition of Permitted Investments ;
(iii) the payment of management, consulting, monitoring, transaction, advisory and other fees, indemnities and expenses pursuant to the Support and Services Agreement (plus any unpaid management, consulting, monitoring, transaction, advisory and other fees, indemnities and expenses accrued in any prior year) and any termination fees (including any such cash lump sum or present value fee upon the consummation of a corporate event, including an initial public equity offering) pursuant to the Support and Services Agreement, or any amendment thereto or replacement thereof so long as any such amendment or replacement is not materially disadvantageous in the good faith judgment of the Board of Directors of the Issuer to the Holders when taken as a whole, as compared to the Support and Services Agreement as in effect immediately prior to such amendment or replacement;
(iv) (A) employment agreements, employee benefit and incentive compensation plans and arrangements and (B) the payment of reasonable and customary fees and compensation paid to, and indemnities and reimbursements and employment and severance arrangements provided on behalf of or for the benefit of, current or former employees, directors, officers, managers or consultants of the Issuer, any of its direct or indirect parent companies or any of its Restricted Subsidiaries;
(v) transactions in which the Issuer or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view or stating that the terms are not materially less favorable, when taken as a whole, to the Issuer or its relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arms-length basis;
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(vi) any agreement or arrangement as in effect as of the Issue Date, or any amendment thereto (so long as any such amendment is not disadvantageous in any material respect in the good faith judgment of the Issuer to the Holders when taken as a whole as compared to the applicable agreement as in effect on the Issue Date);
(vii) the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or any parent company of the Issuer) is a party as of the Issue Date and any similar agreements which it (or any parent company of the Issuer) may enter into thereafter; provided that the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries (or such parent company) of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vii) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous in any material respect in the good faith judgment of the Issuer to the Holders when taken as a whole;
(viii) the Transactions and the payment of all fees and expenses related to the Transactions, including Transaction Expenses;
(ix) transactions with customers, clients, suppliers, contractors, joint venture partners or purchasers or sellers of goods or services that are Affiliates (including hotel management or franchise agreements entered into with any of the foregoing), in each case in the ordinary course of business or that are consistent with past practice and, in each case, otherwise in compliance with the terms of this Indenture which are fair to the Issuer and its Restricted Subsidiaries, in the reasonable determination of the Issuer, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
(x) the issuance or transfer of Equity Interests (other than Disqualified Stock) of the Issuer to any direct or indirect parent company of the Issuer or to any Permitted Holder or to any employee, director, officer, manager or consultant (or their respective Affiliates or Immediate Family Members) of the Issuer, any of its direct or indirect parent companies or any of its Restricted Subsidiaries;
(xi) sales of accounts receivable, or participations therein, or Securitization Assets or related assets in connection with any Qualified Securitization Facility;
(xii) payments by the Issuer or any of its Restricted Subsidiaries to any of the Investors made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by the Issuer in good faith;
(xiii) payments and Indebtedness and Disqualified Stock (and cancellation of any thereof) of the Issuer and its Restricted Subsidiaries and Preferred Stock (and cancellation of any thereof) of any Restricted Subsidiary to any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement that are, in each case, approved by the Issuer in good faith; and any employment agreements, stock option plans and other compensatory arrangements (and any successor plans thereto) and any supplemental executive retirement benefit plans or arrangements with any such employees, directors, officers, managers or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) that are, in each case, approved by the Issuer in good faith;
(xiv) (i) investments by Permitted Holders in securities of the Issuer or any of its Restricted Subsidiaries (and payment of reasonable out-of-pocket expenses incurred by such Permitted Holders in connection therewith) so long as the investment is being offered by the Issuer or such Restricted Subsidiary generally to other investors on the same or more favorable terms, and (ii) payments to Permitted Holders in respect of securities of the Issuer or any of its Restricted Subsidiaries contemplated in the foregoing subclause (i) or that were acquired from Persons other than the Issuer and its Restricted Subsidiaries, in each case, in accordance with the terms of such securities;
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(xv) payments to or from, and transactions with, any joint venture in the ordinary course of business or consistent with past practice (including, without limitation, any cash management activities related thereto);
(xvi) payments by the Issuer (and any direct or indirect parent company thereof) and its Subsidiaries pursuant to tax sharing agreements among the Issuer (and any such parent company) and its Subsidiaries, to the extent such payments are permitted under clause (xv)(B) of Section 4.07(b) hereof;
(xvii) any lease entered into between the Issuer or any Restricted Subsidiary, as lessee, and any Affiliate of the Issuer, as lessor, which is approved by the Issuer in good faith;
(xviii) intellectual property licenses in the ordinary course of business;
(xix) all payments to Holdings otherwise permitted under this Indenture;
(xx) the payment of reasonable out-of-pocket costs and expenses relating to registration rights and indemnities provided to stockholders of the Issuer or any direct or indirect parent thereof pursuant to the stockholders agreement or the registration rights agreement entered into on the Issue Date in connection therewith;
(xxi) the pledge of Equity Interests of any Unrestricted Subsidiary to lenders to support the Indebtedness of such Unrestricted Subsidiary owed to such lenders;
(xxii) Permitted Intercompany Activities, the Corporate Realignment and related transactions; and
(xxiii) any transactions with (A) any PropCo entity or any of its Subsidiaries; or (B) a joint venture which would constitute an Affiliate Transaction solely because the Issuer or its Restricted Subsidiary owns an equity interest or otherwise controls such joint venture or similar entity.
Section 4.12. Liens . The Issuer will not, and will not permit the Co-Issuer or any Subsidiary Guarantor to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) that secures Obligations under any Indebtedness or any related guarantee of Indebtedness, on any asset or property of the Issuer, the Co-Issuer or any Subsidiary Guarantor, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless:
(a) in the case of Liens securing Subordinated Indebtedness, the Notes and related Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
(b) in all other cases, the Notes or the Guarantees are equally and ratably secured,
except that the foregoing shall not apply to or restrict Liens securing obligations in respect of the Notes (and Exchange Notes with respect thereto) and the related Guarantees.
Any Lien created for the benefit of the Holders of the Notes pursuant to this Section 4.12 shall be deemed automatically and unconditionally released and discharged upon the release and discharge of each of the Liens described in clauses (a) and (b) above.
Section 4.13. Company Existence . Subject to Article 5 hereof, the Issuer shall do or cause to be done all things necessary to preserve and keep in full force and effect its limited liability company existence, and the corporate, partnership, limited liability company or other existence of each of its Restricted Subsidiaries (including the Co-Issuer), in accordance with the respective organizational documents (as the same may be amended from
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time to time) of the Issuer or any such Restricted Subsidiary; provided that the Issuer shall not be required to preserve the corporate, partnership or other existence of its Restricted Subsidiaries (other than the Co-Issuer), if the Issuer in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuer and its Restricted Subsidiaries, taken as a whole. For the avoidance of doubt, the Issuer and its Restricted Subsidiaries will be permitted to change their organizational form; provided that for so long as the Issuer is organized as a partnership or a limited liability company, it will maintain a corporate co-issuer of the Notes.
Section 4.14. Offer to Repurchase Upon Change of Control Triggering Event . If a Change of Control Triggering Event occurs, unless the Issuers have previously or concurrently sent a redemption notice with respect to all the outstanding Notes as described under Section 3.07 hereof, the Issuers shall make an offer to purchase all of the Notes pursuant to the offer described below (the Change of Control Offer ) at a price in cash (the Change of Control Payment ) equal to 101.0% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date. Within 30 days following any Change of Control Triggering Event, the Issuers will send notice of such Change of Control Offer electronically or by first-class mail, with a copy to the Trustee, to each Holder to the address of such Holder appearing in the Note Register or otherwise in accordance with the Applicable Procedures with the following information:
(a) that a Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted for payment by the Issuers;
(b) the purchase price and the purchase date, which will be no earlier than 15 days nor later than 60 days from the date such notice is sent (the Change of Control Payment Date ), except in the case of a conditional Change of Control Offer made in advance of a Change of Control Triggering Event in accordance with clause (l) of this Section 4.14;
(c) that any Note not properly tendered will remain outstanding and continue to accrue interest;
(d) that unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date;
(e) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender such Notes, with the form entitled Option of Holder to Elect Purchase on the reverse of such Notes completed, to the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(f) that Holders shall be entitled to withdraw their tendered Notes and their election to require the Issuers to purchase such Notes; provided that the Paying Agent receives, not later than the close of business on the second Business Day prior to the expiration date of the Change of Control Offer, a facsimile transmission or letter setting forth the name of the Holder of the Notes, the principal amount of Notes tendered for purchase, and a statement that such Holder is withdrawing its tendered Notes, or specified portion thereof, and its election to have such Notes purchased;
(g) that Holders whose Notes are being purchased only in part shall be issued new Notes and such new Notes will be equal in principal amount to the unpurchased portion of the Notes surrendered. The unpurchased portion of the Notes must be equal to at least $2,000 or any integral multiple of $1,000 in excess of $2,000;
(h) if such notice is delivered prior to the occurrence of a Change of Control Triggering Event, stating that the Change of Control Offer is conditional on the occurrence of such Change of Control Triggering Event; and
(i) the other instructions, as determined by the Issuers, consistent with this Section 4.14 that a Holder must follow in order to have the Notes repurchased.
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The notice, if delivered electronically or mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. If (a) the notice is delivered or mailed in a manner herein provided and (b) any Holder fails to receive such notice or a Holder receives such notice but it is defective, such Holders failure to receive such notice or such defect shall not affect the validity of the proceedings for the purchase of the Notes as to all other Holders that properly received such notice without defect. The Issuers shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase by the Issuers of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
(j) On the Change of Control Payment Date, the Issuers shall, to the extent permitted by law:
(i) accept for payment all Notes issued by it or portions thereof properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions thereof so tendered; and
(iii) deliver, or cause to be delivered, to the Trustee for cancellation the Notes so accepted together with an Officers Certificate to the Trustee stating that such Notes or portions thereof have been tendered to and purchased by the Issuers.
(k) The Issuers shall not be required to make a Change of Control Offer following a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(l) Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of a Change of Control Triggering Event, conditional upon such Change of Control Triggering Event, if a definitive agreement is in place for the Change of Control Triggering Event at the time of making of the Change of Control Offer.
(m) Other than as specifically provided in this Section 4.14, any purchase pursuant to this Section 4.14 shall be made pursuant to the provisions of Sections 3.02, 3.05 and 3.06 hereof, and references therein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase and Change of Control Payment Date and similar words, as applicable.
The provisions of this Section 4.14 may be waived or modified with the written consent of the Holders of a majority in principal amount of all the Notes then outstanding.
Section 4.15. Limitation on Guarantees of Indebtedness by Restricted Subsidiaries . The Issuer shall not permit any of its Wholly Owned Subsidiaries that are Restricted Subsidiaries (and non-Wholly Owned Subsidiaries if such non-Wholly Owned Subsidiaries guarantee other capital markets debt securities of the Issuer, the Co-Issuer or any Subsidiary Guarantor), other than a Subsidiary Guarantor, the Co-Issuer, a Foreign Subsidiary or a Securitization Subsidiary, to guarantee the payment of any Indebtedness of the Issuer, the Co-Issuer or any other Subsidiary Guarantor unless:
(a) such Restricted Subsidiary within 60 days after the guarantee of such Indebtedness executes and delivers a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, providing for a Guarantee by such Restricted Subsidiary, except that with respect to a guarantee of
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Indebtedness of the Issuer, the Co-Issuer or any Subsidiary Guarantor, if such Indebtedness is by its express terms subordinated in right of payment to the Notes or such Guarantors Guarantee, any such guarantee by such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Guarantee substantially to the same extent as such Indebtedness is subordinated to the Notes; and
(b) such Restricted Subsidiary waives and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other applicable rights against the Issuer or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee;
provided that this Section 4.15 shall not be applicable to any guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. The Issuer may elect, in its sole discretion, to cause any Subsidiary that is not otherwise required to be a Guarantor to become a Guarantor, in which case such Subsidiary shall not be required to comply with the 60 day period described in clause (a) of this Section 4.15.
Notwithstanding the foregoing, each Wholly Owned Restricted Subsidiary that guarantees any Indebtedness of the Issuer under the Senior Secured Credit Facilities as of the Completion Date shall, on the Completion Date, execute and deliver a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, providing for a Guarantee by such Wholly Owned Restricted Subsidiary.
Section 4.16. Limitation on Business Activities of the Co-Issuer .
The Co-Issuer may not hold any assets, become liable for any obligations or engage in any business activities; provided that it may be a co-obligor with respect to the Notes or any other Indebtedness issued by the Issuer, and may engage in any activities related thereto or necessary in connection therewith. The Co-Issuer shall be a Wholly Owned Subsidiary of the Issuer at all times.
Section 4.17. Termination of Covenants .
(a) If on any date (i) the Notes have an Investment Grade Rating from either of the Rating Agencies and (ii) no Default has occurred and is continuing under this Indenture, then, beginning on that day and continuing at all times thereafter regardless of any subsequent changes in the rating of the Notes, each of Section 4.07, Section 4.08, Section 4.09, Section 4.10, Section 4.11, Section 4.15 and clause (iv) of Section 5.01(a) hereof shall no longer be applicable to the Notes.
(b) The Trustee shall have no obligation to determine if the covenants set forth in Section 4.17(a) hereof have been terminated or to provide Holders with notice of the termination of such covenants.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of All or Substantially All Assets .
(a) The Issuer may not consolidate or merge with or into or wind up into (whether or not the Issuer is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(i) the Issuer is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made, is a Person organized or existing under the laws of the jurisdiction of organization of the Issuer or the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Person, as the case may be, being herein called the Successor Company ); provided that in the case where the surviving Person is not a corporation, a co-obligor of the Notes is a corporation;
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(ii) the Successor Company, if other than the Issuer, expressly assumes all the obligations of the Issuer under the Notes and the Registration Rights Agreement (if the Exchange Offer contemplated therein has not been consummated) pursuant to supplemental indentures or other documents or instruments;
(iii) immediately after such transaction, no Default exists;
(iv) immediately after giving pro forma effect to such transaction and any related financing transactions, as if such transactions had occurred at the beginning of the applicable four-quarter period:
(A) the Successor Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test; or
(B) the Fixed Charge Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be equal to or greater than the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, unless it is the other party to the transactions described above, in which case clause (i)(B) of Section 5.01(f) hereof shall apply, shall have by supplemental indenture confirmed that its Guarantee shall apply to such Persons obligations under this Indenture, the Notes and the Registration Rights Agreement;
(vi) the Co-Issuer, unless it is the party to the transactions described above, shall have by supplemental indenture confirmed that it continues to be a co-obligor of the Notes; and
(vii) the Issuer or, if applicable, the Successor Company shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with this Indenture.
(b) The Successor Company shall succeed to, and be substituted for, the Issuer under this Indenture, the Guarantees and the Notes, as applicable.
(c) Notwithstanding clauses (iii) and (iv) of Section 5.01(a) hereof:
(i) any Restricted Subsidiary may consolidate or amalgamate with or merge with or into or transfer all or part of its properties and assets to the Issuer or a Subsidiary Guarantor; and
(ii) the Issuer may merge with an Affiliate of the Issuer solely for the purpose of reincorporating the Issuer in the United States, any state thereof, the District of Columbia or any territory thereof so long as the amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not increased thereby.
(d) For the avoidance of doubt, the PropCo entities and their Subsidiaries and the Timeshare Disposition (individually or in the aggregate) shall be deemed not to constitute all or substantially all of the Issuers properties or assets for the purposes of this Section 5.01.
(e) The Co-Issuer may not, directly or indirectly, consolidate or merge with or into or windup into (whether or not the Co-Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Co-Issuers properties or assets, in one or more related transactions, to any Person, unless:
(i) (A) concurrently therewith, a corporate Wholly Owned Restricted Subsidiary of the Issuer organized and validly existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof (which may be the continuing Person as a result of such transaction) expressly assumes all the obligations of the Co-Issuer under the Notes and the Registration Rights Agreement (if the Exchange Offer contemplated therein has not been consummated) pursuant to supplemental indentures or other documents or instruments; or
(B) after giving effect thereto, at least one obligor on the Notes shall be a corporation organized and validly existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof;
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(ii) immediately after such transaction, no Default or Event of Default will have occurred and be continuing; and
(iii) the Co-Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture, if any, comply with this Indenture.
(f) Subject to Section 10.06 hereof, no Subsidiary Guarantor shall, and the Issuer shall not permit any Subsidiary Guarantor to, consolidate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(i) (A) such Guarantor is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a Person organized or existing under the laws of the jurisdiction of organization of such Guarantor, as applicable, or the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such surviving Guarantor or such Person, as the case may be, being herein called the Successor Person );
(B) the Successor Person, if other than such Guarantor, expressly assumes all the obligations of such Guarantor under this Indenture and such Guarantors related Guarantee pursuant to supplemental indentures or other documents or instruments;
(C) immediately after such transaction, no Default exists; and
(D) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with this Indenture; or
(ii) the transaction is made in compliance with Section 4.10(a) hereof; or
(iii) in the case of assets comprised of Equity Interests of Subsidiaries that are not Guarantors, such Equity Interests are sold, assigned, transferred, leased, conveyed or otherwise disposed of to one or more Restricted Subsidiaries.
(g) Subject to Section 10.06 hereof, the Successor Person shall succeed to, and be substituted for, such Guarantor under this Indenture and such Guarantors Guarantee. Notwithstanding the foregoing, any Subsidiary Guarantor may (1) merge or consolidate with or into, wind up into or transfer all or part of its properties and assets to another Subsidiary Guarantor or the Issuer, (2) merge with an Affiliate of the Issuer solely for the purpose of reincorporating the Subsidiary Guarantor in the United States, any state thereof, the District of Columbia or any territory thereof, (3) convert into a corporation, partnership, limited partnership, limited liability company or trust organized or existing under the laws of the jurisdiction of organization of such Subsidiary Guarantor or (4) liquidate or dissolve or change its legal form if the Issuer determines in good faith that such action is in the best interests of the Issuer, in each case, without regard to the requirements set forth in Section 5.01(f). Holdings may merge with an Affiliate of the Issuer solely for the purpose of reincorporating or reorganizing Holdings in the United States, any state thereof, the District of Columbia or any territory thereof. Notwithstanding anything to the contrary in this Section 5.01, the Issuer may contribute Capital Stock of any or all of its Subsidiaries to any Subsidiary Guarantor.
Section 5.02. Successor Person Substituted . Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer, the
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Co-Issuer or a Subsidiary Guarantor in accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, shall refer instead to the successor Person, as applicable, and not to the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable), and may exercise every right and power of the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, under this Indenture with the same effect as if such successor Person, as applicable, had been named as the Issuer, the Co-Issuer or a Subsidiary Guarantor, as applicable, herein; provided that the predecessor Issuer or the Co-Issuer, as applicable, shall not be relieved from the obligation to pay the principal of and interest on the Notes, except in the case of a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Issuers or the Co-Issuers assets that meets the requirements of Section 5.01 hereof.
Section 5.03. Corporate Realignment . Notwithstanding anything in this Article 5, the Issuers and the Guarantors may consummate the Corporate Realignment.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default .
(a) An Event of Default , wherever used herein, means any one of the following events:
(i) default in payment when due and payable, upon redemption, acceleration or otherwise, of principal of, or premium, if any, on the Notes;
(ii) default for 30 days or more in the payment when due of interest on or with respect to the Notes;
(iii) subject to Section 4.03(e) hereof, failure by the Issuer, the Co-Issuer or any Guarantor for 60 days after receipt of written notice given by the Trustee or the Holders of not less than 25.0% in aggregate principal amount of the then outstanding Notes to comply with any of its obligations, covenants or agreements (other than a default referred to in clause (i) or (ii) above) contained in this Indenture or the Notes;
(iv) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries, other than Indebtedness owed to the Issuer or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists or is created after the issuance of the Notes, if both:
(A) such default either results from the failure to pay any principal of such Indebtedness at its stated final maturity (after giving effect to any applicable grace periods) or relates to an obligation other than the obligation to pay principal of any such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity; and
(B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity (after giving effect to any applicable grace periods), or the maturity of which has been so accelerated, aggregate $225.0 million or more outstanding;
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(v) failure by the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary) to pay final judgments aggregating in excess of $225.0 million (net of amounts covered by insurance policies issued by reputable insurance companies), which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 days after such judgment becomes final, and in the event such judgment is covered by insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(vi) the Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), pursuant to or within the meaning of any Bankruptcy Law:
(A) commences proceedings to be adjudicated bankrupt or insolvent;
(B) consents to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under applicable Bankruptcy Law;
(C) consents to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of it or for all or substantially all of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), in a proceeding in which the Issuer or any such Subsidiary or such group of Restricted Subsidiaries is to be adjudicated bankrupt or insolvent;
(B) appoints a receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), or for all or substantially all of the property of the Issuer or any such Significant Subsidiary or such group of Restricted Subsidiaries; or
(C) orders the liquidation of the Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary);
and the order or decree remains unstayed and in effect for 60 consecutive days; or
(viii) the Guarantee of Holdings or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary) shall for any reason cease to be in full force and effect or be declared null and void or any responsible officer of Holdings or any Guarantor that is a Significant Subsidiary (or the responsible officers of any group of Restricted
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Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), as the case may be, denies in writing that it has any further liability under its Guarantee or gives written notice to such effect, other than by reason of the termination of this Indenture or the release of any such Guarantee in accordance with this Indenture.
(b) In the event of any Event of Default specified in clause (iv) of Section 6.01(a) hereof, such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders, if within 30 days after such Event of Default arose:
(i) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged;
(ii) holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default; or
(iii) the default that is the basis for such Event of Default has been cured.
Section 6.02. Acceleration . If any Event of Default (other than an Event of Default of the type specified in clause (vi) or (vii) of Section 6.01(a) hereof) occurs and is continuing under this Indenture, the Trustee or the Holders of not less than 25.0% in aggregate principal amount of all the then outstanding Notes may, by notice to the Issuers and the Trustee, in either case specifying in such notice the respective Event of Default and that such notice is a notice of acceleration, declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.
Upon the effectiveness of such declaration, such principal of and premium, if any, and interest will be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) or (vii) of Section 6.01(a) hereof, all outstanding Notes will become due and payable without further action or notice. The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest. In addition, subject to Section 6.05, the Trustee will have no obligation to accelerate the Notes if in the judgment of the Trustee acceleration is not in the interests of the Holders of all of the Notes.
Section 6.03. Other Remedies . If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults . Holders of a majority in aggregate principal amount of all the Notes then outstanding, by notice to the Trustee (with a copy to the Issuers, provided that any waiver or rescission under this Section 6.04 shall be valid and binding notwithstanding the failure to provide a copy of such notice to the Issuers) may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under this Indenture (except a continuing Default in the payment of interest on, premium, if any, or the principal of any Note held by a non-consenting Holder) (including in connection with an Asset Sale Offer or a Change of Control Offer) and rescind any acceleration with respect to the Notes and its consequences under this Indenture (except if such rescission would conflict with any judgment of a court of competent jurisdiction). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.
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Section 6.05. Control by Majority . Subject to Section 7.01(e) hereof, the Holders of a majority in aggregate principal amount of all the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee and the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits . Subject to Section 6.07 hereof, no Holder of a Note may pursue any remedy with respect to this Indenture or the Notes unless:
(a) such Holder has previously given the Trustee written notice that an Event of Default is continuing;
(b) the Holders of at least 25.0% in the aggregate principal amount of the then outstanding Notes have requested in writing the Trustee to pursue the remedy;
(c) the Holders of the Notes have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense;
(d) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(e) the Holders of a majority in aggregate principal amount of all the then outstanding Notes have not given the Trustee a direction in writing inconsistent with such written request within such 60-day period.
Section 6.07. Rights of Holders to Receive Payment . Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and Additional Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an Asset Sale Offer or a Change of Control Offer), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee . If an Event of Default specified in Section 6.01(a)(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Issuers for the whole amount of principal of, premium, if any, Additional Interest, if any, and interest remaining unpaid on, the Notes and interest on overdue principal, if applicable, and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Restoration of Rights and Remedies . If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceedings, the Issuers, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted.
Section 6.10. Rights and Remedies Cumulative . Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.07 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
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Section 6.11. Delay or Omission Not Waiver . No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 6.12. Trustee May File Proofs of Claim . The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes including the Guarantors), their creditors or their property and shall be entitled and empowered to participate as a member in any official committee of creditors appointed in such matter and to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.13. Priorities . If the Trustee or any Agent collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order:
(a) FIRST, to the Trustee, such Agent, their agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee or such Agent and the costs and expenses of collection;
(b) SECOND, to Holders for amounts due and unpaid on the Notes for principal, premium, if any, Additional Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest, respectively; and
(c) THIRD, to the Issuers or to such party as a court of competent jurisdiction shall direct including a Guarantor, if applicable.
The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.13.
Section 6.14. Undertaking for Costs . In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.14 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10.0% in principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee .
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of willful misconduct or bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not investigate or confirm the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved in a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee shall be under no obligation to exercise any of its rights or powers under this Indenture at the request or direction of any of the Holders unless the Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02. Rights of Trustee .
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers and its Restricted Subsidiaries, personally or by agent or attorney at the sole cost of the Issuers and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
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(b) Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuer or the Co-Issuer shall be sufficient if signed by an Officer of the Issuer or the Co-Issuer, as applicable.
(f) None of the provisions of this Indenture shall require the Trustee to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if an indemnity satisfactory to it against such risk or liability is not assured to it.
(g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default or Event of Default is received by the Trustee at the Corporate Trust Office, and such notice references the Notes and this Indenture.
(h) In no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
(j) In the event the Issuers are required to pay Additional Interest, the Issuers will provide written notice to the Trustee of the Issuers obligation to pay Additional Interest no later than 15 days prior to the next Interest Payment Date, which notice shall set forth the amount of the Additional Interest to be paid by the Issuers. The Trustee shall not at any time be under any duty or responsibility to any Holders to determine whether the Additional Interest is payable and the amount thereof.
(k) Delivery of reports, information and documents (including without limitation reports contemplated under Section 4.03 hereof) to the Trustee is for informational purposes only and the Trustees receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers Certificates).
(l) The permissive rights of the Trustee to take certain actions under this Indenture shall not be construed as a duty unless so specified herein.
(m) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the Holders of not less than a majority in principal amount of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney, at the expense of the Issuers and shall incur no liability of any kind by reason of such inquiry or investigation.
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(n) The Trustee may request that the Issuers deliver an Officers Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers Certificate may be signed by any Person authorized to sign an Officers Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
(o) The Trustee shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; terrorism; wars and other military disturbances; sabotage; epidemics; riots; loss or malfunction of utilities, computer (hardware or software) or communication services; strikes or similar labor disputes; and acts of civil or military authorities and governmental action.
(p) The Trustee shall have no duty to inquire as to the performance of the Issuers with respect to the covenants contained in Article 4 or to make any calculation in connection therewith or in connection with any redemption of the Notes. In addition, except as otherwise expressly provided herein, the Trustee shall have no obligation to monitor or verify compliance by the Issuers or any Guarantor with any other obligation or covenant under this Indenture.
Section 7.03. Individual Rights of Trustee . The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or any of their Affiliates with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee (if this Indenture has been qualified under the Trust Indenture Act) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustees Disclaimer . The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers use of the proceeds from the Notes or any money paid to the Issuers or upon the Issuers direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults . If a Default occurs and is continuing and if it is known to a Responsible Officer of the Trustee, the Trustee shall deliver to Holders a notice of the Default within 90 days after it occurs, unless such Default shall have been cured or waived, or if discovered after 90 days, promptly thereafter. The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest.
Section 7.06. Reports by Trustee to Holders . Within 60 days after each October 1, beginning on October 1, 2014, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with Trust Indenture Act Section 313(a) (but if no event described in Trust Indenture Act Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with Trust Indenture Act Section 313(b)(2), to the extent applicable. The Trustee shall also transmit by mail all reports as required by Trust Indenture Act Section 313(c).
A copy of each report at the time of its mailing to the Holders shall be mailed to the Issuers and filed with the SEC and each stock exchange on which the Notes are listed in accordance with Trust Indenture Act Section 313(d). The Issuers shall promptly notify the Trustee when the Notes are listed on any stock exchange or delisted therefrom.
Section 7.07. Compensation and Indemnity . The Issuers shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree in writing
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from time to time. The Trustees compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee promptly upon request for all out-of-pocket disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustees agents and counsel.
The Issuers and the Guarantors, jointly and severally, shall indemnify the Trustee and its officers, directors, employees, agents and any predecessor trustee and its officers, directors, employees and agents for, and hold the Trustee harmless against, any and all loss, damage, claims, liability or expense (including reasonable attorneys fees and expenses) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder (including the reasonable costs and expenses of enforcing this Indenture against the Issuers or any of the Guarantors (including this Section 7.07) or defending itself against any claim whether asserted by any Holder, the Issuers or any Guarantor, or liability in connection with the acceptance, exercise or performance of any of its powers or duties hereunder) (but excluding taxes imposed on such Persons in connection with compensation for such administration or performance). The Trustee shall notify the Issuers promptly of any claim of which a Responsible Officer has received written notice for which it may seek indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the Issuers or the Guarantors of their obligations hereunder. The Issuers shall defend the claim and the Trustee may have separate counsel and the Issuers shall pay the reasonable fees and expenses of such counsel. Neither the Issuers nor any Guarantor need reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustees own willful misconduct, negligence or bad faith. Neither the Issuers nor any Guarantor need pay for any settlement made without its consent.
The obligations of the Issuers and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee.
To secure the payment obligations of the Issuers and the Guarantors in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except money or property held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(a)(vi) or Section 6.01(a)(vii) hereof occurs, the expenses and the compensation for the services (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee . A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustees acceptance of appointment as provided in this Section 7.08. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuers. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof or Trust Indenture Act Section 310;
(b) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers.
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If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Issuers expense), the Issuers or the Holders of at least 10% in principal amount of the then outstanding Notes, may petition any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc . If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification . There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has, together with its parent, a combined capital and surplus of at least $150,000,000 as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of Trust Indenture Act Sections 310(a)(1), (2) and (5). The Trustee is subject to Trust Indenture Act Section 310(b).
Section 7.11. Preferential Collection of Claims Against Issuers . The Trustee is subject to Trust Indenture Act Section 311(a), excluding any creditor relationship listed in Trust Indenture Act Section 311(b). A Trustee who has resigned or been removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . The Issuers may, at their option and at any time, elect to have either Section 8.02 or 8.03 hereof applied to all outstanding Notes and all obligations of the Guarantors with respect to the Guarantees upon compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge . Upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuers and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes and the related Guarantees and all Events of Default cured on the date the conditions set forth below are satisfied ( Legal Defeasance ). For this purpose, Legal Defeasance means that the Issuers and the Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be outstanding only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below (it being understood that such Notes shall not be deemed outstanding for accounting purposes), and to have satisfied all their other obligations under such Notes and this Indenture including that of the Guarantors (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper instruments acknowledging the same) and to have cured all then existing Events of Default, except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders of Notes to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due solely out of the trust created pursuant to this Indenture referred to in Section 8.04 hereof;
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(b) the Issuers obligations with respect to Notes concerning issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuers and the Guarantors obligations in connection therewith; and
(d) this Section 8.02.
Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance . Upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuers and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their obligations under Sections 3.09, 4.03, 4.04, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 and 4.15 hereof, the first sentence of Section 4.16 hereof, and clauses (iv) and (v) of Section 5.01(a), and Sections 5.01(e) and 5.01(f) hereof with respect to all outstanding Notes and the related Guarantees, on and after the date the conditions set forth in Section 8.04 hereof are satisfied ( Covenant Defeasance ), and such Notes shall thereafter be deemed not outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed outstanding for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to all outstanding Notes and the related Guarantees, the Issuers and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and the Guarantees shall be unaffected thereby. In addition, upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Section 6.01(a)(iii) (solely with respect to the covenants that are released upon a Covenant Defeasance), 6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi) (solely with respect to Restricted Subsidiaries (other than the Co-Issuer) subject thereto), 6.01(a)(vii) (solely with respect to Restricted Subsidiaries (other than the Co-Issuer) subject thereto) and 6.01(a)(viii) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance . The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:
(a) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of Notes, cash in U.S. dollars, U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest due on such Notes on the stated maturity date or on the Redemption Date, as the case may be, of such principal, premium, if any, or interest on such Notes and the Issuers must specify whether such Notes are being defeased to maturity or to a particular Redemption Date; provided that upon any redemption that requires the payment of the Applicable Premium, the amount deposited shall be sufficient for purposes of this Indenture to the extent that an amount is deposited with the Trustee equal to the Applicable Premium calculated as of the date of the notice of redemption, with any deficit as of the Redemption Date (any such amount, the Applicable Premium Deficit ) only required to be deposited with the Trustee on or prior to the Redemption Date. Any Applicable Premium Deficit shall be set forth in an Officers Certificate delivered to the Trustee simultaneously with the deposit of such Applicable Premium Deficit that confirms that such Applicable Premium Deficit shall be applied toward such redemption;
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(b) in the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions:
(i) the Issuers have received from, or there has been published by, the United States Internal Revenue Service a ruling, or
(ii) since the issuance of the Notes, there has been a change in the applicable U.S. federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, subject to customary assumptions and exclusions, the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel confirming that, subject to customary assumptions and exclusions, the Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(d) no Event of Default (other than that resulting from borrowing funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith) shall have occurred and be continuing on the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Secured Credit Facilities or any other material agreement or instrument (other than this Indenture) to which the Issuers or any Guarantor is a party or by which the Issuers or any Guarantor is bound (other than that resulting from any borrowing of funds to be applied to make the deposit required to effect such Legal Defeasance or Covenant Defeasance and any similar and simultaneous deposit relating to other Indebtedness, and, in each case, the granting of Liens in connection therewith);
(f) the Issuers shall have delivered to the Trustee an Officers Certificate stating that the deposit was not made by the Issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuers or any Guarantor or others; and
(g) the Issuers shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with.
Section 8.05. Deposited Money and U.S. Government Securities to be Held in Trust; Other Miscellaneous Provisions . Subject to Section 8.06 hereof, all money and U.S. Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the Trustee ) pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer or a Guarantor acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law.
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The Issuers shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes and the related Guarantees.
Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuers from time to time upon the request of the Issuers any money or U.S. Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers . Subject to any applicable abandoned property law, any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, shall thereupon cease.
Section 8.07. Reinstatement . If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuers and the Guarantors obligations under this Indenture and the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided that, if the Issuers make any payment of principal of, premium, if any, or interest on any Notes following the reinstatement of their obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders . Notwithstanding Section 9.02 hereof, the Issuers, any Guarantor (with respect to a Guarantee or this Indenture) and the Trustee may amend or supplement this Indenture, any Guarantee or Notes and the Escrow Agreement without the consent of any Holder:
(a) to cure any ambiguity, omission, mistake, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(c) to comply with Section 5.01 hereof;
(d) to provide for the assumption of the Issuers or any Guarantors obligations to the Holders;
(e) to make any change that would provide any additional rights or benefits to the Holders or that does not materially adversely affect the legal rights under this Indenture of any such Holder;
(f) to add covenants for the benefit of the Holders or to surrender any right or power conferred upon the Issuers or any Guarantor;
(g) to provide for the issuance of Additional Notes in accordance with the terms of this Indenture;
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(h) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act;
(i) to evidence and provide for the acceptance and appointment under this Indenture of a successor Trustee hereunder pursuant to the requirements hereof;
(j) to make any amendment to the provisions of this Indenture relating to the transfer or legending of the Notes or to provide for the issuance of Exchange Notes or private exchange notes, which are identical to Exchange Notes except that they are not freely transferable;
(k) to add a Guarantor under this Indenture or to release a Guarantor in accordance with the terms of this Indenture;
(l) to conform the text of this Indenture, Guarantees, the Escrow Agreement or the Notes to any provision of the Description of the Notes section of the Offering Memorandum to the extent that such provision in such Description of the Notes section was intended to be a verbatim recitation of a provision of this Indenture, Guarantee, the Escrow Agreement or Notes as provided in an Officers Certificate;
(m) to make any amendment to the provisions of this Indenture relating to the transfer and legending of Notes as permitted by this Indenture, including, without limitation to facilitate the issuance and administration of the Notes; provided , however , that such amendment does not materially and adversely affect the rights of Holders to transfer Notes; or
(n) to effect the Corporate Realignment and related transactions.
Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each Issuer authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof (to the extent requested by the Trustee and subject to the last sentence of Section 9.06), the Trustee shall join with the Issuers and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall have the right, but not be obligated to, enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers Certificate, nor a board resolution, shall be required in connection with the addition of a Guarantor under this Indenture upon execution and delivery by such Guarantor and the Trustee of a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto.
Section 9.02. With Consent of Holders . Except as provided in Section 9.01 and this Section 9.02, the Issuers, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes and the Guarantees with the consent of the Holders of at least a majority in principal amount of all the Notes then outstanding, including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes and, subject to Section 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes issued thereunder may be waived with the consent of the Holders of a majority in principal amount of all the Notes then outstanding (including consents obtained in connection with a purchase of or tender offer or exchange offer for the Notes). Section 2.08 hereof and Section 2.09 hereof shall determine which Notes are considered to be outstanding for the purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each Issuer authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, the Trustee shall join with the Issuers and the Guarantors in the execution of such amended or supplemental indenture, unless such amended or supplemental indenture directly affects the Trustees own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture.
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It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuers shall send to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to send such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver.
Without the consent of each affected Holder of Notes, an amendment or waiver under this Section 9.02 may not, with respect to any Notes held by a non-consenting Holder:
(a) reduce the principal amount of such Notes whose Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed final maturity of any such Note or alter or waive the provisions with respect to the redemption of such Notes (other than provisions relating to (i) notice periods (to the extent consistent with applicable requirements of clearing and settlement systems) for redemption and conditions to redemption and (ii) Section 3.09, Section 4.10 and Section 4.14 hereof);
(c) reduce the rate of or change the time for payment of interest on any such Note;
(d) (A) waive a Default in the payment of principal of or premium, if any, or interest on such Notes, except a rescission of acceleration of such Notes by the Holders of a majority in aggregate principal amount of all the Notes then outstanding, and a waiver of the payment default that resulted from such acceleration, or (B) waive a Default in respect of a covenant or provision contained in this Indenture or any Guarantee which cannot be amended or modified without the consent of all affected Holders;
(e) make any such Note payable in money other than that stated therein;
(f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of or premium, if any, or interest on such Notes;
(g) make any change in these amendment and waiver provisions;
(h) impair the right of any Holder to receive payment of principal of, or premium, if any, or interest on such Holders Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holders Notes;
(i) make any change to or modify the ranking of such Notes that would adversely affect the Holders; or
(j) except as expressly permitted by this Indenture, modify the Guarantees of any Significant Subsidiary, or any group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Issuer), would constitute a Significant Subsidiary in any manner materially adverse to the Holders of such Notes.
Section 9.03. Compliance with Trust Indenture Act . Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental indenture that complies in all material respects with the Trust Indenture Act as then in effect.
Section 9.04. Revocation and Effect of Consents . Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every
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subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holders Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date unless the consent of the requisite number of Holders has been obtained.
Section 9.05. Notation on or Exchange of Notes . The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc . The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Issuers may not sign an amendment, supplement or waiver until the Board of Directors of each Issuer approve it. In executing any amendment, supplement or waiver, the Trustee shall be provided with, upon request, and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers Certificate and an Opinion of Counsel each stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Issuers and any Guarantors party thereto, enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.03 hereof). Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers Certificate, nor a resolution, shall be required for the Trustee to execute any supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto adding a new Guarantor under this Indenture.
ARTICLE 10
GUARANTEES
Section 10.01. Guarantee . Subject to this Article 10, from and after the Issue Date, each of the Guarantors hereby, jointly and severally, irrevocably and unconditionally, guarantees, on an unsecured senior basis, to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the Obligations of the Issuers hereunder or thereunder, that: (a) the principal of and interest and premium, if any, on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other Obligations of the Issuers to the Holders or the Trustee hereunder or under the Notes shall be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same promptly. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment
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against the Issuer or the Co-Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor (other than payment in full of all of the Obligations of the Issuers hereunder or under the Notes). Each Guarantor hereby waives, to the fullest extent permitted by law, diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer or the Co-Issuer, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenants that this Guarantee shall not be discharged except by full payment of the obligations contained in the Notes and this Indenture or by release in accordance with the provisions of this Indenture.
Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.01.
If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuers or the Guarantors, then any amount paid either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. The Guarantors shall have the right to seek contribution from any nonpaying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantees. Each Guarantor that makes a payment under its Guarantee shall, to the fullest extent permitted by applicable law, be entitled upon payment in full of all guaranteed obligations under this Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantors pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.
Until terminated in accordance with Section 10.06, each Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Issuer or the Co-Issuer for liquidation, reorganization, should the Issuer or the Co-Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Issuers or the Co-Issuers assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes or Guarantees, whether as a voidable preference, fraudulent transfer or otherwise, all as though such payment had not been made. In the event that any payment or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
In case any provision of any Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
The Guarantee issued by any Guarantor shall be a general unsecured senior obligation of such Guarantor and shall be pari passu in right of payment with all existing and future Senior Indebtedness of such Guarantor, if any.
Each payment to be made by a Guarantor in respect of its Guarantee shall be made without set-off, counterclaim, reduction or diminution of any kind or nature.
Section 10.02. Limitation on Guarantor Liability . Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any
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Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law or being void or voidable under any law relating to insolvency of debtors.
Section 10.03. Execution and Delivery . To evidence its Guarantee set forth in Section 10.01 hereof, each Guarantor hereby agrees that this Indenture (or a supplemental indenture in the form of Exhibit D hereto) shall be executed on behalf of such Guarantor by one of its authorized officers.
Each Guarantor hereby agrees that its Guarantee set forth in Section 10.01 hereof shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
If an officer whose signature is on this Indenture (or a supplemental indenture in the form of Exhibit D hereto) no longer holds that office at the time the Trustee authenticates a Note, the Guarantee of such Guarantor shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors.
If required by Section 4.15 hereof, the Issuer shall cause any Restricted Subsidiary to comply with the provisions of Section 4.15 hereof and this Article 10, to the extent applicable.
Section 10.04. Subrogation . Each Guarantor shall be subrogated to all rights of Holders against the Issuers in respect of any amounts paid by any Guarantor pursuant to the provisions of Section 10.01 hereof; provided that, if an Event of Default has occurred and is continuing, no Guarantor shall be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until all amounts then due and payable by the Issuers under this Indenture or the Notes shall have been paid in full.
Section 10.05. Benefits Acknowledged . Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the guarantee and waivers made by it pursuant to its Guarantee are knowingly made in contemplation of such benefits.
Section 10.06. Release of Guarantees .
(a) Each Guarantee by a Subsidiary Guarantor shall be automatically and unconditionally released and discharged, and shall thereupon terminate and be of no further force and effect, and no further action by such Subsidiary Guarantor, the Issuers or the Trustee is required for the release of such Subsidiary Guarantors Guarantee, upon:
(i) (A) any sale, exchange, disposition or transfer (by merger, amalgamation, consolidation, dividend, distribution or otherwise) of (x) the Capital Stock of such Subsidiary Guarantor, after which the applicable Subsidiary Guarantor is no longer a Restricted Subsidiary or (y) all or substantially all the assets of such Subsidiary Guarantor, in each case if such sale, exchange, disposition or transfer is made in compliance with the applicable provisions of this Indenture;
(B) the release or discharge of the guarantee by such Subsidiary Guarantor of Indebtedness under the Senior Secured Credit Facilities, or the release or discharge of such other guarantee that resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such guarantee (it being understood that a release subject to a contingent reinstatement will constitute a release for the purposes of this provision, and that if any such Guarantee is so reinstated, such Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Guarantee pursuant to Section 4.15 hereof);
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(C) the designation of any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the applicable provisions of this Indenture;
(D) upon the merger or consolidation of any Subsidiary Guarantor with and into the Issuer or another Guarantor or upon the liquidation of such Guarantor following the transfer of all of its assets to the Issuer or another Guarantor; or
(E) the exercise by the Issuers of their Legal Defeasance option or Covenant Defeasance option in accordance with Article 8 hereof or the discharge of the Issuers obligations under this Indenture in accordance with the terms of this Indenture; and
(ii) such Subsidiary Guarantor delivering to the Trustee an Officers Certificate of such Subsidiary Guarantor or the Issuer and an Opinion of Counsel, each stating that all conditions precedent provided for in this Indenture relating to such transaction or release and discharge have been complied with.
(b) The Guarantee by Holdings shall be automatically and unconditionally released and discharged, and shall thereupon terminate and be of no further force and effect, and no further action by Holdings, the Issuers or the Trustee is required for the release of such Guarantee, upon:
(i) (A) the release or discharge of the guarantee by Holdings of Indebtedness under the Senior Secured Credit Facilities (it being understood that a release subject to a contingent reinstatement will constitute a release for the purposes of this provision); or
(B) the exercise by the Issuers of their Legal Defeasance option or Covenant Defeasance option in accordance with Article 8 hereof or the discharge of the Issuers obligations under this Indenture in accordance with the terms of this Indenture; and
(ii) Holdings delivering to the Trustee an Officers Certificate of Holdings or the Issuer and an Opinion of Counsel, each stating that all conditions precedent provided for in this Indenture relating to such release and discharge have been complied with.
ARTICLE 11
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge . This Indenture shall be discharged and shall cease to be of further effect as to all Notes when either:
(a) all Notes theretofore authenticated and delivered, except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust, have been delivered to the Trustee for cancellation; or
(b) (i) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise, will become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuers, and the Issuers have or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders of the Notes cash in U.S. dollars, U.S. dollar-denominated U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; provided that upon any redemption that requires the payment of the Applicable Premium, the amount deposited shall be sufficient for purposes of this Indenture to the
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extent that an amount is deposited with the Trustee equal to the Applicable Premium calculated as of the date of the notice of redemption, with any Applicable Premium Deficit only required to be deposited with the Trustee on or prior to the Redemption Date. Any Applicable Premium Deficit shall be set forth in an Officers Certificate delivered to the Trustee simultaneously with the deposit of such Applicable Premium Deficit that confirms that such Applicable Premium Deficit shall be applied toward such redemption;
(ii) no Event of Default (other than that resulting from borrowing funds to be applied to make such deposit or any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith) with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under the Senior Secured Credit Facilities or any other material agreement or instrument (other than this Indenture) to which the Issuers or any Guarantor is a party or by which the Issuers or any Guarantor is bound (other than resulting from any borrowing of funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith);
(iii) the Issuers have paid or caused to be paid all sums payable by them under this Indenture; and
(iv) the Issuers have delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes at maturity or the Redemption Date, as the case may be.
In addition, the Issuers must deliver an Officers Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Such Opinion of Counsel may rely on such Officers Certificate as to matters of fact, including clauses (b)(i), (ii), (iii) and (iv) above.
Notwithstanding the satisfaction and discharge of this Indenture, if money shall have been deposited with the Trustee pursuant to clause (b)(i) of this Section 11.01, the provisions of Section 11.02 and Section 8.06 hereof shall survive such satisfaction and discharge.
Section 11.02. Application of Trust Money . Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer, the Co-Issuer or a Guarantor acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or U.S. Government Securities in accordance with Section 11.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers and any Guarantors obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01 hereof; provided that if the Issuers have made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders to receive such payment from the money or U.S. Government Securities held by the Trustee or Paying Agent.
ARTICLE 12
ESCROW MATTERS
Section 12.01. Escrow Account . Notwithstanding anything in this Indenture, on the Issue Date, simultaneously with the issuance of the Notes, the Issuers shall (unless the Completion Date has occurred at such time), pursuant to the terms of the Escrow Agreement, deposit (or cause to be deposited) into the Escrow Account the gross proceeds of the offering of the Notes, together with an additional amount in cash and/or U.S. Government Securities, sufficient to redeem the Notes at the Escrow Redemption Price on the Final Escrow Redemption Date.
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Funds held in the Escrow Account shall, pending release to fund the special mandatory redemption as set forth in Section 3.08 hereof or as a result of the satisfaction of the Escrow Conditions as set forth in Section 12.03 hereof, be invested in accordance with the terms of the Escrow Agreement.
Section 12.02. Special Redemption . If a special mandatory redemption of the Notes is to occur pursuant to Section 3.08 hereof, the Escrow Agent will cause the liquidation of all Escrowed Property then held by it and cause the release of the proceeds of such liquidated Escrowed Property in accordance with the terms of the Escrow Agreement.
Section 12.03. Release of Escrowed Property . Upon the satisfaction of the Escrow Conditions, the Escrow Agent will cause the liquidation of all Escrowed Property then held by it and cause the release of the proceeds of such liquidated Escrowed Property in accordance with the terms of the Escrow Agreement.
Section 12.04. Trustee Direction to Execute Escrow Agreement . The Trustee is hereby authorized and directed to execute and deliver the Escrow Agreement.
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls . If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Trust Indenture Act Section 318(c), the imposed duties shall control.
Section 13.02. Notices . Any notice or communication by the Issuer, the Co-Issuer, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), facsimile, electronic mail or other electronic transmission or overnight air courier guaranteeing next day delivery, to the others address:
If to the Issuers and/or any Guarantor:
Hilton Worldwide Finance LLC
Hilton Worldwide Finance Corp.
c/o Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 883-6188
Attention: Kristin A. Campbell, Executive Vice President and General Counsel
With a copy to (which shall not constitute notice for any purpose under this Indenture):
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III and Igor Fert
If to the Trustee:
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: (302) 636-4145
Attention: W. Thomas Morris, II
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The Issuers, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days after being deposited in the mail, postage prepaid, if mailed by first-class mail; when receipt is acknowledged, if faxed or sent electronically; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery; provided that any notice or communication delivered to the Trustee shall be deemed effective upon actual receipt thereof and, subject to compliance with the Trust Indenture Act, on the first date on which publication is made, if given by publication.
Any notice or communication to a Holder shall be electronically delivered, mailed by first-class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the Note Register kept by the Registrar. Any notice or communication shall also be so delivered or mailed to any Person described in Trust Indenture Act Section 313(c), to the extent required by the Trust Indenture Act. Failure to deliver a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed or otherwise delivered in the manner provided above within the time prescribed, such notice or communication shall be deemed duly given, whether or not the addressee receives it.
If the Issuers send a notice or communication to Holders, they shall send a copy to the Trustee and each Agent at the same time.
Notwithstanding any other provision of this Indenture or any Note, where this Indenture or any Note provides for notice of any event or any other communication (including any notice of redemption or repurchase) to a holder of a Global Note (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary (or its designee) pursuant to the standing instructions from the Depositary or its designee, including by electronic mail in accordance with accepted practices at the Depositary.
Section 13.03. Communication by Holders with Other Holders . Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act Section 312(c).
Section 13.04. Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Issuer, the Co-Issuer or any of the Guarantors to the Trustee to take any action under this Indenture, the Issuer, the Co-Issuer or such Guarantor, as the case may be, shall furnish to the Trustee:
(a) an Officers Certificate in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 13.05. Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Section 4.04 hereof or Trust Indenture Act Section 314(a)(4)) shall comply with the provisions of Trust Indenture Act Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has read such covenant or condition;
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(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with (and, in the case of an Opinion of Counsel, may be limited to reliance on an Officers Certificate as to matters of fact); and
(d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with; provided , however , that with respect to matters of fact an Opinion of Counsel may rely on an Officers Certificate or certificates of public officials.
Section 13.06. Rules by Trustee and Agents . The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders . No past, present or future director, officer, employee, incorporator, member, partner or stockholder of the Issuers or any Guarantor or any of their direct or indirect parent companies shall have any liability, for any obligations of the Issuers or the Guarantors under the Notes, the Guarantees or this Indenture or any supplemental indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Section 13.08. Governing Law . THIS INDENTURE, THE NOTES AND ANY GUARANTEE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS INDENTURE, THE NOTES OR ANY GUARANTEE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 13.09. Waiver of Jury Trial . EACH OF THE ISSUERS, THE GUARANTORS AND THE TRUSTEE (1) AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES AND (2) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13.10. Force Majeure . In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused by, directly or indirectly, forces beyond its reasonable control, including without limitation strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services.
Section 13.11. No Adverse Interpretation of Other Agreements . This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Issuers or their Restricted Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 13.12. Successors . All agreements of the Issuers in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. All agreements of each Guarantor in this Indenture shall bind its successors, except as otherwise provided in Section 10.06 hereof.
Section 13.13. Severability . In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
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Section 13.14. Counterpart Originals . The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
Section 13.15. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
Section 13.16. Qualification of Indenture . The Issuers and the Guarantors shall qualify this Indenture under the Trust Indenture Act in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys fees and expenses for the Issuers, the Guarantors and the Trustee) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Notes and printing this Indenture and the Notes. The Trustee shall be provided with such Officers Certificates, Opinions of Counsel or other documentation as it may reasonably request and as is necessary in connection with any such qualification of this Indenture under the Trust Indenture Act. The Trust Indenture Act shall not apply to this Indenture prior to such qualification, and all references herein to compliance with the Trust Indenture Act refer to such compliance following any such qualification.
Section 13.17. USA Patriot Act. The parties hereto acknowledge that in accordance with Section 326 of the USA Patriot Act the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, are required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account. The parties to this agreement agree that they shall provide the Trustee with such information as they may request in order to satisfy the requirements of the USA Patriot Act.
[ Signatures on following page ]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.
HILTON WORLDWIDE FINANCE LLC, as Issuer | ||||
By: |
/s/ Kevin Jacobs |
|||
Name: | Kevin Jacobs | |||
Title: | EVP and Chief Financial Officer | |||
HILTON WORLDWIDE FINANCE CORP., as Co-Issuer | ||||
By: |
/s/ Sean DellOrto |
|||
Name: | Sean DellOrto | |||
Title: | SVP and Treasurer | |||
HILTON WORLDWIDE HOLDINGS INC., as Guarantor | ||||
By: |
/s/ Christopher Nassetta |
|||
Name: | Christopher Nassetta | |||
Title: | CEO and President |
Signature page to Indenture
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||||
By: |
/s/ W. Thomas Morris, II |
|||
Name: | W. Thomas Morris, II | |||
Title: | Vice President |
Signature page to Indenture
EXHIBIT A
[FORM OF NOTE]
[FACE OF NOTE]
[Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture]
[Insert the Regulation S Temporary Global Note Legend, if applicable pursuant to the provisions of the Indenture]
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CUSIP | [432891 AC3][ U43303 AB9] | |
ISIN | [US432891AC37][ USU43303AB95] |
[RULE 144A][REGULATION S] [GLOBAL] NOTE
representing [up to]
$[ ]
5.625% Senior Notes due 2021
No. | [$ ] |
Hilton Worldwide Finance LLC, a Delaware limited liability company, and Hilton Worldwide Finance Corp., a Delaware corporation, jointly and severally, promise to pay to [Cede & Co.]* or registered assigns the principal sum [set forth on the Schedule of Exchanges of Interests in the Global Note attached hereto] [of United States Dollars] on October 15, 2021.
Interest Payment Dates: | April 15 and October 15, commencing on April 15, 2014 | |
Record Dates: | April 1 and October 1 |
Additional provisions of this Note are set forth on the other side of this Note.
* | Include only if the Note is issued in global form. |
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IN WITNESS HEREOF, the Issuers have caused this instrument to be duly executed.
Dated:
HILTON WORLDWIDE FINANCE LLC, as Issuer | ||
By: |
|
|
Name: | ||
Title: | ||
HILTON WORLDWIDE FINANCE CORP., as Co-Issuer | ||
By: |
|
|
Name: | ||
Title: |
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This is one of the Notes referred to in the within-mentioned Indenture: | ||||
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||||
By: |
|
|||
Name: | ||||
Title: | ||||
Date: |
|
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[REVERSE OF NOTE]
5.625% Senior Notes due 2021
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. Interest . Hilton Worldwide Finance LLC, a Delaware limited liability company (such Person, and its respective successors and assigns under the Indenture hereinafter referred to, being herein called the Issuer ), Hilton Worldwide Finance Corp., a Delaware corporation (such Person, and its respective successors and assigns under the Indenture hereinafter referred to, being herein called the Co-Issuer and, together with the Issuer, the Issuers ), jointly and severally, promise to pay interest on the principal amount of this Note at a rate per annum of 5.625% from October 4, 2013 1 until maturity and to pay the Additional Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest on this Note semi-annually in arrears on April 15 and October 15 of each year, beginning April 15, 2014, or, if any such day is not a Business Day, on the next succeeding Business Day (each, an Interest Payment Date ). The Issuers will make each interest payment to the Holder of record of this Note on the immediately preceding April 1 and October 1 (each, a Record Date ). Interest on this Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including October 4, 2013. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne by this Note; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by this Note. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment . The Issuers will pay interest on this Note to the Person who is the registered Holder of this Note at the close of business on the Record Date (whether or not a Business Day) next preceding the Interest Payment Date, even if this Note is cancelled after such Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Cash payments of principal of, premium, if any, and interest on this Note will be payable at the office or agency of the Issuers maintained for such purpose pursuant to Section 4.02 of the Indenture or, at the option of the Issuers, cash payment of interest may be made through the Paying Agent by check mailed to the Holders at their respective addresses set forth in the Note Register of Holders, provided that (a) all cash payments of principal, premium, if any, and interest with respect to Notes represented by Global Notes registered in the name of or held by DTC or its nominee will be made through the Paying Agent by wire transfer of immediately available funds to the accounts specified by the registered Holder or Holders thereof and (b) all cash payments of principal, premium, if any, and interest with respect to certificated Notes will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
3. Paying Agent, Transfer Agent and Registrar . Initially, Wilmington Trust, National Association, the Trustee under the Indenture, will act as Paying Agent, Transfer Agent and Registrar. The Issuers may change any Paying Agent, Transfer Agent or Registrar without prior notice to the Holders. The Issuer or any of its Subsidiaries may act in any such capacity.
4. Indenture . The Issuers issued the Notes under an Indenture, dated as of October 4, 2013 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among the Issuers, the Guarantors from time to time party thereto and the Trustee. This Note is one of a duly authorized issue of notes of the Issuers
1 |
In the case of Notes issued on the Issue Date. |
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designated as their 5.625% Senior Notes due 2021. The Issuers shall be entitled to issue Additional Notes pursuant to Sections 2.01 and 4.09 of the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
5. Optional Redemption .
(a) Except as set forth in clauses (b), (d) and (e) of this Section 5 and in clauses (b), (d) and (e) of Section 3.07 of the Indenture, the Notes will not be redeemable at the Issuers option prior to October 15, 2016.
(b) At any time prior to October 15, 2016, the Issuers may on one or more occasions redeem all or a part of the Notes, upon notice in accordance with Section 3.03 of the Indenture, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the Notes redeemed, plus (B) the Applicable Premium as of the Redemption Date, plus (C) accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date.
(c) On and after October 15, 2016, the Issuers may redeem the Notes, in whole or in part, upon notice in accordance with Section 3.03 of the Indenture, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but excluding, the applicable Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:
Year |
Percentage | |||
2016 |
102.813 | % | ||
2017 |
101.406 | % | ||
2018 and thereafter |
100.000 | % |
(d) Prior to October 15, 2016, the Issuers may, at their option, and on one or more occasions, redeem up to 40.0% of the aggregate principal amount of Notes issued under the Indenture at a redemption price equal to 105.625% of the aggregate principal amount of the Notes redeemed, plus accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date, with the net cash proceeds received by the Issuer from one or more Equity Offerings or a contribution to the Issuers common equity capital made with the net cash proceeds of an Equity Offering; provided that (A) at least 50.0% of (x) the aggregate principal amount of Notes originally issued under the Indenture on the Issue Date and (y) the aggregate principal amount of any Additional Notes issued under the Indenture after the Issue Date remains outstanding immediately after the occurrence of each such redemption; and (B) each such redemption occurs within 180 days of the date of closing of each such Equity Offering.
(e) In connection with any tender offer for the Notes, if Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in such tender offer and the Issuers, or any third party making such tender offer in lieu of the Issuers, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuers or such third party will have the right upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the Redemption Date.
(f) Any redemption pursuant to this paragraph 5 shall be made pursuant to the provisions of Sections 3.01 through 3.06 of the Indenture. Notice of any redemption, whether in connection with an Equity Offering, other transaction or otherwise, may be given prior to the completion thereof, and any such redemption or notice may, at
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the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering or other transaction. The Issuers, the Investors and their respective Affiliates may acquire the Notes by means other than a redemption pursuant to this paragraph 5, whether by tender offer, open market purchases, negotiated transactions or otherwise.
6. Special Mandatory Redemption .
(a) In the event that the Issuers provide an Escrow Redemption Notice pursuant to Section 3(b) of the Escrow Agreement on or prior to the Cut-Off Date, the Issuers shall, on such date, send electronically, mail or cause to be mailed by first-class mail, postage prepaid, notices of redemption to each Holder of Notes, substantially in the form attached as Exhibit E to the Indenture, and shall be required to redeem the Notes on the Escrow Redemption Date specified in such notice of redemption at the Escrow Redemption Price. The Escrow Redemption Date shall be at least three and not more than 30 days after the date of such notice (and in any event shall not be later than the Final Escrow Redemption Date).
(b) If the Issuers have not notified the Trustee that the Escrow Conditions have been satisfied or issued an Escrow Redemption Notice prior to 10:00 a.m. (New York City time) on the Cut-Off Date, the Trustee shall, on such date, send electronically, mail or cause to be mailed by first-class mail, postage prepaid, notices of redemption to each Holder of Notes, substantially in the form attached as Exhibit E to the Indenture, to the effect that the Escrow Redemption Date shall be the Final Escrow Redemption Date and the redemption price shall be the Escrow Redemption Price. The Trustee shall, on such Escrow Redemption Date, deliver an Escrow Redemption Notice pursuant to Section 3(b) of the Escrow Agreement. The Trustee will be paid by the Escrow Agent all amounts from the Escrow Account necessary to pay the Escrow Redemption Price on such Escrow Redemption Date, and to the extent of funds withdrawn from the Escrow Account, shall redeem the Notes on such date at the Escrow Redemption Price.
(c) Any redemption made pursuant to this paragraph 6 and Section 3.08 of the Indenture shall be made pursuant to the procedures set forth in the Indenture and the Escrow Agreement, except to the extent inconsistent with this paragraph 6 or Section 3.08 of the Indenture. The Issuers shall not be required to make any mandatory redemption or sinking fund payments with respect to the Notes, except pursuant to paragraph 6(a) or (b) above or pursuant to Section 3.08(a) or (b) of the Indenture.
7. Notice of Redemption . Subject to Section 3.03 of the Indenture, notice of redemption shall be delivered electronically or mailed by first-class mail, postage prepaid, at least 15 but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at such Holders registered address or otherwise in accordance with the Applicable Procedures, except that redemption notices may be delivered electronically or mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with Article 8 or Article 11 of the Indenture. Notes and portions of Notes selected for redemption shall be in integral multiples of $1,000 (but in a minimum amount of $2,000) and no Notes of $2,000 or less can be redeemed in part, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder shall be redeemed, even if not in a principal amount of at least $2,000. On and after the Redemption Date, interest ceases to accrue on this Note or portions thereof called for redemption.
8. Offers to Repurchase . Upon the occurrence of a Change of Control Triggering Event, the Issuers shall make a Change of Control Offer in accordance with Section 4.14 of the Indenture. In connection with certain Asset Sales, the Issuers shall make an Asset Sale Offer as and when provided in accordance with Sections 3.09 and 4.10 of the Indenture.
Other than as specifically provided in Section 3.09 or Section 4.10 of the Indenture, any purchase pursuant to Section 3.09 of the Indenture shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06 of the Indenture, and references therein or herein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase, Purchase Date and similar words, as applicable.
9. Denominations, Transfer, Exchange . The Notes are in registered form without coupons in minimum denominations of $2,000 and any integral multiple of $1,000 in excess of $2,000. The transfer of Notes shall be registered and Notes may only be exchanged as provided in the Indenture. The Registrar and the Trustee may
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require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes to be redeemed.
10. Persons Deemed Owners . The registered Holder of a Note shall be treated as its owner for all purposes. Only registered Holders shall have rights hereunder.
11. Amendment, Supplement and Waiver . The Indenture, the Guarantees or the Notes may be amended or supplemented as provided in the Indenture.
12. Defaults and Remedies .
(a) The Events of Default relating to the Notes are defined in Section 6.01 of the Indenture. If any Event of Default (other than an Event of Default of the type specified in clause (vi) or (vii) of Section 6.01(a) of the Indenture) occurs and is continuing under the Indenture, the Trustee or the Holders of not less than 25.0% in aggregate principal amount of all of the then outstanding Notes may, by notice to the Issuers and the Trustee, in either case specifying in such notice the respective Event of Default and that such notice is a notice of acceleration, declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately. Upon the effectiveness of such declaration, such principal of and premium, if any, and interest will be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) or (vii) of Section 6.01(a) of the Indenture, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture, the Notes or the Guarantees except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of all the Notes then outstanding may direct the Trustee in its exercise of any trust or power.
(b) The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest. In addition, subject to Section 6.05 of the Indenture, the Trustee will have no obligation to accelerate the Notes if in the judgment of the Trustee acceleration is not in the interests of the Holders of all of the Notes.
(c) Holders of a majority in aggregate principal amount of all the Notes then outstanding, by notice to the Trustee (with a copy to the Issuers, provided that any waiver or rescission under Section 6.04 of the Indenture shall be valid and binding notwithstanding the failure to provide a copy of such notice to the Issuers) may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under the Indenture (except a continuing Default in the payment of interest on, premium, if any, or the principal of any Note held by a non-consenting Holder) (including in connection with an Asset Sale Offer or a Change of Control Offer) and rescind any acceleration with respect to the Notes and its consequences under the Indenture (except if such rescission would conflict with any judgment of a court of competent jurisdiction). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.
(d) The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuer shall promptly (which shall be no more than 20 Business Days after becoming aware of such Default) deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers Certificate specifying such event and what action the Issuer proposes to take with respect thereto.
13. Guarantees . The Issuers obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
14 . Authentication . This Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of the Trustee.
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15. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes . In addition to the rights provided to Holders under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, including the right to receive Additional Interest (as defined in the Registration Rights Agreement).
16. Governing Law . THIS NOTE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS NOTE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. CUSIP Numbers and ISINs . Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers and ISINs to be printed on the Notes and the Trustee may use CUSIP numbers and ISINs in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture, the Escrow Agreement and/or the Registration Rights Agreement. Requests may be made to the Issuers at the following address:
Hilton Worldwide Finance LLC
Hilton Worldwide Finance Corp.
c/o Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 883-6188
Attention: Kristin A. Campbell, Executive Vice President and General Counsel
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III and Igor Fert
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: |
(Insert assignees legal name) |
(Insert assignees soc. sec. or tax I.D. no.)
(Print or type assignees name, address and zip code)
and irrevocably appoint |
|
to transfer this Note on the books of the Issuers. The agent may substitute another to act for him.
Date:
Your Signature: |
|
|||||
(Sign exactly as your name appears on the face of this Note) | ||||||
Signature Guarantee*: |
|
* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.14 of the Indenture, check the appropriate box below:
[ ] Section 4.10 | [ ] Section 4.14 |
If you want to elect to have only part of this Note purchased by the Issuers pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased:
$
Date:
Your Signature: |
|
|||||
(Sign exactly as your name appears on the face of this Note) | ||||||
Tax Identification No.: |
||||||
Signature Guarantee*: |
|
* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The initial outstanding principal amount of this Global Note is $ . The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global or Definitive Note for an interest in this Global Note, have been made:
Date of Exchange |
Amount of
decrease in Principal Amount of this Global Note |
Amount of increase
in Principal Amount of this Global Note |
Principal Amount of
this Global Note following such decrease or increase |
Signature of
authorized signatory of Trustee or Custodian |
||||
* | This schedule should be included only if the Note is issued in global form. |
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EXHIBIT B
[FORM OF CERTIFICATE OF TRANSFER]
Hilton Worldwide Finance LLC
Hilton Worldwide Finance Corp.
c/o Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 883-6188
Attention: Kristin A. Campbell, Executive Vice President and General Counsel
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III and Igor Fert
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: (302) 636-4145
Attention: W. Thomas Morris, II
Re: | 5.625% Senior Notes due 2021 |
Reference is hereby made to the Indenture, dated as of October 4, 2013 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), Hilton Worldwide Finance Corp., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), the Guarantors (as defined therein) from time to time party thereto and Wilmington Trust, National Association, a national banking association, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
(the Transferor ) owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $ in such Note[s] or interests (the Transfer ), to (the Transferee ), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT 144A GLOBAL NOTE OR RELEVANT DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the Securities Act ), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States.
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2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT REGULATION S GLOBAL NOTE OR RELEVANT DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the applicable Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or
(b) [ ] such Transfer is being effected to the Issuer, the Co-Issuer or a subsidiary thereof; or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions
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contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
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This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers.
[Insert Name of Transferor] | ||
By: |
|
|
Name: | ||
Title: |
Dated:
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ANNEX A TO CERTIFICATE OF TRANSFER
1. | The Transferor owns and proposes to transfer the following: |
[CHECK ONE OF (a) OR (b)]
(a) | [ ] a beneficial interest in the: |
(i) | [ ] 144A Global Note (CUSIP: 432891AC3), or |
(ii) | [ ] Regulation S Global Note (CUSIP: U43303AB9), or |
(b) | [ ] a Restricted Definitive Note. |
2. | After the Transfer the Transferee will hold: |
[CHECK ONE]
(a) | [ ] a beneficial interest in the: |
(i) | [ ] 144A Global Note (CUSIP: 432891AC3), or |
(ii) | [ ] Regulation S Global Note (CUSIP: U43303AB9), or |
(iii) | [ ] Unrestricted Global Note (CUSIP: 432891AD1), or |
(b) | [ ] a Restricted Definitive Note; or |
(c) | [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. |
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EXHIBIT C
[FORM OF CERTIFICATE OF EXCHANGE]
Hilton Worldwide Finance LLC
Hilton Worldwide Finance Corp.
c/o Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 883-6188
Attention: Kristin A. Campbell, Executive Vice President and General Counsel
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III and Igor Fert
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: (302) 636-4145
Attention: W. Thomas Morris, II
Re: | 5.625% Senior Notes due 2021 |
Reference is hereby made to the Indenture, dated as of October 4, 2013 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), Hilton Worldwide Finance Corp., a Delaware corporation (together with the Issuer, the Issuers ), the Guarantors (as defined therein) from time to time party thereto and Wilmington Trust, National Association, a national banking association, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
(the Owner ) owns and proposes to exchange Note[s] or an interest in such Note[s], in the principal amount of $ in such Note[s] or interests (the Exchange ). In connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the Securities Act ), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
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(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owners Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owners Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owners own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owners Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note [ ] Regulation S Global Note in each case, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
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This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers and are dated
[Insert Name of Transferor] | ||
By: |
|
|
Name: | ||
Title: |
Dated:
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EXHIBIT D
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
Supplemental Indenture (this Supplemental Indenture ), dated as of , among (the Guaranteeing Subsidiary ), a subsidiary of Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), and Wilmington Trust, National Association, a national banking association, as trustee (the Trustee ).
W I T N E S S E T H
WHEREAS, the Issuer, Hilton Worldwide Finance Corp., a Delaware corporation (together with the Issuer, the Issuers ), and the Guarantors have heretofore executed and delivered to the Trustee an Indenture (the Indenture ), dated as of October 4, 2013, providing for the issuance of an unlimited aggregate principal amount of 5.625% Senior Notes due 2021 (the Notes );
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee ); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee . The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Execution and Delivery . The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(4) No Recourse Against Others . No past, present or future director, officer, employee, incorporator, member, partner or stockholder of the Issuers or any Guaranteeing Subsidiary shall have any liability for any obligations of the Issuers or the Guarantors (including the Guaranteeing Subsidiary) under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(5) Governing Law . THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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(6) Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(7) Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
(8) The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(9) Benefits Acknowledged . The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(10) Successors . All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
[GUARANTEEING SUBSIDIARY] | ||
By: |
|
|
Name: | ||
Title: | ||
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||
By: |
|
|
Name: | ||
Title: |
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EXHIBIT E
[FORM OF SPECIAL MANDATORY REDEMPTION NOTICE]
TO THE HOLDERS OF
5.625% SENIOR NOTES DUE 2021
HILTON WORLDWIDE FINANCE LLC
HILTON WORLDWIDE FINANCE CORP.
(CUSIP No. 432891 AC3 / U43303 AB9)
NOTICE IS HEREBY GIVEN that Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ) and Hilton Worldwide Finance Corp., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), pursuant to the Indenture, dated as of October 4, 2013 (the Indenture ), among the Issuers, Hilton Worldwide Holdings Inc. and Wilmington Trust, National Association, as trustee (the Trustee ), will redeem $1,500,000,000 aggregate principal amount of its outstanding 5.625% Senior Notes due 2021 (CUSIP No. 432891 AC3 / U43303 AB9) (the Notes ) on [ ], 201[ ] (the Escrow Redemption Date ). The redemption price for each Note will be $1,000 per $1,000 principal amount thereof, plus accrued and unpaid interest thereon from October 4, 2013 to, but excluding, the Escrow Redemption Date (the Escrow Redemption Price ).
Unless the Issuers default in payment of the Escrow Redemption Price, interest on the Notes called for redemption shall cease to accrue on and after the Escrow Redemption Date.
In order to receive the redemption payment, the Notes called for redemption must be surrendered for payment at the following location of Wilmington Trust, National Association, the Trustee and Paying Agent. Notes to be redeemed must be surrendered for payment: (a) in book-entry form by transferring the Notes to be redeemed to the Trustees account at The Depositary Trust Company ( DTC ) in accordance with DTCs procedures; or (b) by delivering the Notes to be redeemed to the Trustee at:
If By Mail: | If By Hand: | If By Overnight Courier: | ||
Wilmington Trust, National Association | Wilmington Trust, National Association | Wilmington Trust, National Association | ||
Rodney Square North 1100 North Market Street Wilmington, DE 19890 |
Rodney Square North 1100 North Market Street Wilmington, DE 19890 |
Rodney Square North 1100 North Market Street Wilmington, DE 19890 |
For information call:
Wilmington Trust, National Association
(302) 636-6432, Attention: W. Thomas Morris, II
The method of delivery of the Notes is at the election and risk of the Holder. If delivered by mail, certified or registered mail, properly insured, is recommended.
Under U.S. federal income tax law, each holder of the Notes surrendering Notes for redemption may be subject to backup withholding at a rate of 28% with respect to payments pursuant to the redemption unless such holder: (i) is a corporation or other exempt recipient and, if required, establishes its exemption from backup withholding, (ii) provides its correct taxpayer identification number ( TIN ) and certifies that (A) the TIN provided is correct, (B) either (a) such holder is exempt from backup withholding; (b) such holder has not been notified by the Internal Revenue Service ( IRS ) that it is subject to backup withholding as a result of a failure to report all interest or dividends; or (c) the IRS has notified such holder that it is no longer subject to backup withholding; and (C) is a U.S. person; or (iii) certifies as to its non-U.S. status. In the case of holders of the Notes that are U.S. persons, as
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defined in the Instructions to IRS Form W-9 ( U.S. Holders ), if such U.S. Holder is an individual, the TIN is his or her social security number. U.S. Holders should use IRS Form W-9 to provide any required information and certifications. Failure to provide such U.S. Holders correct TIN on the IRS Form W-9, if applicable, may subject the U.S. Holder (or other payee) to a $50.00 penalty imposed by the IRS and payments that are made to such U.S. Holder pursuant to the redemption may be subject to backup withholding. More serious penalties may be imposed for providing false information, which, if willfully done, may result in criminal fines and/or imprisonment. A non-U.S. Holder should certify as to its non-U.S. status under penalties of perjury on an applicable IRS Form W-8. Such forms may be obtained at the IRS website at www.irs.gov.
FAILURE TO COMPLETE AND RETURN IRS FORM W-9 OR AN APPROPRIATE IRS FORM W-8 MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE PURSUANT TO THE REDEMPTION. BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX. RATHER, PROVIDED THAT THE REQUIRED INFORMATION IS TIMELY FURNISHED TO THE IRS, THE U.S. FEDERAL INCOME TAX LIABILITY OF PERSONS SUBJECT TO BACKUP WITHHOLDING WILL BE REDUCED BY THE AMOUNT WITHHELD OR, IF WITHHOLDING RESULTS IN AN OVERPAYMENT OF TAXES, A REFUND MAY BE OBTAINED BY FILING A TAX RETURN WITH THE IRS. EACH HOLDER OF THE NOTES IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR TO DETERMINE WHETHER SUCH HOLDER IS REQUIRED TO FURNISH AN IRS FORM W-9, IS EXEMPT FROM BACKUP WITHHOLDING, OR IS REQUIRED TO FURNISH AN IRS FORM W-8.
TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, HOLDERS OF THE NOTES ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS NOTICE OF REDEMPTION IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON BY SUCH HOLDERS, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) EACH HOLDER OF THE NOTES SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
No representation is being made as to the correctness of the CUSIP numbers either as printed on the Notes or as contained in this notice. Holders should rely only on the other identification numbers printed on the Notes.
This notice is being sent pursuant to Section 3.08[(a)][(b)] of the Indenture. Capitalized terms used herein (but otherwise not defined) shall have such meanings as set forth in the Indenture.
[ ], 201[ ]
By: | [HILTON WORLDWIDE FINANCE LLC, as Issuer | |
HILTON WORLDWIDE FINANCE COMPANY, as Co-Issuer] 2 | ||
[WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee] 3 |
2 | Include if notice is given by the Issuers. |
3 | Include if notice is given by the Trustee. |
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Exhibit 4.4
HILTON WORLDWIDE FINANCE LLC
HILTON WORLDWIDE FINANCE CORP.
$1,500,000,000 5.625% Senior Notes due 2021
REGISTRATION RIGHTS AGREEMENT
dated October 4, 2013
TABLE OF CONTENTS
Page | ||||||
1. | DEFINITIONS | 1 | ||||
2. | EXCHANGE OFFER | 5 | ||||
3. | SHELF REGISTRATION | 8 | ||||
4. | ADDITIONAL INTEREST | 9 | ||||
5. | REGISTRATION PROCEDURES | 10 | ||||
6. | REGISTRATION EXPENSES | 16 | ||||
7. | INDEMNIFICATION AND CONTRIBUTION | 17 | ||||
8. | RULE 144A | 20 | ||||
9. | UNDERWRITTEN REGISTRATIONS | 21 | ||||
10. | MISCELLANEOUS | 21 |
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this Agreement ) is dated as of October 4, 2013, and is entered into by and among Hilton Worldwide Holdings Inc., a Delaware corporation (the Company ), Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), a wholly-owned subsidiary of the Company (as defined below), Hilton Worldwide Finance Corp., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), a wholly-owned subsidiary of the Issuer and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative (the Representative ) of the several initial purchasers named on Annex A to the Purchase Agreement referenced below (collectively, the Initial Purchasers ).
This Agreement is entered into in connection with the Purchase Agreement, dated as of September 20, 2013 (as supplemented by the joinder agreement dated the date hereof, the Purchase Agreement ), by and among the Company, the Issuers and the Representative on behalf of the Initial Purchasers, which provides for, among other things, the sale by the Issuers to the Initial Purchasers of $1,500,000,000 in aggregate principal amount of the Issuers 5.625% Senior Notes due 2021 (the Notes ). The Notes are issued under an indenture dated as of October 4, 2013 (such indenture, as amended or supplemented from time to time, the Indenture ), by and among the Issuers, the Company and Wilmington Trust, National Association, as trustee (the Trustee ). The payment of principal, premium, Additional Interest (as defined in the Indenture), if any, and interest on the Notes will be fully and unconditionally guaranteed on a senior unsecured basis (the Guarantees ), jointly and severally, (i) on and after the Issue Date, by the Company, and (ii) on and after the Completion Date (as defined in the Purchase Agreement), by each of the Issuers existing wholly owned domestic restricted subsidiaries (other than the Co-Issuer) that will guarantee the New Credit Facility (as defined in the Purchase Agreement). References to the Securities shall mean, collectively, the Notes and the Guarantees. The covenants and agreements of the Subsidiary Guarantors under this Agreement shall not become effective until consummation of the Refinancing (as defined in the Purchase Agreement) and the execution by the Subsidiary Guarantors of a joinder agreement to this Agreement, substantially in the form attached hereto as Exhibit A (the Joinder Agreement ), at which time such covenants and agreements shall become effective as of the date hereof pursuant to the terms of the Joinder Agreement, and each of the Subsidiary Guarantors shall, without any further action by any person, become a party to this Agreement. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and, except as otherwise set forth herein, any subsequent holder or holders of the Securities on the terms, and subject to the conditions, set forth herein. The execution and delivery of this Agreement is a condition to the Initial Purchasers obligations under the Purchase Agreement.
The parties hereby agree as follows:
1. | Definitions |
As used in this Agreement, the following terms shall have the following meanings:
Additional Interest : See Section 4(a) hereof.
Additional Interest Event : See Section 4(a) hereof.
Advice : See the last paragraph of Section 5 hereof.
Agreement : See the introductory paragraphs hereto.
Applicable Period : See Section 2(b) hereof.
Board : See Section 3(a) hereof.
Business Day : Shall have the meaning ascribed to such term in Rule 14d-1(g)(3) under the Exchange Act.
Co-Issuer : See the introductory paragraphs hereto.
Company : See the introductory paragraphs hereto.
Completion Date : Shall have the meaning ascribed to such term in the Purchase Agreement.
Effectiveness Period : See Section 3(a) hereof.
Exchange Act : The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes : See Section 2(a) hereof.
Exchange Notes Guarantees : See Section 2(a) hereof.
Exchange Offer : See Section 2(a) hereof.
Exchange Offer Registration Statement : See Section 2(a) hereof.
Exchange Securities : See Section 2(a) hereof.
FINRA : See Section 5(r) hereof.
Guarantees : See the introductory paragraphs hereto.
Guarantors : shall mean the Company, any Subsidiary Guarantors and any Guarantors successor that Guarantees the Notes.
Holder : Any holder of a Transfer Restricted Security or Transfer Restricted Securities, including, where applicable, each Participating Broker-Dealer.
Indenture : See the introductory paragraphs hereto.
Information : See Section 5(n) hereof.
Initial Purchasers : See the introductory paragraphs hereto.
Initial Shelf Registration : See Section 3(a) hereof.
Inspectors : See Section 5(n) hereof.
Issue Date : October 4, the date of original issuance of the Notes.
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Issuer : See the introductory paragraphs hereto.
Issuers : See the introductory paragraphs hereto.
Notes : See the introductory paragraphs hereto.
Participant : See Section 7(a) hereof.
Participating Broker-Dealer : See Section 2(b) hereof.
Person : An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity.
Private Exchange : See Section 2(b) hereof.
Private Exchange Notes : See Section 2(b) hereof.
Prospectus : The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement : See the introductory paragraphs hereof.
Records : See Section 5(n) hereof.
Registration Statement : Any registration statement of the Issuers that covers any of the Securities, the Exchange Securities or the Private Exchange Notes (and the related Guarantees) filed with the SEC under the Securities Act, including, in each case, the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Representative : See the introductory paragraphs hereto.
Rule 144 : Rule 144 under the Securities Act.
Rule 144A : Rule 144A under the Securities Act.
Rule 405 : Rule 405 under the Securities Act.
Rule 415 : Rule 415 under the Securities Act.
Rule 424 : Rule 424 under the Securities Act.
SEC : The U.S. Securities and Exchange Commission.
Securities : See the introductory paragraphs hereto.
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Securities Act : The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Shelf Notice : See Section 2(c) hereof.
Shelf Registration : See Section 3(b) hereof.
Shelf Registration Statement : Any Registration Statement relating to a Shelf Registration.
Shelf Suspension Period : See Section 3(a) hereof.
Subsequent Shelf Registration : See Section 3(b) hereof.
Subsidiary Guarantors : shall mean any subsidiary of the of the Company that issues a Guarantee under the Indenture after the date of this Agreement.
TIA : The Trust Indenture Act of 1939, as amended.
Transfer Restricted Securities : Each Security upon its original issuance and at all times subsequent thereto, each Exchange Security as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note (and the related Guarantees) upon original issuance thereof and at all times subsequent thereto, until, in each case, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Securities as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Security, Exchange Security or Private Exchange Note (and the related Guarantees) has been declared effective by the SEC and such Security, Exchange Security or such Private Exchange Note (and the related Guarantees), as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Security has been exchanged pursuant to the Exchange Offer for an Exchange Security or Exchange Securities that may be resold without restriction under state and federal securities laws, (iii) such Security, Exchange Security or Private Exchange Note (and the related Guarantees), as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) the later of (x) the date which is two years after the date the Securities were originally issued and (y) the date upon which such Security, Exchange Security or Private Exchange Note (and the related Guarantees), as the case may be, has been resold in compliance with Rule 144.
Trustee : The trustee under the Indenture and the trustee under any indenture (if different) governing the Exchange Securities and Private Exchange Notes (and the related Guarantees).
Underwritten registration or underwritten offering : A registration in which securities of the Issuers are sold to one or more underwriters for reoffering to the public.
Except as otherwise specifically provided, all references in this Agreement to acts, laws, statutes, rules, regulations, releases, forms, no-action letters and other regulatory requirements (collectively, Regulatory Requirements ) shall be deemed to refer also to any amendments thereto and all subsequent Regulatory Requirements adopted as a replacement thereto having substantially the same effect therewith; provided that Rule 144 shall not be deemed to amend or replace Rule 144A.
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2. | Exchange Offer |
(a) Unless the Exchange Offer would violate applicable law or any applicable interpretation of the staff of the SEC, each of the Issuers and the Guarantors shall, at their sole expense, use their respective commercially reasonable efforts to prepare and file with the SEC one or more Registration Statements (each, an Exchange Offer Registration Statement ) on an appropriate registration form with respect to a registered offer (the Exchange Offer ) to exchange any and all of the Transfer Restricted Securities for a like aggregate principal amount of debt securities of the same series of the Issuers (such debt securities, the Exchange Notes ), guaranteed, to the extent applicable, on a senior unsecured basis by the Guarantors, (the Exchange Notes Guarantees and, together with the Exchange Notes, the Exchange Securities ), that are substantially identical in all material respects to the Notes except that the Exchange Notes (i) shall contain no restrictive legend thereon, (ii) shall accrue interest from (A) the later of (x) the last date on which interest was paid on such Notes or (y) if such Notes are surrendered for exchange on a date in a period that includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date or (B) if no such interest has been paid, from the Issue Date and (iii) shall be entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Issuers and the Guarantors shall use their respective commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective. Upon an Exchange Offer Registration Statement being declared effective, the Issuers and the Guarantors shall commence the Exchange Offer. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable federal and state securities laws. The Issuers and the Guarantors shall use their respective commercially reasonable efforts to (x) keep the Exchange Offer open for at least 20 Business Days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (y) consummate the Exchange Offer on or prior to the 450th day following the Issue Date.
Each Holder (including, without limitation, each Participating Broker-Dealer) that participates in the Exchange Offer, as a condition to participation in the Exchange Offer, will be required to represent to the Issuers in writing (which may be contained in the applicable letter of transmittal) substantially to the effect that: (i) any Exchange Securities acquired in exchange for Transfer Restricted Securities tendered are being acquired in the ordinary course of business of the Person receiving such Exchange Securities, whether or not such recipient is such Holder itself; (ii) at the time of the commencement or consummation of the Exchange Offer neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Securities from such Holder, has an arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act; (iii) neither the Holder nor, to the knowledge of such Holder, any other Person receiving Exchange Securities from such Holder is an affiliate (as defined in Rule 405) of either the Issuer or any Guarantor; (iv) if such Holder is not a broker-dealer, neither such Holder nor, to the knowledge of such Holder, any other Person receiving Exchange Securities from such Holder, is engaging in or intends to engage in a distribution of the Exchange Securities; and (v) if such Holder is a Participating Broker Dealer, such Holder has acquired the Transfer Restricted Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities and that it will comply with the applicable provisions of the Securities Act (including, but not limited to, the prospectus delivery requirements thereunder). In addition, all Holders of Transfer Restricted Securities shall otherwise cooperate in the Companys and the Issuers preparations for the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis , solely with respect to Transfer Restricted Securities that are Private Exchange Notes (and the related Guarantees), Exchange Securities as to which Section 2(c)(iv) hereof is applicable and Exchange Securities held by Participating Broker-Dealers, and the Issuers and the Guarantors shall have no further obligation to register Transfer Restricted Securities (other than Private Exchange Notes (and the related Guarantees) and Exchange Securities as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
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(b) The Company shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled Plan of Distribution, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential underwriter status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a Participating Broker Dealer ), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such Plan of Distribution section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities in compliance with the Securities Act.
Each of the Issuers and the Guarantors shall use its commercially reasonable efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Securities; provided , however , that such period shall not be required to exceed 90 days, such period as extended, if at all, pursuant to the last paragraph of Section 5 hereof (the Applicable Period ).
If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Notes acquired by them that have the status of an unsold allotment in the initial distribution, the Issuers, upon the written request of the Initial Purchasers, shall simultaneously with the delivery of the Exchange Notes issue and deliver to the Initial Purchasers, in exchange (the Private Exchange ) for such Notes held by any such Initial Purchaser, a like principal amount of notes (the Private Exchange Notes ) of the Issuers, guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes if permitted by the CUSIP Service Bureau.
In connection with the Exchange Offer, the Issuers and the Guarantors shall:
(1) send, or cause to be sent, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;
(2) use their respective commercially reasonable efforts to keep the Exchange Offer open for not less than 20 Business Days from the date that notice of the Exchange Offer is sent to Holders (or longer if required by applicable law);
(3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York or in Wilmington, Delaware;
(4) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer remains open; and
(5) otherwise comply in all material respects with all laws, rules and regulations applicable to the Exchange Offer.
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As soon as practicable after the close of the Exchange Offer and any Private Exchange, the Issuers and the Guarantors shall:
(1) accept for exchange all Transfer Restricted Securities validly tendered and not validly withdrawn pursuant to the Exchange Offer and any Private Exchange;
(2) deliver to the Trustee for cancellation all Transfer Restricted Securities so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange; provided that, in the case of any Notes held in global form by a depositary, authentication and delivery to such depositary of one or more replacement Notes in global form in an equivalent principal amount thereto for the account of such Holders in accordance with the Indenture shall satisfy such authentication and delivery requirement.
The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC; (ii) that no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which, in the Companys judgment, might materially impair the ability of the Issuers and the Guarantors to proceed with the Exchange Offer or the Private Exchange, and, in the Companys judgment, no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuers and the Guarantors; (iii) that all governmental approvals shall have been obtained, which approvals the Company deems necessary for the consummation of the Exchange Offer or Private Exchange and (iv) the accuracy of customary representations of the Holders and other representations as may reasonably be necessary under applicable SEC rules, regulations or interpretations, the satisfaction by the Holders of customary conditions relating to the delivery of Securities and the execution and delivery of customary documentation relating to the Exchange Offer.
The Exchange Securities and the Private Exchange Notes (and related guarantees) shall be issued under (i) the Indenture or (ii) an indenture substantially identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such other indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers or the Guarantors are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated by the 450th day following the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Company at any time within 30 days after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Securities on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Issuers or any Guarantor within the meaning of the Securities Act) and so notifies the Company within 30 days after such Holder first becomes aware of such restrictions (but in any event no later than 30 days after the consummation of the Exchange Offer), in the case of each of clauses (i) through (iv) of this sentence, then the Issuers and the Guarantors shall promptly deliver to the Trustee (to deliver to the Holders) written notice thereof (the Shelf Notice ) and shall file a Shelf Registration pursuant to Section 3 hereof.
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3. | Shelf Registration |
If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then:
(a) Shelf Registration . The Issuers and the Guarantors shall, at their sole expense, use their respective commercially reasonable efforts to file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Transfer Restricted Securities (the Initial Shelf Registration ) as soon as practicable after the filing obligation arises. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Transfer Restricted Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings).
The Issuers and the Guarantors shall use their respective commercially reasonable efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act promptly, and to keep the Initial Shelf Registration continuously effective under the Securities Act until the earliest of (i) the date that is one year following its effective date and (ii) the date upon which all Transfer Restricted Securities have been sold thereunder; provided that the Issuers and the Guarantors shall have no obligation to file or maintain a Shelf Registration after the second anniversary of the Issue Date if at such time all of the Securities covered by such Shelf Registration (except for Securities held by an affiliate of the Company) are eligible for resale under Rule 144, without regard to volume, manner of sale or other restrictions contained in Rule 144 under the Securities Act (or any successor rule) (the Effectiveness Period ). Notwithstanding anything to the contrary in this Agreement, at any time, the Company may delay the filing of any Shelf Registration or delay or suspend the effectiveness thereof, for a reasonable period of time, but not in excess of 60 consecutive days or more than three (3) times during any calendar year (each, a Shelf Suspension Period ), if the Board of Directors of either Issuer or a similar governing body of any parent company of either Issuer (each, a Board ) determines reasonably and in good faith that the filing of any such Initial Shelf Registration or the continuing effectiveness thereof would require the disclosure of non-public material information that, in the reasonable judgment of such Board, would be detrimental to either Issuer if so disclosed or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other material transaction or such action is required by applicable law. Any Shelf Suspension Period pursuant to this Section 3(a) shall begin on the date specified in a written notice given by the Company to the Holders and shall end on the date specified in a subsequent written notice given by the Company to the Holders.
(b) Withdrawal of Stop Orders; Subsequent Shelf Registrations . If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than in the case of Shelf Suspension Period(s) permitted by this Agreement and other than because of the sale of all of the Securities registered thereunder), the Issuers and the Guarantors shall use their respective commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall file an additional Shelf Registration Statement pursuant to Rule 415 covering all of the Transfer Restricted Securities covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a Subsequent Shelf Registration ). If a Subsequent Shelf Registration is filed, the Issuers and the Guarantors shall use their respective commercially reasonable efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein, the term Shelf Registration means the Initial Shelf Registration and any Subsequent Shelf Registration.
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(c) Supplements and Amendments . The Issuers and the Guarantors shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities (or their counsel) covered by such Registration Statement with respect to the information included therein with respect to one or more of such Holders, or, if reasonably requested by any underwriter of such Transfer Restricted Securities, with respect to the information included therein with respect to such underwriter.
4. | Additional Interest |
(a) The Issuers, the Guarantors and the Initial Purchasers agree that the Holders will suffer damages if the Issuers and the Guarantors fail to fulfill their obligations under Section 2 or Section 3 hereof, as further specified in this Section 4, and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers and the Guarantors agree to pay, jointly and severally, as liquidated damages, additional interest on the Notes ( Additional Interest ) if (A) the Issuers and the Guarantors have neither (i) exchanged Exchange Securities for all Transfer Restricted Securities validly tendered in accordance with the terms of the Exchange Offer nor (ii) had a Shelf Registration Statement declared effective, in either case on or prior to the 450th day after the Issue Date, or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than because of the sale of all of the Transfer Restricted Securities registered thereunder) (each such event referred to in clauses (A) and (B), an Additional Interest Event ), then Additional Interest shall accrue on the principal amount of the Notes then outstanding (but, following the consummation of the Exchange Offer, only on the principal amount of such Notes that could not be exchanged or were not exchanged as specified in Section 2(c) hereof) at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of any Additional Interest Event (which rate will be increased by an additional 0.25% per annum for each subsequent 90-day period that such Additional Interest continues to accrue; provided that the rate at which such Additional Interest accrues may in no event exceed 1.00% per annum) (such Additional Interest to be calculated by the Issuers) commencing on the (x) 451st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of clause (B) above; provided , however , that upon the exchange of the Exchange Securities for all Transfer Restricted Securities tendered (in the case of clause (A) of this Section 4(a)), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of clause (B) of this Section 4(a)) or if the Notes otherwise no longer constitute Transfer Restricted Securities, Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. The obligation of the Issuers and the Guarantors to pay Additional Interest as set forth in this Section 4 shall be the sole and exclusive monetary remedy of the Holders and Participating Broker-Dealers for any Additional Interest Event. Notwithstanding anything to the contrary herein, (i) the amount of Additional Interest payable shall not increase because more than one Additional Interest Event has occurred and is continuing, (ii) a Holder or Participating Broker-Dealer that is not entitled to the benefits of the Shelf Registration shall not be entitled to Additional Interest with respect to any Additional Interest Event that pertains to the Shelf Registration and (iii) the Issuers and the Guarantors shall not be obligated to pay Additional Interest provided in this Section 4 during a Shelf Suspension Period permitted by Section 3(a) hereof.
(b) The Issuers shall notify the Trustee within five Business Days after the occurrence of an Additional Interest Event in respect of which Additional Interest is required to be paid. Any amounts of Additional Interest due pursuant to clause (a) of this Section 4 will be payable in cash semiannually
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on each April 15 and October 15 (to the Holders of record on the April 1 and October 1 immediately preceding such dates), in each case commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by the Issuers by multiplying the applicable Additional Interest rate by the applicable principal amount of the Transfer Restricted Securities entitled to such Additional Interest (as determined pursuant to Section 4(a) hereof), multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30 day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360.
5. | Registration Procedures |
In connection with the filing of any Registration Statement pursuant to Section 2 or 3 hereof, the Issuers and the Guarantors shall use their respective commercially reasonable efforts to effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers and the Guarantors hereunder, the Issuers and the Guarantors shall:
(a) Use their respective commercially reasonable efforts to prepare and file with the SEC, a Registration Statement or Registration Statements as prescribed by Section 2 or 3 hereof, and use their respective commercially reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided , however , that if (1) such filing is pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period relating thereto from whom the Issuers have received prior written notice that it will be a Participating Broker-Dealer in the Exchange Offer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers and the Guarantors shall furnish to and afford counsel for the Holders of the Transfer Restricted Securities covered by such Registration Statement (with respect to a Registration Statement filed pursuant to Section 3 hereof), which shall be a single firm and which shall be Davis Polk & Wardwell LLP or such other firm selected by the Holders holding a majority in principal amount of the Registrable Securities covered by such Registration Statement or counsel for such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, and counsel to the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least three Business Days prior to such filing). The Issuers and the Guarantors shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities covered by such Registration Statement, their counsel, or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period, the Applicable Period or until consummation of the Exchange Offer, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424; and comply with the provisions of the Securities Act and the Exchange Act applicable to them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus in all material respects. The Issuers and the Guarantors shall be deemed not to have used their respective commercially reasonable efforts to keep a Registration Statement effective if they voluntarily take any
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action that is reasonably expected to result in selling Holders of the Transfer Restricted Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Transfer Restricted Securities or such Exchange Securities during that period unless such action is required by applicable law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period relating thereto from whom the Issuers have received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Transfer Restricted Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within three Business Days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers and the Guarantors, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Transfer Restricted Securities or resales of Exchange Securities by Participating Broker-Dealers the representations and warranties of the Issuers and the Guarantors contained in any agreement (including any underwriting agreement) contemplated by Section 5(m) hereof cease to be true and correct in all material respects, (iv) of the receipt by the Issuers and the Guarantors of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Transfer Restricted Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not 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, and that in the case of the Prospectus, it will not 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, in the light of the circumstances under which they were made, not misleading, and (vi) of the Issuers determination that a post-effective amendment to a Registration Statement would be appropriate.
(d) Use their respective commercially reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Transfer Restricted Securities or the Exchange Securities to be sold by any Participating Broker-Dealer, for sale in any jurisdiction.
(e) If a Shelf Registration is filed pursuant to Section 3 hereof and if requested during the Effectiveness Period by the managing underwriter or underwriters (if any) or the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold in connection with an underwritten offering, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective
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amendment such information as the managing underwriter or underwriters (if any), such Holders or counsel for either of them reasonably request to be included therein and (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers and the Guarantors have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment.
(f) If (l) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each selling Holder of Transfer Restricted Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof) and to each such Participating Broker-Dealer who so requests (with respect to any such Registration Statement) and to their respective counsel and each managing underwriter, if any, upon request and at the sole expense of the Issuers and the Guarantors, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each selling Holder of Transfer Restricted Securities (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker Dealer (with respect to any such Registration Statement), as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers and the Guarantors, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers and the Guarantors hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Transfer Restricted Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted Securities or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, use their respective commercially reasonable efforts to register or qualify, and to cooperate with the selling Holders of Transfer Restricted Securities or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided , however , that where Exchange Securities held by Participating Broker-Dealers or Transfer Restricted Securities are offered other than through an underwritten offering, the Issuers and the Guarantors agree to use their respective commercially reasonable efforts to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Exchange Securities held by Participating Broker-Dealers or the Transfer Restricted Securities covered by the applicable Registration Statement; provided , however , that the Issuers and the Guarantors shall not be required to (A) qualify generally to do
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business in any jurisdiction where they are not then so qualified, (B) take any action that would subject them to general service of process in any such jurisdiction where they are not then so subject or (C) subject themselves to taxation in excess of a nominal dollar amount in any such jurisdiction where they are not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Transfer Restricted Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Transfer Restricted Securities to be in such denominations (subject to applicable requirements contained in the Indenture) and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request.
(j) [Reserved].
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by Section 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers and the Guarantors, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference so that (but only to such an extent that), as thereafter delivered to the purchasers of the Transfer Restricted Securities being sold thereunder (with respect to a Registration Statement filed pursuant to Section 3 hereof) or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer (with respect to any such Registration Statement), any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration Statement relating to the Transfer Restricted Securities, (i) if then in certificated form, provide the Trustee with certificates for the Transfer Restricted Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Transfer Restricted Securities.
(m) In connection with any underwritten offering of Transfer Restricted Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Securities (including, without limitation, a customary condition to the obligations of the underwriters that the underwriters shall have received cold comfort letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of the Company, or of any business acquired by the Company, for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in cold comfort letters in connection with underwritten offerings of debt securities similar to the Securities), and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Transfer Restricted Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers and the Guarantors (including any acquired business, properties or entity, if applicable), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated
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by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Securities, and confirm the same in writing if and when reasonably requested; (ii) use their respective commercially reasonable efforts to obtain the written opinions of counsel to the Issuers and the Guarantors, and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings (it being agreed that Simpson Thacher & Bartlett LLP is deemed to be counsel that is reasonably acceptable); and (iii) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures requested by the underwriters or no less favorable to the sellers than those set forth in Section 7 hereof (or such other provisions and procedures reasonably acceptable to Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by any Initial Purchaser, any selling Holder of such Transfer Restricted Securities being sold (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Transfer Restricted Securities, if any, and any attorney (which shall be a single firm and which shall be Davis Polk & Wardwell LLP or such other firm selected by the Holders holding a majority in principal amount of the Registrable Securities covered by such Registration Statement), accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, or underwriter (any such Initial Purchasers, Holders, Participating Broker-Dealers, underwriters, attorneys, accountants or agents, collectively, the Inspectors ), upon written request, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, pertinent corporate documents and instruments of each of the Issuers and the Guarantors and subsidiaries of each of the Issuers and the Guarantors (collectively, the Records ), as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and the Guarantors and any of their respective subsidiaries to supply, during reasonable business hours, all information ( Information ) reasonably requested by any such Inspector in connection with such due diligence responsibilities. Each Inspector shall agree in writing that it will keep the Records and Information confidential, to use the Records and Information only to the extent necessary for due diligence purposes under applicable securities laws, to abstain from using the Information as the basis for any market transactions in Securities of the Company or the Issuers (or for any purpose other than the satisfaction of its due diligence responsibilities in connection with such Shelf Registration or Exchange Offer Registration Statement, as applicable) and that it will not disclose any of the Records or Information that the Issuers and the Guarantors determine, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records or Information is necessary to avoid or correct a material misstatement or omission in such Registration Statement or Prospectus (in the case of any Prospectus, considered in the light of the circumstances under which it was made), (ii) the release of such Records or Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such Records or Information is necessary or advisable, in the reasonable opinion of counsel for any Inspector, in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or the Purchase Agreement, or any transactions contemplated hereby or thereby or arising hereunder or thereunder, or (iv) the information in such Records or Information has been made generally available to the public other than as a result of a disclosure or failure to safeguard such Records and Information by an Inspector or an affiliate (as defined in Rule 405) thereof; provided , that the foregoing
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gathering of Records and Information by the Inspectors shall, to the greatest extent possible, be coordinated on behalf of Holders and any other parties entitled thereto (including any Participating Broker-Dealers) by one counsel designated by them; and provided , further , that prior written notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (n)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information.
(o) Provide an indenture trustee for the Transfer Restricted Securities or the Exchange Securities, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Transfer Restricted Securities; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Transfer Restricted Securities, to effect such changes (if any) to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its commercially reasonable efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner.
(p) Comply in all material respects with all applicable rules and regulations of the SEC, and make generally available to their securityholders with regard to any applicable Registration Statement a consolidated earning statement (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) for the 12-month period beginning with the first month of the Companys first fiscal quarter commencing after the effective date of the first Registration Statement required by this Agreement; provided that this requirement shall be deemed satisfied by the Company and the Issuers by complying with the applicable reporting covenant of the Indenture.
(q) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Transfer Restricted Securities by Holders to the Issuers (or to such other Person as directed by the Issuers), in exchange for the Exchange Securities or the Private Exchange Notes (and the related Guarantees), as the case may be, if then in certificated form, the Issuers shall mark, or cause to be marked, on such Transfer Restricted Securities that such Transfer Restricted Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Notes (and the related Guarantees), as the case may be; in no event shall such Transfer Restricted Securities be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Transfer Restricted Securities covered by any Registration Statement and each underwriter, if any (including any qualified independent underwriter that is required to be retained in accordance with the rules and regulations of the Financial Industry Regulatory Authority, Inc. ( FINRA )), participating in the disposition of such Transfer Restricted Securities and their respective counsel in connection with any filings required to be made with FINRA.
(s) Use their respective commercially reasonable efforts to take all other steps reasonably necessary to effect the registration of the Exchange Securities and/or Transfer Restricted Securities covered by a Registration Statement contemplated hereby.
The Issuers may require each seller of Transfer Restricted Securities as to which any registration is being effected to furnish to the Issuers in writing such information regarding such seller and the distribution of such Transfer Restricted Securities as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Transfer Restricted Securities of any seller
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so long as such seller fails to furnish such information in writing within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly in writing to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading.
If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Issuers, then such Holder shall have the right to require (to the extent not objected to by the SEC) (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.
Each Holder of Transfer Restricted Securities and each Participating Broker-Dealer agrees by its acquisition of such Transfer Restricted Securities or Exchange Securities to be sold by such Participating Broker Dealer, as the case may be, that, upon actual receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder shall forthwith discontinue disposition of such Transfer Restricted Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holders or Participating Broker-Dealers receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the Advice ) by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Issuers shall give any such notice, each of the Applicable Period and the Effectiveness Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice.
6. | Registration Expenses |
(a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers and the Guarantors of their obligations under Sections 2, 3, 5 and 8 hereof shall be borne by the Issuers and the Guarantors, jointly and severally, whether or not the Exchange Offer Registration Statement or any Shelf Registration Statement is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with FINRA in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Transfer Restricted Securities or Exchange Securities and determination of the eligibility of the Transfer Restricted Securities or Exchange Securities for investment under the laws of such jurisdictions in the United States (x) where the Holders of Transfer Restricted Securities are located, in the case of the Exchange Securities, or (y) as provided in Section 5(h) hereof, in the case of Transfer Restricted Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in any Registration Statement,
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or in respect of Transfer Restricted Securities or Exchange Securities to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) fees and expenses of the Trustee and any exchange agent retained by the Issuers and the Guarantors and their counsel, (iv) fees and disbursements of counsel for the Issuers and the Guarantors and, in the case of a Shelf Registration, subject to Section 6(b), reasonable fees and disbursements of one firm of counsel, plus one local counsel (if necessary) in each applicable jurisdiction for all of the sellers of Transfer Restricted Securities selected by the Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Shelf Registration (which counsel shall be reasonably satisfactory to the Company) exclusive of any counsel retained pursuant to Section 7 hereof) and (v) fees and disbursements of all independent certified public accountants referred to in Section 5(m) hereof (including, without limitation, the expenses of any cold comfort letters required by or incident to such performance).
(b) In connection with any Registration Statement required by this Agreement (other than the Exchange Offer Registration Statement), the Issuers and the Guarantors, jointly and severally, will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being resold pursuant to the Plan of Distribution contained in the Shelf Registration Statement for the reasonable fees and disbursements of not more than one counsel, who shall be Davis Polk & Wardwell LLP or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Shelf Registration Statement is being prepared.
7. | Indemnification and Contribution . |
(a) The Issuers and the Guarantors jointly and severally agree to indemnify and hold harmless each Holder of Transfer Restricted Securities and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, and each Person, if any, who controls such Person or its affiliates within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a Participant ) against any losses, claims, damages or liabilities, joint or several, to which any Participant may become subject under the Securities Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the either Issuer or any of the Guarantors shall have furnished any amendments or supplements thereto); or
(ii) the omission or alleged omission to state, in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if either Issuer or any of the Guarantors shall have furnished any amendments or supplements thereto), a material fact required to be stated therein or necessary to make the statements therein (in the case of any such Prospectus, in the light of the circumstances under which such statement was made) not misleading;
and agree (subject to the limitations set forth in the proviso to this sentence) to reimburse, as incurred, the Participant for any reasonable legal or other expenses incurred by the Participant in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided , however , neither the Issuers nor the Guarantors will be liable in any case under this Section 7(a) to the extent that any such loss, claim, damage, or liability (A) arises out of or is based upon any untrue statement or omission or alleged untrue statement or alleged omission made in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if either Issuer or any of the Guarantors shall have furnished any amendments or supplements thereto) or any amendment or supplement thereto in reliance upon and in conformity with written information relating to any Participant furnished to the Issuers or the Guarantors by such Participant specifically
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for use therein or (B) arising from an offer or sale of Securities or Exchange Securities occurring during a Shelf Suspension Period by a Holder or Participating Broker-Dealer to whom the Issuers theretofore provided notice thereof pursuant to Section 5(c) hereof. The indemnity provided for in this Section 7 will be in addition to any liability that the Issuers or the Guarantors may otherwise have to the indemnified parties. The Issuers and the Guarantors shall not be liable under this Section 7 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by the Issuers and the Guarantors, which consent shall not be unreasonably withheld.
(b) Each Participant, severally and not jointly, agrees to indemnify and hold harmless the Issuers, the Guarantors, their respective directors (or equivalent), officers, representatives, agents and employees and each person, if any, who controls either Issuer or any Guarantor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Issuers, the Guarantors or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto, (ii) the omission or the alleged omission to state therein a material fact necessary to make the statements therein not misleading (in the case of any such Prospectus, in the light of the circumstances under which such statements were made), in each case to the extent, but only to the extent, that such untrue statement or omission or alleged untrue statement or alleged omission was made in reliance upon and in conformity with written information concerning such Participant furnished to the Issuers or the Guarantors by or on behalf of such Participant specifically for use therein or (iii) an offer or sale of Securities or Exchange Securities occurring during a Shelf Suspension Period by a Holder or Participating Broker-Dealer to whom the Issuers theretofore provided notice thereof pursuant to Section 5(c) hereof; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any reasonable legal or other expenses incurred by the Issuers, the Guarantors or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this Section 7 will be in addition to any liability that the Participants may otherwise have to the indemnified parties. A Participant shall not be liable under this Section 7 to any indemnified party regarding any settlement or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent is consented to by such Participant, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. The indemnifying party shall be entitled to appoint counsel (including local counsel in each applicable jurisdiction) of the indemnifying partys choice at the indemnifying partys expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel, other than local counsel if not appointed by
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the indemnifying party, retained by the indemnified party or parties except as set forth below); provided , however , that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying partys election to appoint counsel (including local counsel in each applicable jurisdiction) to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel in each applicable jurisdiction), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest (based on the advice of counsel to the indemnified party); (ii) such action includes both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel to the indemnified party) that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. It is understood and agreed that the indemnifying party shall not, in connection with any proceeding or separate but related or substantially similar proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm (in addition to one local counsel in each applicable jurisdiction) representing the indemnified parties under paragraph (a) or paragraph (b) of this Section 7, as the case may be, who are parties to such action or actions. Any such separate firm for any Participants shall be designated in writing by Participants who sold a majority in interest of the Transfer Restricted Securities and Exchange Securities sold by all such Participants, in the case of paragraph (a) of this Section 7, or the Company, in the case of paragraph (b) of this Section 7. An indemnifying party shall not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and does not include any statement as to, or any admission of, fault, culpability or failure to act by or on behalf of any indemnified party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred and following a written request therefor.
(d) After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party shall not be liable to such indemnified party under this Section 7 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the third sentence of paragraph (c) of this Section 7, or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 7, in which case the indemnified party may effect such a settlement without such consent.
(e) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) (other than for the reasons specified in Section 7(a) or 7(b) hereof, including by virtue of the failure of an indemnified party to
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notify the indemnifying party of its right to indemnification pursuant to paragraph (a) or (b) of this Section 7, where such failure materially prejudices the indemnifying party (through the forfeiture of substantial rights or defenses)), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties, on the one hand, and the indemnified party, on the other, from the offering of the Securities, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties, on the one hand, and the indemnified party, on the other, in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers and the Guarantors, on the one hand, and the Participants, on the other, shall be deemed to be in the same proportion that the total net proceeds from the offering (before deducting expenses) of the Securities received by the Issuers bear to the total discounts and commissions received by the Participants in connection with the initial sale of the Securities by the Issuers (or if such Participant did not receive a discount from the Issuers with respect to the initial sale of the Securities by the Issuers, the net proceeds received by such Participant from the sale of Securities, Exchange Securities or Private Exchange Notes pursuant to such Registration Statement). The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers and the Guarantors, on the one hand, or the Participants, on the other hand, the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The parties agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e). Notwithstanding any other provision of this paragraph (e), no Participant shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation or net proceeds, as applicable, on the sale of Securities received by such Participant in connection with the sale of the Securities, less the aggregate amount of any damages that such Participant has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (e), each person, if any, who controls a Participant within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Participants, and each director, member or manager, as applicable, of each of the Issuers and the Guarantors, each officer of each of the Issuers and the Guarantors, and each person, if any, who controls each of the Issuers and the Guarantors within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Issuers and the Guarantors.
8. | Rule 144A |
The Issuers and the Guarantors covenant and agree that they will use their respective commercially reasonable efforts to file the reports required to be filed by them under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Issuers and the Guarantors are not required to file such reports and do not otherwise file such reports pursuant to the terms of the Indenture, the Issuers and the Guarantors shall, upon the request of any Holder or beneficial owner of Transfer Restricted Securities, make available the information required by Rule 144A(d)(4) under the Securities Act in order to permit sales pursuant to Rule 144A.
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9. | Underwritten Registrations . |
The Issuers and the Guarantors shall not be required to assist in an underwritten offering unless requested by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering; provided that such investment banker or investment bankers and manager or managers shall be reasonably acceptable to the Company.
No Holder of Transfer Restricted Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holders Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
10. | Miscellaneous |
(a) No Inconsistent Agreements . None of the Issuers or the Guarantors have as of the date hereof entered, and none of the Issuers or the Guarantors shall after the date of this Agreement enter, into any agreement with respect to any of the Issuers securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers other issued and outstanding securities, if any, under any such agreements.
(b) Adjustments Affecting Transfer Restricted Securities . The Issuers and the Guarantors shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Issuers and the Guarantors to consummate the Exchange Offer on the terms specified herein or effect any Shelf Registration required by this Agreement.
(c) Amendments and Waivers . The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Issuers and the Guarantors, and (II) (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided , however , that Section 7 hereof and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Transfer Restricted Securities or Exchange Securities, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement; provided , further , that no consent is necessary from any Holder or Participating Broker-Dealer in the event that this Agreement is amended, modified or supplemented for the purpose of curing any ambiguity, defect or inconsistency that does not adversely affect the rights of any Holder or Participating Broker-Dealer (as applicable). Notwithstanding the foregoing, (A) a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose Securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities
-21-
being tendered or registered and (B) a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Transfer Restricted Securities whose Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Transfer Restricted Securities may be given by Holders of at least a majority in aggregate principal amount of the Transfer Restricted Securities being sold pursuant to such Registration Statement.
(d) Joinder Agreement . On or prior to the Completion Date, each Subsidiary Guarantor shall execute and deliver a Joinder Agreement, substantially in the form attached hereto as Exhibit A, pursuant to which such Subsidiary Guarantor shall become a party to this Agreement on and as of the Completion Date, and shall deliver an executed copy thereof to the Initial Purchasers.
(e) Notices . All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile:
(i) If to a Holder of the Transfer Restricted Securities or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
Facsimile: (212) 901-7867
Attention: Legal Department
with a copy to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Facsimile: (212) 701-5800
Attention: Michael Kaplan and John B. Meade
(ii) If to the Initial Purchasers, at the address specified in Section 10(e)(i) hereof;
(iii) If to the Issuers or any of the Guarantors, at the address as follows:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 883-6188
Attention: Kristin Campbell, Executive Vice President and General Counsel
with a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III and Igor Fert
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All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and upon receipt of confirmation, if sent by facsimile.
Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture.
(f) Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided , however , that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder; and provided , further , that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Purchase Agreement or the Indenture.
(g) Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(h) Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their respective commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(k) Notes Held by an Issuer or Any of the Guarantors or Any of Their Respective Affiliates . Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by either the Issuers or any of the Guarantors or any of their respective controlled affiliates (as such term is defined in Rule 405) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
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(l) Third-Party Beneficiaries . Holders of Transfer Restricted Securities and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons to the extent necessary to protect the rights of the Holders hereunder.
(m) Entire Agreement . This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders and Initial Purchasers, on the one hand, and the Issuers and the Guarantors, on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby.
[ Remainder of Page Intentionally Blank ]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: |
/s/ Christopher Nassetta |
|
Name: Christopher Nassetta | ||
Title: CEO and President | ||
HILTON WORLDWIDE FINANCE LLC | ||
By: |
/s/ Kevin Jacobs |
|
Name: Kevin Jacobs | ||
Title: EVP and CFO | ||
HILTON WORLDWIDE FINANCE CORP. | ||
By: |
/s/ Sean DellOrto |
|
Name: Sean DellOrto | ||
Title: SVP and Treasurer |
[ Signature Page to Registration Rights Agreement ]
The foregoing Agreement is hereby confirmed and accepted as of the date first above written.
MERRILL LYNCH, PIERCE, FENNER & SMITH | ||||
INCORPORATED | ||||
Acting on behalf of itself and as a Representative of the several Initial Purchasers | ||||
Merrill Lynch, Pierce, Fenner & Smith | ||||
Incorporated | ||||
By: |
/s/ Edward Martin |
|||
Name: Edward Martin | ||||
Title: Director |
[ Signature Page to Registration Rights Agreement ]
Exhibit A
Form of Joinder Agreement
HILTON WORLDWIDE FINANCE LLC
HILTON WORLDWIDE FINANCE CORP.
$1,500,000,000 of 5.625% Senior Notes due 2021
WHEREAS, Hilton Worldwide Holdings Inc., a Delaware corporation, Hilton Worldwide Finance LLC, a Delaware limited liability company (the Issuer ), Hilton Worldwide Finance Corp., a Delaware corporation (the Co-Issuer , and together with the Issuer, the Issuers ), and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the Representative ), for itself and the other Initial Purchasers described in the Registration Rights Agreement referenced below (the Initial Purchasers ), heretofore executed and delivered a Registration Rights Agreement, dated as of October 4, 2013 (the Registration Rights Agreement ), pursuant to which each of the Issuers and the Guarantors agreed, under certain circumstances, to file a registration statement with the SEC registering an exchange offer for the Notes and/or the resale of the Issuers 5.625% Senior Notes due 2021 under the Securities Act; and
WHEREAS, in connection therewith, each Subsidiary Guarantor (as defined in the Registration Rights Agreement) that was originally not a party thereto has agreed to join in the Registration Rights Agreement pursuant to this agreement (this Joinder Agreement ) on the Completion Date.
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Registration Rights Agreement.
NOW, THEREFORE, each Subsidiary Guarantor hereby agrees for the benefit of the Initial Purchasers, as follows:
1. Joinder . Each of the undersigned hereby acknowledges that it has received a copy of the Registration Rights Agreement and acknowledges and agrees with the Initial Purchasers that by its execution and delivery hereof it shall: (i) join and become a party to the Registration Rights Agreement; (ii) be bound by all covenants, agreements and acknowledgements applicable to a Subsidiary Guarantor in the Registration Rights Agreement as if made by, and with respect to, such party as set forth in and in accordance with the terms of the Registration Rights Agreement; and (iii) perform all obligations and duties of a Subsidiary Guarantor in accordance with the Registration Rights Agreement.
2. Representations and Warranties . The undersigned hereby represents and warrants to and agrees with the Initial Purchasers that it has all requisite corporate, limited liability company or partnership power and authority to execute, deliver and perform its obligations under this Joinder Agreement and it has duly and validly taken all necessary action for the consummation of the transactions contemplated hereby and by the Registration Rights Agreement.
3. Counterparts . This Joinder Agreement may be executed in two or more counterparts each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Delivery of an executed counterpart of a signature page to this Joinder Agreement by telecopier, facsimile or other electronic transmission (i.e., a pdf or tif) shall be effective as delivery of a manually executed counterpart thereof.
4. Amendments . No amendment, modification or waiver of any provision of this Joinder Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by all of the parties thereto.
5. Headings . The section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Joinder Agreement.
6. GOVERNING LAW . THIS JOINDER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[ Remainder of Page Intentionally Blank ]
IN WITNESS WHEREOF, the undersigned has executed this agreement this day of 2013.
SUBSIDIARY GUARANTORS: | [ ] | |||||
By: |
|
|||||
Name: | ||||||
Title: |
The foregoing Joinder Agreement is hereby confirmed and accepted by the Initial Purchasers as of the date first above written.
[ Signature Page to the Joinder Agreement to the Registration Rights Agreement ]
Exhibit 10.7
RECEIVABLES LOAN AGREEMENT
Dated as of May 9, 2013
among
HILTON GRAND VACATIONS TRUST I LLC,
as Borrower
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Paying Agent and Securities Intermediary
THE PERSONS FROM TIME TO TIME
PARTY HERETO AS CONDUIT LENDERS,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS COMMITTED LENDERS,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS MANAGING AGENTS,
and
DEUTSCHE BANK SECURITIES, INC.,
as Administrative Agent and as Structuring Agent
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 | |||||
SECTION 1.01. |
Certain Defined Terms |
1 | ||||
SECTION 1.02. |
Other Terms and Constructions |
32 | ||||
SECTION 1.03. |
Computation of Time Periods |
33 | ||||
ARTICLE II AMOUNTS AND TERMS OF THE LOANS |
33 | |||||
SECTION 2.01. |
The Loans |
33 | ||||
SECTION 2.02. |
Borrowing Procedures |
34 | ||||
SECTION 2.03. |
Reductions and Increases to the Facility Limit |
35 | ||||
SECTION 2.04. |
Interest and Unused Fees |
36 | ||||
SECTION 2.05. |
Principal Payments |
36 | ||||
SECTION 2.06. |
Application of Collections |
37 | ||||
SECTION 2.07. |
Extension of Commitment Termination Date |
38 | ||||
SECTION 2.08. |
Payments and Computations, Etc. |
39 | ||||
SECTION 2.09. |
Interest Protection |
39 | ||||
SECTION 2.10. |
Increased Capital |
40 | ||||
SECTION 2.11. |
Funding Losses |
41 | ||||
SECTION 2.12. |
Taxes |
41 | ||||
SECTION 2.13. |
Security Interest |
44 | ||||
SECTION 2.14. |
Refinancings |
45 | ||||
SECTION 2.15. |
Release of Lien |
46 | ||||
SECTION 2.16. |
The Collection Account |
46 | ||||
SECTION 2.17. |
The Paying Agent |
48 | ||||
SECTION 2.18. |
Defaulting Committed Lenders |
53 | ||||
SECTION 2.19. |
Replacement of Lender Group |
53 | ||||
ARTICLE III CONDITIONS PRECEDENT |
54 | |||||
SECTION 3.01. |
Conditions Precedent to Effectiveness |
54 | ||||
SECTION 3.02. |
Conditions Precedent to All Borrowings |
54 | ||||
ARTICLE IV REPRESENTATIONS AND WARRANTIES |
55 | |||||
SECTION 4.01. |
Representations and Warranties of the Borrower |
55 | ||||
ARTICLE V COVENANTS |
59 | |||||
SECTION 5.01. |
Affirmative Covenants of the Borrower |
59 | ||||
SECTION 5.02. |
Reporting Requirements of the Borrower |
63 | ||||
SECTION 5.03. |
Covenants of the Borrower Relating to Hedging |
64 | ||||
SECTION 5.04. |
Negative Covenants of the Borrower |
66 | ||||
SECTION 5.05. |
Special Covenants Regarding CRD Compliance |
68 | ||||
ARTICLE VI SERVICING |
69 | |||||
SECTION 6.01. |
Servicing Agreement |
69 |
i
ARTICLE VII EVENTS OF DEFAULT |
69 | |||||
SECTION 7.01. |
Events of Default |
69 | ||||
SECTION 7.02. |
Right to Cure |
71 | ||||
SECTION 7.03. |
Remedies |
72 | ||||
SECTION 7.04. |
Appointment as Attorney in Fact |
73 | ||||
SECTION 7.05. |
Performance of Borrowers Obligations |
74 | ||||
SECTION 7.06. |
Powers Coupled with an Interest |
74 | ||||
ARTICLE VIII INDEMNIFICATION |
74 | |||||
SECTION 8.01. |
Indemnities by the Borrower |
74 | ||||
SECTION 8.02. |
Limited Liability of Parties |
76 | ||||
ARTICLE IX THE AGENTS |
76 | |||||
SECTION 9.01. |
Authorization and Action |
76 | ||||
SECTION 9.02. |
Agents Reliance, Etc. |
76 | ||||
SECTION 9.03. |
Agents and Affiliates |
76 | ||||
SECTION 9.04. |
Lenders Loan Decision |
77 | ||||
SECTION 9.05. |
Delegation of Duties |
77 | ||||
SECTION 9.06. |
Indemnification |
77 | ||||
SECTION 9.07. |
Successor Agents |
77 | ||||
ARTICLE X MISCELLANEOUS |
78 | |||||
SECTION 10.01. |
Amendments, Etc. |
78 | ||||
SECTION 10.02. |
Notices, Etc. |
79 | ||||
SECTION 10.03. |
Assignability |
79 | ||||
SECTION 10.04. |
Additional Lender Groups |
81 | ||||
SECTION 10.05. |
Consent to Jurisdiction |
81 | ||||
SECTION 10.06. |
WAIVER OF JURY TRIAL |
82 | ||||
SECTION 10.07. |
Right of Setoff |
82 | ||||
SECTION 10.08. |
Ratable Payments |
82 | ||||
SECTION 10.09. |
Limitation of Liability |
82 | ||||
SECTION 10.10. |
Costs, Expenses and Taxes |
83 | ||||
SECTION 10.11. |
No Proceedings |
83 | ||||
SECTION 10.12. |
Confidentiality |
84 | ||||
SECTION 10.13. |
No Waiver; Remedies |
85 | ||||
SECTION 10.14. |
GOVERNING LAW |
85 | ||||
SECTION 10.15. |
Execution in Counterparts |
85 | ||||
SECTION 10.16. |
Integration; Binding Effect; Survival of Termination |
85 |
ii
EXHIBITS AND SCHEDULES
EXHIBIT A-1 | Credit Policy | |
EXHIBIT A-2 | Collection Policy | |
EXHIBIT B | Form of Borrowing Request | |
EXHIBIT C | Form of Monthly Report | |
EXHIBIT D | List of Offices of Borrower where Records are Kept | |
EXHIBIT E | List of Accounts and Account Banks | |
EXHIBIT F | Form of Assignment and Acceptance | |
EXHIBIT G | Form of Joinder Agreement | |
EXHIBIT H | Form of Prepayment Notice | |
EXHIBIT I | Form of Refinancing Release | |
EXHIBIT J | Global Assignment of Mortgages and Timeshare Loan Files and Power of Attorney (Seller) | |
EXHIBIT K | Global Assignment of Mortgages and Timeshare Loan Files and Power of Attorney (Borrower) | |
EXHIBIT L | Form of Notice of Exclusive Control | |
SCHEDULE I | Representations and Warranties with respect to the Timeshare Loans | |
SCHEDULE II | Lender Groups | |
SCHEDULE III | Notice Addresses and Wiring Instructions | |
SCHEDULE IV | List of Closing Documents and Deliveries | |
SCHEDULE V | Resorts and Resort Associations | |
SCHEDULE VI | Hilton Mezzanine Loan Agreements |
iii
RECEIVABLES LOAN AGREEMENT
This RECEIVABLES LOAN AGREEMENT dated as of May 9, 2013, is by and among HILTON GRAND VACATIONS TRUST I LLC, a Delaware limited liability company, as Borrower, WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Paying Agent and Securities Intermediary, THE COMMERCIAL PAPER CONDUITS FROM TIME TO TIME PARTY HERETO, as Conduit Lenders, THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Committed Lenders, THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Managing Agents, and DEUTSCHE BANK SECURITIES, INC., as Administrative Agent for the Conduit Lenders and the Committed Lenders. Capitalized terms used herein shall have the meanings specified in Section 1.01.
PRELIMINARY STATEMENTS
WHEREAS, the Borrower may from time to time purchase Timeshare Loans and related assets from the Seller pursuant to the Sale and Contribution Agreement;
WHEREAS, to fund its purchases under the Sale and Contribution Agreement, the Borrower may from time to time request Loans from the Lenders on the terms and conditions of this Agreement;
WHEREAS, the Conduit Lenders may, in their sole discretion, make Loans so requested from time to time, and if a Conduit Lender in any Lender Group elects not to make any such Loan or if there is not a Conduit Lender in any Lender Group, the Committed Lenders in such Lender Group have agreed that they shall make such Loan, in each case subject to the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the premises, the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (and capitalized terms used but not defined herein which are defined in any other Facility Document shall have the respective meanings given to such terms in such other Facility Document):
Absence of Recorded Mortgage means, with respect to a Timeshare Loan, that the related Timeshare Loan File contains evidence of the type specified in clause (b)(ii), but not clause (b)(i), of the definition of Timeshare Loan File.
Account Banks means, collectively, the Clearing Account Bank and the Collection Account Bank.
Account Collateral means the Collection Account and the Clearing Account, including, (i) all certificates and instruments, if any, from time to time representing or evidencing any of such accounts or any funds held therein, (ii) all investment property and other financial assets or proceeds thereof held in, or acquired with funds from, such accounts and all certificates and instruments from time to time representing or evidencing such investment property and financial assets, (iii) all notes,
certificates of deposit and other instruments from time to time hereafter delivered or transferred to, or otherwise possessed by, the Administrative Agent in substitution for any of the then existing accounts and (iv) all interest, dividends, cash, instruments, financial assets, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing.
Account Number means, with respect to a Timeshare Loan, an alphanumeric designation of such Timeshare Loan that, among all timeshare loans serviced by the Servicer, is unique to such Timeshare Loan.
Accounts means, collectively, the Clearing Account, the Collection Account and the Unidentified Receipts Account.
Additional Timeshare Loan means any Eligible Timeshare Loan (including any Qualified Substitute Timeshare Loan) Transferred by the Seller to the Borrower on a Transfer Date.
Adjusted LIBO Rate means, for any Interest Period, an interest rate per annum obtained by dividing (i) the LIBO Rate for such Interest Period by (ii) a percentage equal to 100% minus the LIBO Rate Reserve Percentage for such Interest Period.
Administrative Agent means DBSI, in its capacity as agent for the Lenders, together with its successors and permitted assigns.
Adverse Claim means a Lien other than any Permitted Lien.
Affected Party means any Lender, DBSI, individually and in its capacity as Administrative Agent, any Managing Agent, any Liquidity Provider and, with respect to each of the foregoing, the parent company or holding company that controls such Person.
Affiliate means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control (together with the correlative meanings of controlled by and under common control with) means possession, directly or indirectly, of the power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the directors or managing general partners (or their equivalent) of such Person, or (b) to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.
Aggregate Commitment means, on any date of determination, (i) prior to the Recapitalization Event, the lesser of (x) the Hilton Timeshare Loan Cap then in effect minus the aggregate outstanding principal balance of the Indebtedness issued in connection with each outstanding Refinancing or any other financing by the Seller or any of its Subsidiaries on such date, and (y) the sum of the Commitments then in effect or (ii) thereafter, the sum of the Commitments then in effect. As of the Closing Date, the Aggregate Commitment is $400,000,000.
Aggregate Loan Principal Balance means, at any time, the aggregate outstanding Principal Amount of all Loans.
Agreemen t means this Receivables Loan Agreement.
Alternative Rate means, with respect to a Loan on any day, an interest rate per annum equal to the sum of (a) the Used Fee Rate, plus (b) the Adjusted LIBO Rate for the related Interest Period; provided, however , that if a LIBOR Disruption Event is continuing on such day, the Alternative Rate shall be an interest rate per annum equal to the Prime Rate in effect on such day.
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Amortization Date means the earliest to occur of (i) the Commitment Termination Date, (ii) the declaration or automatic occurrence of the Amortization Date pursuant to Section 7.03 and (iii) that Business Day which the Borrower designates as the Amortization Date by notice to the Administrative Agent at least five (5) Business Days prior to such Business Day.
Applicable Measurement Date means, with respect to a date of determination during an Interest Period, the close of business on the last day of the Collection Period immediately preceding the first day of such Interest Period.
Article 122a means Article 122a of the Capital Requirements Directive 2006/48/EC (as amended by Directive 2009/111/EC), as the same may be implemented by European Union Member States and the Guidelines to Article 122a of the Capital Requirements Directive issued by the Committee of European Banking Supervisors on December 31, 2010.
Assignment means, with respect to any Additional Timeshare Loans, an Assignment, substantially in the form of Exhibit A to the Sale and Contribution Agreement.
Assignment and Acceptance means an agreement substantially in the form set forth as Exhibit F hereto pursuant to which a new Conduit Lender or Committed Lender becomes party to this Agreement.
Authorized Representatives has the meaning ascribed to such term in Section 19 of the Custody Agreement.
Authorized Signatory means, as to any Person and any agreement or other document to be executed by such Person, a Responsible Officer of such Person or any other individual who has been authorized by such Person by a power or attorney or other effective means to execute any such agreement or document on behalf of such Person.
Available Funds means, for any Distribution Date and the related Collection Period, (x) the sum of (i) all Collections received during such Collection Period, (ii) the amount deposited in the Collection Account in respect of cash proceeds of Timeshare Loans, if any, whether released from the Lien of this Agreement in connection with a Refinancing or otherwise pursuant to Section 2.15, (iii) any Repurchase Price or Substitution Shortfall Amount paid by the Seller to the Borrower in connection with repurchases or substitutions of Pledged Timeshare Loans with respect to such Collection Period on or before such Distribution Date pursuant to the terms of the Sale and Contribution Agreement, and (iv) all Hedge Receipts with respect to such Distribution Date, minus (y) all amounts in respect of such Collection Period withdrawn from the Collection Account and applied to the prepayment of the Loans pursuant to Section 2.05.
Average Default Ratio means, for any Distribution Date, the average of the Default Ratios determined for each of the three Collection Periods immediately preceding such Distribution Date.
Average Delinquency Ratio means, for any Distribution Date, the average of the Delinquency Ratios determined for each of the three Collection Periods immediately preceding such Distribution Date.
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Average Managed Portfolio Default Ratio means, for any Distribution Date, the average of the Managed Portfolio Default Ratios for each of the three Collection Periods immediately preceding such Distribution Date.
Average Managed Portfolio Delinquency Ratio means, for any Distribution Date, the average of the Managed Portfolio Delinquency Ratios for each of the three Collection Periods immediately preceding such Distribution Date.
Backup Servicer means Wells Fargo, in its capacity as Backup Servicer pursuant hereto, or such other Person as may be proposed by the Borrower and approved by the Majority Managing Agents.
Backup Servicing Fee means, for any Collection Period, the backup servicing fees set forth in the Wells Fargo Fee Letter for such Collection Period.
Bankruptcy Code means Title 11 of the United States Code, 11 U.S.C. Section 101 et seq. or any successor thereto.
Basel II means the International Convergence of Capital Measurement and Capital Standards: a Revised Framework developed by the Basel Committee on Banking Supervision, initially published in June 2004.
Basel III Regulations means (a) any of the following documents prepared by the Basel Committee on Banking Supervision of the Bank of International Settlements: (i) Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring (December 2010), (ii) Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (June 2011) and (iii) Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools (January 2013). Without limiting the generality of the foregoing, Basel III Regulations shall include Part 6 of the European Union regulation on prudential requirements for credit institutions and investment firms (the CRR) and any law, regulation, standard, guideline, directive or other publication supplementing or otherwise modifying the CRR.
Borrower means Hilton Grand Vacations Trust I LLC, a Delaware limited liability company, in its capacity as Borrower hereunder, together with its successors and permitted assigns.
Borrower Information has the meaning specified in Section 10.12(b) hereof.
Borrower Obligations means all present and future Indebtedness and other liabilities and obligations (howsoever created or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of the Borrower to the Secured Parties arising under this Agreement or any other Facility Document, including the repayment of the Aggregate Loan Principal Balance and the payment of Interest, Unused Fees and all other amounts due or to become due from the Borrower under this Agreement and the other Facility Documents (whether in respect of fees, expenses, indemnifications, breakage costs, increased costs or otherwise), interest, fees and other obligations that accrue after the commencement of any bankruptcy, insolvency or similar proceeding with respect to any Transaction Party (in each case whether or not allowed as a claim in such proceeding).
Borrower Redesignation means a request, appropriately completed, substantially in the form of Exhibit H to the Custody Agreement.
Borrower Representatives has the meaning specified in Section 10.12(a) hereof.
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Borrowing means a borrowing of Loans under this Agreement.
Borrowing Base means, on any date of determination, (a) the lesser of (i) the product of 90.0% and the aggregate Timeshare Loan Balances of all Eligible Timeshare Loans on such date and (ii) the sum of the Collateral Values of all Eligible Timeshare Loans on such date, minus (b) the Excess Concentration Amount on such date. For purposes of calculating the Borrowing Base on any date of determination, the Timeshare Loan Balance on such date of any Eligible Timeshare Loan that was an Over Sixty-Day Delinquent Timeshare Loan or a Defaulted Timeshare Loan on the Applicable Measurement Date will be zero.
Borrowing Base Deficiency means, as of any date of determination, including but not limited to each Distribution Date, each Borrowing Date, and each Refinancing Date, the excess, if any, of (i) the Aggregate Loan Principal Balance on such date (after giving effect to any payments or distributions to be made on such date in reduction of the Aggregate Loan Principal Balance) over (ii) the Borrowing Base on such date.
Borrowing Date has the meaning specified in Section 2.02(a)(i).
Borrowing Request has the meaning specified in Section 2.02(a)(i).
Business Da y means any day other than a Saturday, Sunday or public holiday or the equivalent for banks in New York City, New York or Minneapolis, Minnesota, and, if the term Business Day is used in connection with the LIBO Rate, any day on which dealings are carried on in the London interbank market.
Capital Lease Obligations means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.
Change of Control means (a) Hilton Worldwide Holdings, Inc. shall cease to own, directly or indirectly, at least 66 2/3 % of the issued and outstanding Equity Interests of the Seller or the Servicer, (b) the Seller shall cease to own directly 100% of the issued and outstanding Equity Interests of the Borrower, (c) any sale, transfer, conveyance or assignment (in one or a series of related transactions) of all or substantially all of the Hilton Hotel Business, other than to Hilton Worldwide Holdings Inc. or one or more of its Subsidiaries, or (d) the occurrence of any merger, reorganization, consolidation or other transaction after which Hilton Worldwide Holdings Inc. no longer possesses, directly or indirectly, the power to direct or cause the direction of the management and or policies, or the dismissal or appointment of the management, of substantially all of the Persons engaged in the Hilton Hotel Business.
Clearing Account means the depositary account identified as such on Exhibit E into which Collections are collected or deposited.
Clearing Account Bank means the financial institution at which each of the Clearing Account, the Lockbox and the Unidentified Receipts Account is maintained. On the Closing Date, the Clearing Account Bank is Bank of America, N.A.
Clearing Account Control Agreement means the Clearing Account Control Agreement, dated as of the Closing Date, among the Borrower, the Clearing Account Bank and the Administrative Agent.
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Closing Date means May 9, 2013.
Code means the Internal Revenue Code of 1986.
Collateral has the meaning set forth in Section 2.13.
Collateral Value means, for any Eligible Timeshare Loan, on any date of determination, the product of (i) the Timeshare Loan Balance of such Eligible Timeshare Loan on such date and (ii) the Advance Rate set forth in the table below applicable to the Type of such Eligible Timeshare Loan set forth in the table below (it being understood that the applicable FICO® score shall be the highest FICO® score obtained by the Seller in conjunction with the origination of the Timeshare Loan):
Type |
Advance Rate | |||
FICO® score of 700 or higher: |
97.5 | % | ||
FICO® score of 675-699: |
83.0 | % | ||
FICO® score of 650-674: |
59.0 | % | ||
FICO® score of 625-649: |
52.0 | % | ||
FICO® score of 600-624: |
30.0 | % | ||
Domestic Obligor - no FICO® score: |
83.0 | % | ||
Eligible Foreign Obligor (Japan): |
97.5 | % | ||
Eligible Foreign Obligor (Non-Japan): |
97.5 | % |
For purposes of calculating the Collateral Value on any date of determination, the Timeshare Loan Balance on such date of any Eligible Timeshare Loan that was an Over Sixty-Day Delinquent Timeshare Loan or a Defaulted Timeshare Loan on the Applicable Measurement Date will be zero.
Collection Account has the meaning set forth in Section 2.16(a).
Collection Account Bank means the financial institution at which the Collection Account is maintained.
Collection Period means each calendar month, and the Collection Period for any Distribution Date means the prior calendar month.
Collection Policy means (i) the collection policies and practices of the Servicer as in effect on the date hereof, a copy of which is attached as Exhibit A-2 hereto, as modified from time to time in accordance with the terms of the Servicing Agreement or (ii) if GVS is not the Servicer, the collection policies and practices of the successor Servicer.
Collections means any and all cash collections and other cash proceeds of each Pledged Timeshare Loan received after the Cutoff Date for such Pledged Timeshare Loan, all payments or distributions of principal, interest, finance charges, fees, late charges, Liquidation Proceeds, Processing Fees or other amounts collected in respect of each Pledged Timeshare Loans after the Cutoff Date for such Pledged Timeshare Loan and any other amounts received by or on behalf of the Borrower (or, as used in the definition of Transferred Property, the Seller) or the Servicer in respect of the Pledged Timeshare Loans; provided, that Miscellaneous Payments shall not constitute Collections.
Commercial Paper means the short term promissory notes issued by a Conduit Lender in the commercial paper market.
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Commitment of any Committed Lender means the Dollar amount set forth on Schedule II hereto or, in the case of a Committed Lender that becomes a party to this Agreement pursuant to an Assignment and Acceptance or a Joinder Agreement the amount set forth therein as such Committed Lenders Commitment, in each case as such amount may be (i) reduced or increased by any Assignment and Acceptance entered into by such Committed Lender and the other parties thereto in accordance with the terms hereof and (ii) reduced or increased pursuant to Section 2.03.
Commitment Termination Date means May 9, 2015, as such date may be extended from time to time pursuant to Section 2.07.
Committed Lender means, as to any Lender Group, each of the financial institutions listed on Schedule II as a Committed Lender for such Lender Group, together with its respective successors and permitted assigns.
Conduit Lender means, collectively, the Persons identified as Conduit Lenders on Schedule II and their respective successors and permitted assigns.
Conduit Lending Limit means, for any Conduit Lender, the maximum principal amount of the Loans which may be advanced by such Conduit Lender as set forth on Schedule II (or on the signature pages to the Assignment and Acceptance or Joinder Agreement pursuant to which such Conduit Lender became a party hereto), subject to assignment pursuant to Section 10.03, as such amount may be modified from time to time by notice from the related Managing Agent to the Borrower and the Administrative Agent.
Connection Taxes means, with respect to any Affected Party, Taxes imposed as a result of a present or former connection between such Affected Party and the jurisdiction imposing such Tax (other than connections arising from such Affected Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Facility Document, or sold or assigned an interest in any Facility Document).
Consolidated EBITDA means, for any Person and with reference to any period, Consolidated Net Income plus, to the extent deducted in determining Consolidated Net Income, the sum of, without duplication, (i) Consolidated Interest Expense, (ii) expense for income taxes paid or accrued, (iii) depreciation, (iv) amortization, (v) fees and expenses incurred in connection with the Transaction, (vi) extraordinary or non-recurring expenses or losses, and (vii) non-cash expenses or losses minus, to the extent included in Consolidated Net Income, (1) interest income, (2) income tax credits and refunds (to the extent not netted from tax expense), (3) any cash payments made during such period in respect of items described in clause (vii) above subsequent to the fiscal quarter in which the relevant non-cash expenses or losses were incurred and (4) extraordinary, unusual or non-recurring income or gains, all calculated for such Person and its Subsidiaries in accordance with GAAP on a consolidated basis.
Consolidated Interest Expense means, for any Person and with reference to any period, the interest expense (including interest expense under Capital Lease Obligations that is treated as interest in accordance with GAAP) of such Person and its Subsidiaries for such period determined in accordance with GAAP on a consolidated basis (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing and net costs under interest rate Hedging Agreements to the extent such net costs are allocable to such period in accordance with GAAP); provided that there shall be excluded from Consolidated Interest Expense (i) any fees paid to the Administrative Agent and any one time financing fees (to the extent included in such Persons Consolidated Interest Expense for such period) and (ii) any one-time upfront payments made to obtain any Hedging Agreements.
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Consolidated Net Income means, for any Person and with reference to any period, the net income (or loss) of such Person and its Subsidiaries calculated in accordance with GAAP on a consolidated basis (without duplication) for such period; provided that there shall be excluded any income (or loss) of any Person other than such Person or a Subsidiary, but any such income so excluded may be included in such period or any later period to the extent of any cash dividends or distributions actually paid in the relevant period to such Person or any wholly-owned Subsidiary of such Person.
Consolidated Tangible Net Worth means, for any Person as of any date of determination, the excess of total assets (net of goodwill and intangible assets) over total liabilities on such date, as the same would appear on a consolidated balance sheet of such Person and its Subsidiaries at the date of said calculation prepared in accordance with GAAP.
Contract Rate means, with respect to a Timeshare Loan, the annual rate at which interest accrues under the related Obligor Note.
CP Rate means, with respect to any Conduit Lender on any day, the per annum rate equivalent to the sum of (a) the Used Fee Rate plus (b) the weighted average cost (as reasonably determined by the related Managing Agent, and which shall include (without duplication), the fees and commissions of placement agents and dealers, incremental carrying costs incurred with respect to Commercial Paper maturing on dates other than those on which corresponding funds are received by such Conduit Lender, other borrowings by such Conduit Lender and any other costs associated with the issuance of Commercial Paper) to the extent related to the issuance of Commercial Paper that is allocated, in whole or in part, by such Conduit Lender or its related Managing Agent to fund or maintain a Loan (or portion thereof) on such day; provided, however , that if any component of any such rate is a discount rate, in calculating the CP Rate for such day, the related Managing Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum.
CRD means, Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 (as amended by Directive 2009/111/EC).
Credit Policy means the credit policies and practices of the Seller as in effect on the date hereof, a copy of which is attached as Exhibit A-2 hereto, as modified from time to time in accordance with the terms of the Sale and Contribution Agreement.
Credit Card Account means an arrangement whereby an Obligor makes payments under a Pledged Timeshare Loan via pre-authorized debit to a Major Credit Card.
Cure Amount has the meaning set forth in Section 7.02(a).
Cure Right has the meaning set forth in Section 7.02(a).
Custody Agreement means the Custody Agreement, dated as of the Closing Date, among the Borrower, the Servicer, the Custodian and the Administrative Agent.
Custodial Fees means, for any Collection Period, the custodial fees and expenses set forth in the Wells Fargo Fee Letter and the expenses for which it is entitled to receive, but has not received, reimbursement under the Custody Agreement.
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Custodial Receipt has the meaning ascribed to such term in Section 4 of the Custody Agreement.
Custodian means Wells Fargo, and its successors and permitted assigns under the Custody Agreement.
Cutoff Date means, for any Timeshare Loan, the Applicable Measurement Date related to the Transfer Date for such Timeshare Loan.
Cutoff Date Loan Balance means, with respect to any Transferred Timeshare Loan, the Timeshare Loan Balance of such Timeshare Loan on the Cutoff Date for such Timeshare Loan
DBSI means Deutsche Bank Securities, Inc., its successors and permitted assigns.
Default means any event which, with the giving of notice or lapse of time or both, would constitute an Event of Default.
Default Ratio means, for any Collection Period, the ratio, expressed as a percentage, computed by dividing (i) the aggregate Timeshare Loan Balances of all Pledged Timeshare Loans that became Defaulted Timeshare Loans during such Collection Period by (ii) the aggregate Timeshare Loan Balances of all Pledged Timeshare Loans on the last day of such Collection Period.
Defaulted Timeshare Loan means a Timeshare Loan: (i) for which, on the last day of any Collection Period, any payment then due and payable in respect thereof has remained unpaid for more than one-hundred twenty (120) days from the original due date for such payment, (ii) which the Servicer has deemed uncollectible, (iii) which has been written off in the normal course of the Servicers business prior to becoming the number of days past due under clause (i) hereof, or which otherwise should be written off pursuant to the requirements of the Collection Policy, (iv) as to which foreclosure or similar proceedings with respect to the related Timeshare Property have been initiated by the Servicer or as to which the Servicer has received a deed-in-lieu of foreclosure or (v) as to which the Servicer has received notice that the Obligor thereof is subject to an Event of Bankruptcy.
Defaulting Committed Lender means any Committed Lender that, as determined by the Administrative Agent: (a) has failed to fund any of its obligations to make Loans within three (3) Business Days of the date required to be funded by it hereunder, (b) has notified the Administrative Agent or the Borrower that it does not intend to comply with such funding obligations or has made a public statement to that effect with respect to such funding obligations hereunder or under other agreements in which it commits to extend credit or (c) has, or has a direct or indirect parent company that has, become subject to an Event of Bankruptcy; provided, that a Committed Lender shall not be deemed to be a Defaulting Committed Lender hereunder solely by virtue of any control of or ownership interest in, or the acquisition of any ownership interest in, such Committed Lender (or its direct or indirect parent company) or the exercise of control over such Committed Lender (or its direct or indirect parent company) by a Governmental Authority thereof if and for so long as such ownership interest does not result in or provide such Committed Lender (or its direct or indirect parent company) with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Committed Lender (or its direct or indirect parent company) or such Governmental Authority to reject, repudiate, disavow or disaffirm obligations such as those under this Agreement.
Deficiency means, with respect to any Timeshare Loan File, (i) the failure of one or more Specified Documents contained therein to be fully executed, (ii) the failure of the information contained in one or more of the Specified Documents to match the information on the related Timeshare
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Loan Schedule, (iii) one or more Specified Documents contained therein are mutilated, damaged, torn or otherwise physically altered, (iv) the absence from a Timeshare Loan File of any Specified Document required to be contained in such Timeshare Loan File or (v) any discrepancies described in Section 4(a) of the Custody Agreement. An Absence of Recorded Mortgage shall not constitute a Deficiency.
Delinquency Ratio means, for any Collection Period, the ratio, expressed as a percentage, computed by dividing (i) the aggregate Timeshare Loan Balances of all Pledged Timeshare Loans that were Over Sixty-Day Delinquent Timeshare Loans as of the last day of such Collection Period by (ii) the aggregate Timeshare Loan Balances of all Pledged Timeshare Loans as of the last day of such Collection Period.
Delinquent Timeshare Loan means a Timeshare Loan which is not a Defaulted Timeshare Loan and (x) as to which, on the last day of any Collection Period, any payment then due and payable has remained unpaid for more than thirty (30) days from the original due date for such payment or (y) which, consistent with the Collection Policy, has been or should be classified as delinquent.
Determination Date means the third (3 rd ) Business Day prior to each Distribution Date.
Distribution Date means, with respect to a Collection Period, the 25 th day of the calendar month immediately following such Collection Period (or, if such day is not a Business Day, the next succeeding Business Day).
Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer Protection Act and any successor statute.
Dollars and $ each mean the lawful currency of the United States of America.
Domestic Obligor means an individual Obligor whose primary residence is in, or an Obligor (other than an individual) formed under the laws of or having its chief executive office or principal place of business located in, the United States (including each State, Puerto Rico and the United States Virgin Islands) or Canada.
Eligible Foreign Obligor means a Foreign Obligor in respect of an Eligible Timeshare Loan.
Eligible Hedge Counterparty means any entity that (a) on the date of entering into any Hedge Transaction (i) is an interest rate swap provider that is either a Lender or an Affiliate of a Lender, or has been approved in writing by the Administrative Agent (which approval shall not be unreasonably withheld), or (ii) has a short-term debt rating of A-1 from S&P or P-1 from Moodys and a long-term debt rating of A or higher from S&P or A2 or higher from Moodys or whose obligations are unconditionally guaranteed by an Affiliate which has the foregoing debt ratings in a manner reasonably acceptable to the Administrative Agent, (b) at all times after the date of the Hedging Agreement, so long as it is a party thereto, has a long-term debt rating of BBB+ or higher from S&P or Baa1 or higher from Moodys or whose obligations are unconditionally guaranteed by an Affiliate which has the foregoing debt ratings in a manner reasonably acceptable to the Administrative Agent, and (c) in the applicable Hedging Agreement consents to the assignment of the Borrowers rights under such Hedging Agreement to the Administrative Agent pursuant to Section 5.03.
Eligible Timeshare Loan means a Pledged Timeshare Loan as to which each of the representations and warranties set forth on Schedule I hereto was true and correct as of the Cutoff Date for such Pledged Timeshare Loan.
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Eligible Servicer means (i) GVS, (ii) the Backup Servicer or (iii) an entity which, at the time of its appointment as Servicer, (a) is legally qualified and has the capacity to service the Pledged Timeshare Loans, (b) has a net worth of not less than $50,000,000 and whose regular business includes servicing portfolios of similar timeshare loans in accordance with high standards of skill and care and (c) has software that is adequate to perform its duties under the Servicing Agreement.
Enforceability Exceptions means exceptions to the enforceability of an obligation arising under (i) bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors rights generally, and (ii) general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance, regardless of whether considered in a proceeding at equity or at law.
Entitlement Order has the meaning set forth in Section 2.16(f).
Environmental Laws means all federal, state or local laws, rules, regulations or orders governing, imposing standards of conduct with respect to, or regulating in any way the discharge, generation, removal, transportation, storage or handling of toxic or hazardous substances, materials or waste.
Equity Interests means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
ERISA means the Employee Retirement Income Security Act of 1974, or any successor statute.
ERISA Affiliate means any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which Borrower is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code, of which Borrower is a member.
Errors has the meaning given such term in Section 5.1(g) of the Servicing Agreement.
Eurocurrency Liabilities has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
Event of Bankruptcy means, with respect to any Person:
(i) such Person shall fail generally to pay its debts as they come due, or shall make a general assignment for the benefit of creditors; or any case or other proceeding shall be instituted by such Person seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of it or its debts under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, or seeking the entry of an order for relief or the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets; or such Person shall take any corporate or limited liability company action to authorize any of such actions; or
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(ii) a case or other proceeding shall be commenced, without the application or consent of such Person in any court seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and (A) such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of sixty (60) consecutive days or (B) an order for relief in respect of such Person shall be entered in such case or proceeding or a decree or order granting such other requested relief shall be entered.
Event of Default has the meaning assigned to that term in Section 7.01.
Excess Concentration Amount means, on any date of determination, the sum (without duplication) of the following amounts:
(a) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Obligors that had their primary residence addresses at origination in any single state (other than California) or country on the Applicable Measurement Date exceeds 12.50% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
(b) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Obligors that had their primary residence addresses at origination in California on the Applicable Measurement Date exceeds 25.00% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
(c) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Obligors that had their primary residence addresses at origination in countries other than the United States (including Puerto Rico and the United States Virgin Islands), Canada or Japan on the Applicable Measurement Date exceeds 5.0% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
(d) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Eligible Foreign Obligors on the Applicable Measurement Date exceeds 25.0% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
(e) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Obligors that had their primary residence addresses at origination in the states having the five (5) largest Obligor concentrations (based on Timeshare Loan Balances) on the Applicable Measurement Date exceeds 50.0% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
(f) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans owing from Obligors (excluding Foreign Obligors) with no FICO® scores at the time of origination on the Applicable Measurement Date exceeds 7.50% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date;
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(g) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans having original terms greater than 120 months on the Applicable Measurement Date exceeds 12.50% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date; and
(h) the amount by which the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans having Timeshare Loan Balances greater than or equal to $125,000 on the Applicable Measurement Date exceeds 7.50% of the aggregate Timeshare Loan Balances on such date of all Eligible Timeshare Loans on the Applicable Measurement Date.
Excess Spread Percentage means, on any Distribution Date, a percentage (which may be a negative percentage) computed as follows: (a) the weighted average Contract Rates of all Eligible Timeshare Loans on the Applicable Measurement Date (weighted based on Timeshare Loan Balances on such date), minus (b) the then applicable Servicing Fee Rate, minus (c) the Used Fee Rate, minus (d) (i) prior to a Hedging Period, the LIBO Rate for the Interest Period for such Distribution Date or (ii) during a Hedging Period, the weighted average Hedge Rate for such Interest Period.
Excluded Taxes means (a) Taxes imposed on or measured by net income (however denominated), franchise or gross revenue Taxes in lieu of net income Taxes, imposed by the United States (or any political subdivision thereof), or any other jurisdiction (or any political subdivision thereof), as a result of the recipient being organized in or having its principal office or applicable lending office located in such jurisdiction or that are Connection Taxes; (b) any branch profits Taxes imposed by the United States or any similar Taxes imposed by any other jurisdiction described in clause (a) above or in which the Borrower is located; (c) in the case of a Lender, United States withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.19) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.12, amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office; (d) Taxes attributable to such Affected Partys failure to comply with Section 2.12(c); and (e) any Taxes imposed pursuant to or as a result of FATCA.
Extending Lenders has the meaning specified in Section 2.07.
Face Amount means in relation to any Commercial Paper (a) if issued on a discount basis, the face amount stated therein and (b) if issued on an interest-bearing basis, the principal amount stated therein plus the amount of all interest accrued or to accrue thereon on or prior to its stated maturity date.
Facility Documents means collectively, this Agreement, the Sale and Contribution Agreement, the Servicing Agreement, the Performance Guaranty, the Fee Letter, the Custody Agreement, the Global Assignment (Seller), the Global Assignment (Borrower), the Clearing Account Control Agreement, each Assignment delivered by Seller to Borrower under the Sale and Contribution Agreement and all other agreements, documents and instruments delivered pursuant thereto or in connection therewith.
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Facility Limit means at any time, the Aggregate Commitment, adjusted as necessary to give effect to the addition of any Lender Group that becomes party to this Agreement pursuant to a Joinder Agreement under Section 10.04, any increase or reduction by the Borrower pursuant to Section 2.03 or any assignment pursuant to Section 10.03.
FAS 166/167 Capital Guidelines means the final rule, titled Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues, adopted December 15, 2009, by the United States bank regulatory agencies.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation or rules adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.
Federal Funds Rate means, with respect to any Lender for any period, a fluctuating interest rate per annum equal (for each day during such period) to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York; or if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the applicable Managing Agent from three federal funds brokers of recognized standing selected by it.
Fee Letter means the Fee Letter dated as of the Closing Date, by and among the Administrative Agent, the Managing Agents, the Committed Lenders and the Borrower.
Final Collection Date means the date on or following the Amortization Date on which the Aggregate Loan Principal Balance has been reduced to zero and all other Borrower Obligations have been paid in full.
Fiscal Quarter means a fiscal quarter of any Fiscal Year.
Fiscal Year means the fiscal year of the Seller and its Subsidiaries ending on December 31 of each calendar year.
Foreign Obligor means an Obligor that is not a Domestic Obligor.
GAAP means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied.
Global Assignment means each of the Global Assignment (Borrower) and Global Assignment (Seller).
Global Assignment (Borrower) means a Global Assignment of Mortgages and Timeshare Loan Files and Power of Attorney, in the form attached hereto as Exhibit K, made by the Borrower in favor of the Administrative Agent.
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Global Assignment (Seller) means a Global Assignment of Mortgages and Timeshare Loan Files and Power of Attorney, in the form attached hereto as Exhibit J, made by the Seller in favor of the Administrative Agent.
Governmental Authority means, with respect to any Person, any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over such Person, any of its Subsidiaries or any of its properties.
Governmental Rule means any law, rule, regulation, ordinance, order, code interpretation, treaty, judgment, decree, directive, guidelines, policy or similar form of decision of any Governmental Authority.
Guarantee means, as to any Person, any obligation of such person directly or indirectly guaranteeing any Indebtedness of any other Person in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, or take or pay or otherwise). The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable about of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms Guarantee and Guaranteed used as verbs shall have correlative meanings.
GVS means Grand Vacations Services LLC, a Delaware limited liability company and its successors and permitted assigns.
Hedge Amortization Schedule means the amortization schedule prepared from time to time by the Administrative Agent in accordance with Section 5.03 based on (i) the timeshare loan data file prepared by the Servicer for the Administrative Agent pursuant to Section 5.03 and (ii) assumptions regarding the payments, prepayments and defaults on the Pledged Timeshare Loans determined by the Administrative Agent in a commercially reasonable and industry accepted manner.
Hedge Breakage Costs means, with respect to any Hedge Transaction, any amount payable by the Borrower to the related Hedge Counterparty with respect to any early termination of such Hedge Transaction or any portion thereof.
Hedge Collateral means all of the rights of the Borrower, whether now existing and hereafter acquired, in and to all Hedging Agreements, Hedge Transactions and all present and future amounts payable by all Hedge Counterparties to the Borrower under or in connection with such Hedging Agreements and Hedge Transactions with such Hedge Counterparties.
Hedge Counterparty means any Person that has entered into a Hedge Transaction.
Hedge Rate means, on any date of determination, the weighted average fixed rate or strike rate under the Hedging Agreements on such date, based on the notional amounts of such Hedging Agreements.
Hedge Receipts means all amounts received by the Borrower pursuant to a Hedging Agreement.
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Hedge Transaction means each transaction between the Borrower and a Person entered into pursuant to Section 5.03 and governed by a Hedging Agreement.
Hedging Agreement means each agreement between the Borrower and Hedge Counterparty which governs one or more Hedge Transactions entered into pursuant to Section 5.03, which agreement shall be an interest rate cap or interest rate swap and shall consist of a Master Agreement in a form published by the International Swaps and Derivatives Association, Inc., together with a Schedule thereto and each Confirmation thereunder confirming the specific terms of each such Hedge Transaction.
Hedging Period means each period commencing on a Distribution Date on which (i) the Excess Spread Percentage on such Distribution Date is less than 7.50% or (ii) the LIBOR Rate for the Interest Period commencing on such Distribution Date is greater than 3.00% and ending on the next Distribution Date on which the condition described in clause (i) or (ii) hereof that caused such period to commence no longer exists.
HGVClub means Hilton Grand Vacations Club, the service name given to the variety of exchange and reservation services and vacation and travel benefits offered by Hilton Grand Vacations Club, Inc. from time to time.
Hilton Entity has the meaning set forth in Section 5.01(g).
Hilton Hotel Business means, at any time of determination, the hotel ownership, operation, management and franchising business then conducted by Hilton Worldwide Holdings Inc. and its direct and indirect Subsidiaries.
Hilton Mezzanine Loan Agreements means those agreements listed on Schedule VI hereto.
Hilton Mortgage Loan Agreement means that certain that Loan Agreement, dated as of October 24, 2007, among Bear Stearns Commercial Mortgage, Inc., Bank of America, N.A., German American Capital Corporation, Goldman Sachs Mortgage Company, Morgan Stanley Mortgage Capital Holdings LLC, Merrill Lynch Mortgage Lending Inc. and Lehman Brothers Holdings Inc., collectively, as lender, Bear Stearns International Limited, as security agent, and the entities listed thereto as borrowers, as amended by (i) that certain First Omnibus Amendment to Loan Agreement and Loan Documents, dated as of December 15, 2007, (ii) that certain Second Omnibus Amendment to Loan Agreement and Loan Documents, dated as of May 30, 2008, (iii) that certain Third Omnibus Amendment to Loan Agreement and Loan Documents, dated as of May 30, 2008, (iv) that certain Fourth Omnibus Amendment to Loan Agreement and Loan Documents, Joinder and Security Agreement, dated as of January 27, 2009, (v) that certain Fifth Omnibus Amendment to Loan Agreement and Loan Documents, Joinder and Security Agreement, dated as of May 7, 2009, and (vi) that certain Sixth Omnibus Amendment to Loan Agreement and Loan Documents, dated as of April 7, 2010, and as hereafter amended, restated, supplemented or otherwise modified from time to time.
Hilton Timeshare Loan Cap means any limitation on the aggregate principal amount of Indebtedness of the Seller and its Subsidiaries outstanding at any time set forth in the Hilton Mortgage Loan Agreement or the Hilton Mezzanine Loan Agreements from time to time. The Hilton Timeshare Loan Cap on the date hereof is $400,000,000.
Indebtedness means, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of
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property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) accrued obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; and (h) any other obligation of such Person evidenced by a note, bond, debenture or similar instrument that would be classified as indebtedness on a balance sheet prepared in accordance with GAAP.
Indemnified Amount has the meaning set forth in Section 8.01.
Indemnified Party has the meaning set forth in Section 8.01.
Indemnified Taxes means any and all Taxes imposed on or with respect to any payment made by the Borrower under any Facility Document other than Excluded Taxes.
Independent Director means, with respect to a subject Person, a natural person who has been approved and is serving as a member of the board of directors or other governing body of such Person and (a) for the five-year period prior to his or her appointment as Independent Director has not been, and during the continuation of his or her service as Independent Director is not: (i) a direct, indirect or beneficial stockholder, employee, director, member, manager, partner, officer or associate of the Seller, the Borrower, the Servicer or any of their respective Affiliates (other than his or her service as an Independent Director of such subject Person); (ii) a customer, supplier or creditor of the Seller, the Borrower, the Servicer or any of their respective Affiliates (other than his or her service as an Independent Director of such subject Person); or (iii) any member of the immediate family of a person described in (i) or (ii), (b) has prior experience as an independent director for a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (c) has at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities.
Individual Domestic Obligor means a Domestic Obligor that is an individual.
Initial Borrowing means the first Borrowing made pursuant to this Agreement.
Initial Cutoff Date means April 30, 2013.
Initial Transfer Date means the date on which the Initial Transfer occurs.
Initial Transfer means the first Transfer made pursuant to the Sale and Contribution Agreement.
Insurance Proceeds means (i) proceeds of any insurance policy, including property insurance policies, casualty insurance policies and title insurance policies and (ii) any condemnation
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proceeds, in each case which relate to the Timeshare Loans or the Units and are paid or required to be paid to, and may be retained by, the Borrower, any of its Affiliates or to any holder of record of any Mortgage.
Interest means, for any Loan and any Interest Period, the sum for each day during such Interest Period of the following:
IR x PA/CB
where: | ||||
IR | = | the Interest Rate for such Loan for such day. | ||
PA | = | the Principal Amount of such Loan on such day. | ||
CB | = | (i) in the case of a Loan, the Interest Rate for which is based on the Prime Rate, 365 and (ii) in the case of any other Loan, 360. |
Interest Coverage Ratio means, with respect to a Person, the ratio as of the last day of any Fiscal Quarter of (i) Consolidated EBITDA of such Person for the period of four (4) consecutive Fiscal Quarters ending on or immediately prior to such date to (ii) Consolidated Interest Expense of such Person for the period of four (4) consecutive Fiscal Quarters ending on or immediately prior to such date.
Interest Period means, for any Distribution Date, the period from and including the Distribution Date preceding such Distribution Date to, but excluding, such Distribution Date (or in the case of the initial Interest Period, the period from and including the Closing Date to, but excluding, the Distribution Date in June 2013).
Interest Rate means, with respect to any Loan on any day (i) to the extent such Loan is funded or maintained on such day by a Conduit Lender through the issuance of Commercial Paper, the CP Rate and (ii) otherwise, the Alternative Rate; provided, that for both clause (i) and (ii), that at all times following the occurrence and during the continuation of an Event of Default, the Interest Rate for each Loan on each day shall be an interest rate per annum equal to 2.00% plus the Interest Rate then in effect from time to time.
Invested Percentage means, for a Lender on any day, the percentage equivalent of (i) the sum of (a) the portion of the Aggregate Loan Principal Balance (if any) funded by such Lender on or prior to such day, plus (b) any portion of the Aggregate Loan Principal Balance acquired by such Lender on or prior to such day as an assignee from another Lender (whether pursuant to an Assignment and Acceptance or otherwise), minus (c) any portion of the Aggregate Loan Principal Balance assigned by such Lender to an assignee on or prior to such day (whether pursuant to an Assignment and Acceptance or otherwise), divided by (ii) the Aggregate Loan Principal Balance on such day. With respect to a Lender Group, Invested Percentage shall mean the foregoing amount computed with respect to the portion of the Aggregate Loan Principal Balance funded and acquired by all the Lenders in such Lender Group.
IRS means the Internal Revenue Service of the United States of America.
Joinder Agreemen t means a joinder agreement substantially in the form set forth as Exhibit G hereto pursuant to which a new Lender Group becomes party to this Agreement.
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Law means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Governmental Authority.
Lender means any Conduit Lender or Committed Lender, as applicable, and Lenders means, collectively, the Conduit Lenders and the Committed Lenders.
Lender Group means any Managing Agent and its related Conduit Lenders, if any, and Committed Lenders.
Lender Group Limit means, for any Lender Group, the amount set forth on Schedule II (or in the Joinder Agreement pursuant to which such Lender Group became party hereto) subject to assignment pursuant to Section 10.03, as such amount may be reduced in accordance with Section 2.03(a) or increased in accordance with Section 2.03(b), except that, for a Non-Extending Lender Group, the Lender Group Limit shall be reduced to zero on the Commitment Termination Date of such Lender Group.
Lender Group Percentage means, for any Lender Group, the percentage equivalent of a fraction (expressed out to five decimal places), the numerator of which is the aggregate of the Commitments of all Committed Lenders in such Lender Group and the denominator of which is the Aggregate Commitment.
Lender Representatives has the meaning specified in Section 10.12(b).
Leverage Ratio means, with respect to a Person, the ratio as of the last day of any Fiscal Quarter of (i) Indebtedness of such Person as of such day to (ii) Consolidated Tangible Net Worth of such Person as of such day.
LIBO Rate means, for any Loan (or portion thereof) for any Interest Period, the rate per annum shown on Reuters Screen LIBOR01 (or any successor page as the composite offered rate for London interbank deposits for a one-month period), as shown under the heading USD at approximately 11:00 a.m., London time, on the second Business Day before the first day of such Interest Period; provided, that (a) if such rate is not available at such time for any reason, then the LIBO Rate shall be determined by reference to such other comparable available service for displaying Eurodollar rates as may be reasonably selected by the Administrative Agent or (b) if no such service is available, the LIBO Rate shall be the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by Deutsche Bank AG as the rate at which Deutsche Bank AG offers deposits in Dollars at or about 10:00 a.m., New York City time, two Business Days prior to the beginning of the related Interest Period, in the interbank eurocurrency market where the eurocurrency and foreign currency and exchange operations in respect of its Eurodollar loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the applicable amount of Aggregate Loan Principal Balance to be accruing interest at the LIBO Rate during such Interest Period.
LIBO Rate Reserve Percentage means, for any Interest Period in respect of which Interest is computed by reference to the LIBO Rate, the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) (or if more than one such percentage shall be applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Liabilities is determined) having a term equal to such Interest Period.
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LIBOR Disruption Event means, with respect to any Interest Period, any of the following: (a) a determination by any Lender or any Liquidity Provider that it would be contrary to law or to the directive of any central bank or other governmental authority (whether or not having the force of law) to obtain dollars in the London interbank market to make, fund or maintain Loans during such Interest Period, (b) the failure of the source listed in the definition of LIBO Rate to publish a London interbank offered rate as of 11:00 a.m. on the second Business Day prior to the first day of such Interest Period, together with the failure of the Administrative Agent to find another comparable available service and of Deutsche Bank AG to provide notice of an alternate rate (each as contemplated in such definition), (c) a determination by any Lender or Liquidity Provider that the rate at which deposits of United States dollars are being offered in the London interbank market does not accurately reflect the cost to such Person of making, funding or maintaining its Loans for such Interest Period or (d) the inability of such Lender or Liquidity Provider, because of market events not under the control of such Person, to obtain United States dollars in the London interbank market to make, fund or maintain its Loans for such Interest Period.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), or preference, priority, charge or other security agreement or preferential arrangement of any kind or nature whatsoever that is intended as security.
Liquidation means, with respect to a Pledged Timeshare Loan that is a Defaulted Timeshare Loan, the foreclosure, other enforcement action or the taking of a deed-in-lieu of foreclosure and the recording of a deed of conveyance with respect thereto.
Liquidation Expenses means, with respect to a Defaulted Timeshare Loan, the out-of-pocket expenses (exclusive of overhead expenses) incurred by the Servicer in connection with the Liquidation of such Defaulted Timeshare Loan, including the remarketing fee and expenses of the Seller, any Affiliate of the Seller or of any other Person engaged by the Servicer pursuant to Section 2.2(c) of the Servicing Agreement to remarket and dispose of the related Timeshare Property, reasonable out-of-pocket fees of external legal counsel and any foreclosure and other repossession expenses incurred by the Servicer with respect to such Defaulted Timeshare Loan and any other fees and expenses reasonably applied or allocated in the ordinary course of business with respect to the Liquidation of such Defaulted Timeshare Loan (including any assessed timeshare association fees); provided , however , that in each case, any fees and expenses included in the Liquidation Expenses must be commercially reasonable and incurred in accordance with the Servicing Standard.
Liquidation Fee means, in the event of any prepayment of a Loan owing to a Lender which did not comply with the advance notice requirements set forth in Section 2.05(a), and for the Interest Period during which such Loan was prepaid, the amount, if any, by which (i) the additional Interest which would have accrued during such Interest Period on the reduction of the Principal Amount of such Loan during such Interest Period had such reduction not occurred, exceeds (ii) the income, if any, received by such Lender from the investment of the proceeds of such reduction. A certificate as to the amount of any Liquidation Fee (including the computation of such amount) shall be submitted by the affected Lender to the Borrower and shall be conclusive and binding for all purposes, absent manifest error.
Liquidation Proceeds means with respect to the Liquidation of any Defaulted Timeshare Loan, the amounts actually received by the Servicer, if any, in connection with such Liquidation.
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Liquidity Agreement means a liquidity loan agreement, asset purchase agreement or similar agreement entered into by a Conduit Lender with a group of financial institutions in connection with this Agreement.
Liquidity Provider means any of the financial institutions from time to time party to any Liquidity Agreement with a Conduit Lender.
Loan means a loan made to the Borrower pursuant to Article II.
Lockbox means any post office box maintained by the Clearing Account Bank for the purpose of receiving payments on Timeshare Loans, including Collections.
Major Credit Card means a credit card issued by any of VISA USA, Inc., MasterCard International Incorporated, American Express Company, Discover Bank, JCB International Credit Card Co., Ltd. or Diners Club International Ltd. or any credit card affiliate or member entity or any other comparable issuer of credit cards.
Majority Managing Agents means (i) at any time prior to the Amortization Date, Managing Agents whose Lender Group Limits together equal or exceed 66 2/3 percent (66 2/3%) of the Facility Limit at such time or (ii) at any other time, Managing Agents for Lender Groups whose Invested Percentages together equal or exceed 66 2/3% of the Aggregate Loan Principal Balance at such time.
Managed Portfolio Default Ratio means, for any Collection Period, the ratio, expressed as a percentage, computed by dividing (i) the aggregate Timeshare Loan Balances of all Managed Portfolio Timeshare Loans that became Defaulted Timeshare Loans during such Collection Period by (ii) the aggregate Timeshare Loan Balances of all Managed Portfolio Timeshare Loans on the last day of such Collection Period.
Managed Portfolio Delinquency Ratio means, for any Collection Period, the ratio, expressed as a percentage, computed by dividing (i) the aggregate Timeshare Loan Balances of all Managed Portfolio Timeshare Loans that are Delinquent Timeshare Loans on the last day of such Collection Period by (ii) the aggregate Timeshare Loan Balances of all Managed Portfolio Timeshare Loans on the last day of such Collection Period.
Managed Portfolio Timeshare Loan means each Timeshare Loan payable in Dollars originated by the Seller or any Subsidiary of the Seller and serviced by the Servicer on behalf of the Seller and its Subsidiaries.
Managing Agent means, as to any Conduit Lender or Committed Lender, the Person listed on Schedule II as the Managing Agent for such Lenders, together with its respective successors and permitted assigns.
Material Adverse Effect means, with respect to a Person and any event or circumstance, a material adverse effect on (a) the property, business or financial condition of such Person, (b) the ability of such Person to perform in all material respects its obligations under any of the Facility Documents to which it is a party, (c) the validity or enforceability in all material respects of any of the Facility Documents to which it is a party, (d) the material rights and remedies of the Lenders under any of the Facility Documents, (e) the existence or perfection or priority of any Lien granted by such Person under any Facility Document to which it is a party or (f) the collectibility of the Pledged Timeshare Loans generally or of any material portion of the Pledged Timeshare Loans.
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Maturity Date means the earlier of (a) the Distribution Date occurring in the twelfth (12 th ) month after the occurrence of the Amortization Date under clause (i) or (iii) of the definition thereof and (b) the date of the declaration or automatic occurrence of the Amortization Date pursuant to Section 7.03.
Miscellaneous Payments means, with respect to the Pledged Timeshare Loans, any amounts received from or on behalf of the related Obligors representing assessments, payments relating to real property taxes, insurance premiums, maintenance fees and charges and association fees and any other payments not owed under the related Obligor Notes.
Monthly Loan Tape means a data tape which shall include such information with respect to the Pledged Timeshare Loans as the Administrative Agent may reasonably request from time to time.
Monthly Principal Payment Amount means on any Distribution Date (i) prior to the Amortization Date, the amount, if any, necessary to reduce the Aggregate Loan Principal Balance such that no Borrowing Base Deficiency exists after giving effect to such payment or (ii) from and after the Amortization Date, the Aggregate Loan Principal Balance.
Monthly Report means a report, in substantially the form of Exhibit C, furnished by the Servicer to the Borrower, the Administrative Agent (who shall make such Monthly Report available to the Lenders), the Paying Agent and the Backup Servicer pursuant to Section 3.3 of the Servicing Agreement.
Moodys means Moodys Investors Service, Inc., and its successors.
Mortgage means the mortgage, deed of trust or other act or instrument creating a first priority lien on the Timeshare Property securing a Timeshare Loan, or a copy thereof certified by the applicable recording office.
Multiemployer Plan means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by Borrower or to which the Borrower has any liability (including on behalf of an ERISA Affiliate) and that is covered by Title IV of ERISA.
Non-Extending Lender means each Lender that is not an Extending Lender.
Non-Extending Lender Group means each Lender Group as to which at least one member is a Non-Extending Lender.
Notice of Exclusive Control has the meaning specified in Section 2.16.
Notice of Purchase means a fully executed Notice of Purchase in the form of Exhibit F to the Custody Agreement.
Obligor means a Person obligated to make payments under a Timeshare Loan, including any guarantor thereof.
Obligor Information has the meaning specified in Section 10.12(c).
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Obligor Note means an executed promissory note or other instrument of indebtedness evidencing the indebtedness of an Obligor under a Timeshare Loan, together with any rider, addendum or amendment thereto.
OFAC means the U.S. Department of the Treasurys Office of Foreign Assets Control.
Officers Certificate means a certificate executed by a Servicing Officer, certifying the accuracy of the information specified therein.
Official Body means any Governmental Authority or any accounting board or authority (whether or not part of a government) which is responsible for the establishment or interpretation of national or international accounting principles, in each case whether foreign or domestic.
Opinion of Counsel means a written opinion of external counsel, in each case, reasonably acceptable to the addressees thereof.
Other Fees means amounts owed by the Borrower hereunder pursuant to Sections 2.09, 2.10, 2.11, 2.12, 8.01 and 10.10.
Over Sixty-Day Delinquent Timeshare Loan means a Timeshare Loan which is not a Defaulted Timeshare Loan and as to which, on the last day of any Collection Period, any payment then due and payable has remained unpaid for more than sixty (60) days from the original due date for such payment.
PAC means an arrangement whereby an Obligor makes payments under a Pledged Timeshare Loan via pre-authorized debit.
Participant has the meaning specified in Section 10.03(f).
Participant Register has the meaning specified in Section 10.03(f).
Paying Agent means Wells Fargo or any other Person acceptable to the Majority Managing Agents.
Paying Agent Fee means, for any Collection Period, the paying agent fees as set forth in the Wells Fargo Fee Letter.
PBGC means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
Performance Guaranty means that certain Performance Guaranty dated as of the Closing Date, by the Performance Guarantor in favor of the Administrative Agent.
Performance Guarantor means the Seller.
Permitted Investments means:
(a) direct obligations of, or guaranteed as to the full and timely payment of principal and interest by, the United States or obligations of any agency or instrumentality thereof, if such obligations are backed by the full faith and credit of the United States;
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(b) federal funds, certificates of deposit, time deposits, bankers acceptances (which shall each have an original maturity of not more than ninety (90) days and, in the case of bankers acceptances, shall in no event have an original maturity of more than 365 days) or demand deposits of any United States depository institution or trust company organized under the laws of the United States or any state and subject to supervision and examination by federal and or state banking authorities; provided , that the short-term obligations of such depository institution or trust company are rated in one of the two highest available rating categories by the Rating Agencies on the date of acquisition thereof;
(c) commercial paper (having original maturities of not more than thirty (30) days) of any corporation incorporated under the laws of the United States or any state thereof which is rated A-1 or better by S&P and P-1 by Moodys on the date of acquisition thereof;
(d) securities of money market funds rated AA or better by S&P and Aa or better by Moodys on the date of acquisition thereof; or
(e) repurchase obligations secured by an investment described in clause (a) above with a market value greater than the repurchase obligation, provided that such security is held by a third party custodian which has a rating for its short-term, unsecured debt or commercial paper (other than such obligations the rating of which is based on the credit of a Person other than such custodian) of P-1 by Moodys and at least A-1 by S&P on the date of acquisition thereof.
Each of the Permitted Investments may be purchased by the Paying Agent or through an Affiliate of the Paying Agent.
Permitted Liens means any of the following: (a) Liens for taxes and assessments (i) which are not yet due and payable or (ii) the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Seller is maintaining adequate reserves in accordance with GAAP; (b) Liens in favor of the Administrative Agent or any Secured Party, including any Liquidity Providers (but only in connection with this Agreement); (c) any other Liens created pursuant to any Facility Document; and (d) in respect of any Timeshare Property, (i) the Lien of a Mortgage, (ii) the lien of current real property taxes, maintenance fees, ground rents, water charges, sewer rents and assessments not yet due and payable, (ii) covenants, conditions and restrictions, rights of way, easements and other matters of public record, none of which, individually or in the aggregate, materially interferes with the current use of such Timeshare Property or the security intended to be provided by the related Mortgage or with the related Obligors ability to pay his or her obligations when they become due or materially and adversely affects the value of such Timeshare Property and (iii) the exceptions (general and specific) set forth in the related title insurance policy, none of which, individually or in the aggregate, materially interferes with the security intended to be provided by such Mortgage or with such Obligors ability to pay his or her obligations when they become due or materially and adversely affects the value of such Timeshare Property.
Permitted Release means, with respect to a Pledged Timeshare Loan, a release of such Pledged Timeshare Loan from the Lien of this Agreement as contemplated by Section 2.15.
Person means an individual, partnership, corporation (including a business trust), joint stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity.
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Plan means an employee benefit or other plan established or maintained by the Borrower to which Borrower has any liability (including on behalf of an ERISA Affiliate) and that is covered by Title IV of ERISA, other than a Multiemployer Plan.
Pledged Timeshare Loan means, on any date, each Timeshare Loan owned by the Borrower on such date, whether or not such Timeshare Loan is an Eligible Timeshare Loan, and excluding any Timeshare Loan released from the Lien of this Agreement pursuant to the terms hereof.
Predecessor Servicer Work Product has the meaning given such term in Section 5.1(g) of the Servicing Agreement.
Prime Rate means, for any day, a fluctuating rate of interest per annum equal to the higher of: (i) a fluctuating rate of interest per annum equal to the Prime Rate most recently published in the Wall Street Journal and described as the base rate on corporate loans posted by at least 75% of the nations 30 largest banks, and (ii) 0.50% above the rate per annum at which Deutsche Bank AG, New York Branch, as a branch of a foreign bank, in its reasonable discretion, can acquire federal funds in the interbank overnight federal funds market, through brokers of recognized standing or otherwise, as most recently determined by Deutsche Bank AG, New York Branch.
Principal Amount means, with respect to any Loan, the original principal amount of such Loan, as such principal amount may be reduced from time to time by (i) payments made in accordance with Section 2.05 and (ii) Collections received by the applicable Lender holding such Loan from distributions made pursuant to Section 2.06 that have been applied to reduce the Principal Amount of such Loan; provided, that if such Principal Amount shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Principal Amount shall be increased by the amount of such rescinded or returned distribution, as though it had not been received by such Lender.
Pro Rata Share means, at any time for any Committed Lender in any Lender Group, (a) the Commitment of such Committed Lender at such time, divided by the sum of the Commitments of all Committed Lenders in such Lender Group at such time and (b) after the Commitments of all the Committed Lenders in such Lender Group have been terminated, the Principal Amount of the Loans funded or maintained by such Committed Lender at such time, divided by the Principal Amount of the Loans funded or maintained by all the Committed Lenders in such Lender Group at such time.
Processing Fees means any amounts due under an Obligor Note in respect of processing fees, service fees or late fees.
Product Information has the meaning specified in Section 10.12(a).
Purchase Contract means the purchase contract pursuant to which an Obligor purchased a Timeshare Property.
Purchase Price has the meaning set forth in Section 2.2(a) of the Sale and Contribution Agreement.
Qualified Institution means any depository institution or trust company organized under the laws of the United States or any State (or any domestic branch of a foreign bank), (i) (a) that has or the parent of which has, either (1) a long-term unsecured debt rating of A or higher by S&P and A2 or higher by Moodys, or (2) a short-term unsecured debt rating of not less than A-1 by S&P and not less than P-1 by Moodys or (b) is otherwise acceptable to the Administrative Agent and (ii) whose deposits are insured by the Federal Deposit Insurance Corporation.
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Qualified Substitute Timeshare Loan means, with respect to any Timeshare Loan to be included as a Transferred Timeshare Loan in connection with a substitution pursuant to Section 2.7(b) or (c) of the Sale and Contribution Agreement, a Timeshare Loan that was an Eligible Timeshare Loan as of the last day of the Collection Period immediately preceding the related Transfer Date.
Rating Agency means any nationally recognized statistical rating organization and any successor thereto.
Rating Request means a written request by an Affected Party or Lender to the Borrower and the Servicer, stating that such Affected Party or Lender intends to request that a Rating Agency issue a public rating to the transactions contemplated by this Agreement.
Reasonably Request means a request for information or actions that is reasonably made by the requesting party and that can reasonably be provided or performed by the furnishing party without significant effort or expense; provided, that in the event that the furnishing party believes that the requested information or actions cannot be provided or performed without significant effort or expense, the furnishing party and the requesting party shall confer in good faith to agree upon appropriate consideration for the furnishing party to provide such information or perform such actions.
Recapitalization Event means (a) any refinancing, replacement or other event that results in the repayment in full of all amounts owing under the Hilton Mortgage Loan Agreement or any amendment, restatement or other modification of the Hilton Mortgage Loan Agreement that results in the elimination of the Hilton Timeshare Loan Cap set forth therein and (b) any refinancing, replacement or other event that results in the repayment in full of all amounts owing under the Hilton Mezzanine Loan Agreements or any amendment, restatement or other modification of the Hilton Mezzanine Loan Agreements that results in the elimination of the Hilton Timeshare Loan Cap set forth therein.
Records means, with respect to a Timeshare Loan, all agreements, documents, instruments, books, records and other information, other than the Timeshare Loan File with respect to such Timeshare Loan, including all accounting records, credit files, electronic data and other computer materials, tapes, discs and punch cards with respect to such Timeshare Loan, the related Obligor or the Related Security with respect thereto.
Refinancing means any Securitization or other financing by the Borrower or any Affiliate of the Borrower that is secured, directly or indirectly, by, or involving, all or a portion of the Collateral transferred by the Borrower in connection with such financing transaction.
Refinancing Date means the date upon which a Refinancing is consummated.
Refinancing Date Certificate means either a certificate, substantially in the form attached as Annex 1-A to Exhibit I hereto, delivered by a Responsible Officer of the Borrower on a Refinancing Date indicating that the requirements set forth in this Agreement for a Refinancing have been satisfied or a certificate, substantially in the form attached as Annex 1-B to Exhibit I hereto, delivered by a Responsible Officer of the Servicer on a Refinancing Date indicating that the requirements set forth in this Agreement for a Refinancing have been satisfied.
Refinancing Release means a release executed pursuant to Section 2.14, substantially in the form of Exhibit I hereto.
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Register has the meaning specified in Section 10.03(d).
Related Security means, with respect to a Timeshare Loan, (i) all property and assets (whether real or personal and whether tangible or intangible) from time to time securing or purporting to secure such Timeshare Loan, whether pursuant to the related Purchase Contract, the related Mortgage or otherwise, (ii) Liens on any property described in the preceding clause (i), together with all UCC financing statements, Mortgages and any other filings covering any collateral securing payment of such Timeshare Loan, (iii) all guaranties, prepayment penalties, indemnities, warranties, letters of credit, insurance proceeds and premium refunds thereof and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Timeshare Loan, (iv) the Purchase Contract, the Timeshare Loan File and any other agreements, documents and instruments relating to such Timeshare Loan, (v) any Timeshare Property repossessed by the Servicer on behalf of the Borrower pursuant to the Servicing Agreement, (vi) all Records and (vii) all proceeds of the foregoing.
Remaining Percentage means, with respect to any Refinancing Date, the percentage equivalent of a fraction, the numerator of which is the Aggregate Timeshare Loan Balances of all Eligible Timeshare Loans on such Refinancing Date, after giving effect to the release of all Pledged Timeshare Loans in connection with the Refinancing on such Refinancing Date, and the denominator of which is the Aggregate Timeshare Loan Balance of all Eligible Timeshare Loans on such Refinancing Date, before giving effect to the release of Pledged Timeshare Loans in connection with such Refinancing.
Reportable Event has the meaning set forth in Section 4043 of ERISA.
Repurchase Price means, with respect to a Transferred Timeshare Loan to be repurchased by the Seller on any date pursuant to Section 2.7 of the Sale and Contribution Agreement, the Timeshare Loan Balance of such Transferred Timeshare Loan as of the Applicable Measurement Date.
Request for Release of Documents (Administrative Agent) means a request for release, appropriately completed, substantially in the form of Exhibit B to the Custody Agreement.
Request for Release of Documents (Servicer) means a request for release, appropriately completed, substantially in the form of Exhibit A to the Custody Agreement.
Required Data means ongoing information regarding the characteristics and performance of the Timeshare Loans and pool and vintage origination data with respect to timeshare loans originated or serviced by the Seller and its Affiliates required to be provided by the Borrower or the Servicer to the Administrative Agent at the request of the Administrative Agent or any Managing Agent in connection with any Lenders or Affected Partys regulatory capital requirements.
Required Rate means, on any date of determination, the weighted average of the Contract Rates of all Eligible Timeshare Loans (weighted based on Timeshare Loan Balance) on such date less 9.50%.
Requisite Office means, for any Timeshare Loan, the office where the related Mortgage would be required to be recorded.
Resort means any of the resorts listed on Schedule V to this Agreement.
Resort Association means any of the associations listed on Schedule V to this Agreement.
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Responsible Officer means, as to any Person, the chief executive officer or president or, with respect to financial matters, the chief financial officer, the chief accounting officer, the treasurer or the controller of such Person, or any vice president, assistant vice president, secretary, assistant secretary, or any other officer thereof customarily performing functions similar to those performed by the individuals who at the time shall be such officers who is in each case authorized or responsible for taking action on behalf of such Person in connection with the transactions contemplated by the Facility Documents; provided, that in the event any such officer is unavailable at any time he or she is required to take any action hereunder, Responsible Officer means any officer authorized to act on such officers behalf as demonstrated by a certified resolution.
Restricted Junior Payment means, with respect to any Person, (i) any dividend or other distribution of any nature (cash, securities, assets, Indebtedness or otherwise) and any payment, by virtue of redemption, retirement or otherwise, on any class of Equity Interests or subordinate Indebtedness issued by such Person, whether such Equity Interests are now or may hereafter be authorized or outstanding and any distribution in respect of any of the foregoing, whether directly or indirectly, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Equity Securities or subordinate Indebtedness of such Person now or hereafter outstanding, or (iii) any payment of management or similar fees by such Person.
S&P means Standard & Poors Ratings Services, a Standard & Poors Financial Services LLC business, and its successors.
Sale and Contribution Agreement means that certain Sale and Contribution Agreement dated as of the Closing Date, by and between the Seller and the Borrower.
Sanctioned Country means a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement/ofac/programs , or as otherwise published from time to time.
Sanctioned Person means (i) a Person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn , or as otherwise published from time to time, or (ii)(a) an agency of the government of a Sanctioned Country, (b) an organization controlled by a Sanctioned Country or (c) a Person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.
Secured Parties means, collectively, the Lenders, each Managing Agent, the Administrative Agent, the Custodian, the Backup Servicer, each Hedge Counterparty, the Paying Agent and each other Indemnified Party.
Securities Intermediary has the meaning set forth in Section 2.16(b).
Securitization means any asset securitization, secured loan or similar financing transaction undertaken by the Borrower or a Special Purpose Affiliate that is secured, directly or indirectly, by, or involving, all or a portion of the Collateral transferred by Borrower in connection with such financing transaction.
Seller means Hilton Resorts Corporation, a Delaware corporation and its successors and permitted assigns.
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Seller Affiliated Manager means any wholly-owned Subsidiary of the Seller that manages a Resort or Resort Association.
Seller Financial Covenants means the requirement that the Seller maintain, as of the last day of each Fiscal Quarter:
(a) at any time that the Seller is not providing a Guarantee of all or any portion of the Indebtedness of Hilton Worldwide Holdings, Inc. or its Subsidiaries, a Leverage Ratio not to exceed 5.0 to 1.00;
(b) an Interest Coverage Ratio of at least 3.0 to 1.00; and
(c) Consolidated Tangible Net Worth of at least $600,000,000.
Servicer means, at any time, the Person then authorized pursuant to the Servicing Agreement in such capacity. As of the date hereof, GVS is the Servicer.
Servicer Termination Event has the meaning set forth in Section 6.1 of the Servicing Agreement.
Servicing Agreement means that certain Servicing Agreement, dated as of the Closing Date, among the Borrower, the Servicer, the Backup Servicer and the Administrative Agent.
Servicing Fee means a fee with respect to each Collection Period, payable in arrears on the Distribution Date immediately following the end of such Collection Period for the account of the Servicer, in an amount equal to the product of (i) the aggregate Timeshare Loan Balance of the Pledged Timeshare Loans as of the last day of such Collection Period, (ii) one-twelfth and (iii) the applicable Servicing Fee Rate.
Servicing Fee Rate means (i) at all times that GVS is the Servicer, 1.00% or (ii) at any other time, the percentage agreed to by the applicable successor Servicer, the Borrower and the Administrative Agent.
Servicing Officer means those officers of the Servicer involved in, or responsible for, the administration and servicing of the Pledged Timeshare Loans, as identified on the list of servicing officers furnished by the Servicer to the Administrative Agent, the Backup Servicer and the Borrower from time to time.
Servicing Standard has the meaning set forth in Section 2.1 of the Servicing Agreement.
Servicing Transfer has the meaning specified in Section 6.1 of the Servicing Agreement.
Servicing Transfer Date the date servicing will transfer to the Backup Servicer, which shall be a date no more than forty-five (45) calendar days after the date a Termination Notice is delivered in accordance with the terms of the Servicing Agreement.
Special Purpose Affiliate means any entity that is a Subsidiary of the Seller, that was created for the purpose of one or more Securitizations, the purposes of which are limited to acquisition and ownership of timeshare loans and related activities and that is intended to be treated as a separate and distinct entity from the Seller.
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Specified Documents means, with respect to any Timeshare Loan File, each document listed in the definition of Timeshare Loan File.
Subsidiary means, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.
Substitution Shortfall Amount means, for any Pledged Timeshare Loan being substituted for by a Qualified Substitute Timeshare Loan being transferred to the Borrower by the Seller in accordance with Section 2.7(b) or Section 2.7(c) of the Sale and Contribution Agreement, an amount equal to the excess of (i) the Timeshare Loan Balance of such Pledged Timeshare Loan over (ii) the Timeshare Loan Balance of such Qualified Substitute Timeshare Loan, in each case, on the related Transfer Date.
Successor Servicer has the meaning set forth in Section 5.1(e) of the Servicing Agreement.
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Termination Notice has the meaning set forth in Section 6.1 of the Servicing Agreement.
Timeshare Loan means a loan financing the purchase of a Timeshare Property secured by a Mortgage on such Timeshare Property.
Timeshare Loan Assets means, collectively, (i) the Pledged Timeshare Loans, (ii) all Related Security with respect to the Pledged Timeshare Loans, (iii) all Collections and (iv) all proceeds of the foregoing.
Timeshare Loan Balance means, with respect to a Timeshare Loan as of any date of determination, the outstanding principal balance of such Timeshare Loan on the Applicable Measurement Date.
Timeshare Loan File means with respect to each Timeshare Loan and each Obligor:
(a) an original Obligor Note executed by such Obligor (or an original lost note affidavit and indemnity from the Seller), endorsed in the form Pay to the order of , without recourse (either directly on the Obligor Note or on an allonge thereto), by an Authorized Officer of the Seller;
(b) (i) an original Mortgage (or a copy thereof) with evidence that such Mortgage has been recorded in the appropriate recording office or (ii) until the original Mortgage has been
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returned by such recording office, a photocopy of an unrecorded Mortgage that has been delivered to such recording office, and the delivery of such photocopy of an unrecorded Mortgage to the Custodian by the Seller shall be deemed to be a certification by the Seller that such photocopy is a true and correct copy of the original Mortgage;
(c) an original lenders title insurance policy or master policy (or a copy thereof) referencing such Timeshare Loan, when available, and if a copy, the delivery thereof to the Custodian by the Seller shall be deemed to be a certification by the Seller that such copy is a true and correct copy of such lenders title insurance policy or master policy; and
(d) an original or a copy of each modification agreement, if any, which relates to the Obligor Note or the Mortgage with respect to such Timeshare Loan, and if a copy, the delivery thereof to the Custodian by the Seller shall be deemed to be a certification by the Seller that such copy is a true and correct copy of such modification agreement.
Timeshare Loan Servicing Files means, with respect to each Timeshare Loan and each Obligor a copy of the Timeshare Loan Files and all other papers and computerized records customarily maintained by the Servicer in servicing timeshare loans comparable to the Timeshare Loans.
Timeshare Property means (i) in the case of a Resort located in the State of New York, a real property interest in a Unit at such Resort or (ii) in the case of any other Resort, a fee simple interest in real estate regarding a Unit, in each case, however denominated or defined in the applicable condominium or timeshare declaration pursuant to which such interest is created, together with all rights, benefits, privileges and interests appurtenant thereto, including the common areas and common furnishings appurtenant to such Unit and the rights granted to the Borrower (as assignee) which secure the related Timeshare Loan.
Timeshare Loan Schedule means Schedule I to the Sale and Contribution Agreement and any list of Timeshare Loans attached to an Assignment in electronic format, as amended from time to time to reflect repurchases and substitutions pursuant to the terms of the Sale and Contribution Agreement and the Servicing Agreement, which list shall set forth the following information with respect to each Timeshare Loan as of the related Cutoff Date, in numbered columns:
| Loan/Contract Number |
| Name of Obligor |
| Interest Rate Per Annum |
| Contract Date |
| Original Loan Balance |
| Original Term (in months) |
Timeshare Loan Upgrade has the meaning specified in Section 2.7(c)(i) of the Sale and Contribution Agreement.
Transaction has the meaning specified in Section 10.12.
Transaction Parties means, collectively, the Borrower, the Seller, the Performance Guarantor, and, so long as it is GVS or an Affiliate of GVS, the Servicer.
Transfer means a purchase of Eligible Timeshare Loans by the Borrower from the Seller pursuant to Section 2.1 of the Sale and Contribution Agreement, including a transfer of Eligible Timeshare Loans by the Seller to the Borrower as a capital contribution or a transfer of Qualified Substitute Timeshare Loan.
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Transfer Date means, for the Initial Transfer, the Initial Transfer Date, and for any additional Transfer, the Business Day on which such Transfer occurs.
Transferred Property means, collectively, the Transferred Timeshare Loans, the Related Security and Collections with respect thereto and all proceeds of the foregoing.
Transferred Timeshare Loan means any Timeshare Loan transferred or purported to be transferred by the Seller to the Borrower pursuant to the Sale and Contribution Agreement.
Transition Expenses means any documented expenses and allocated cost of personnel reasonably incurred by the Backup Servicer in connection with a Servicing Transfer.
UCC means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction.
Unidentified Receipts Account means the account maintained by Servicer for the purpose of collecting and depositing all payments received from Obligors the related Timeshare Loan for which cannot be determined by the Clearing Account Bank upon receipt.
Unit means a residential unit or dwelling at a Resort.
Unmatured Servicer Termination Event means any event which, with the giving of notice or lapse of time or both, would constitute a Servicer Termination Event.
USAP has the meaning set forth in Section 3.5 of the Servicing Agreement.
Unused Fees has the meaning set forth in the Fee Letter.
Used Fee Rate means (x) on or before the Commitment Termination Date, 1.25% per annum and (y) after the Commitment Termination Date, 1.75% per annum.
Voting Interests means, with respect to any Person, outstanding Equity Interests in such Person which entitle the holder thereof to vote in the election of members of the board of directors, board of managers or other similar governing body of such Person.
Wells Fargo means Wells Fargo Bank, National Association, a national banking association, and its successors and assigns.
Wells Fargo Fee Letter means that certain schedule of fees dated April 16, 2013, executed by the Borrower in favor of Wells Fargo.
SECTION 1.02. Other Terms and Constructions . Under this Agreement, all accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all accounting determinations made and all financial statements prepared hereunder shall be made and prepared in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. The words herein, hereof, and hereunder and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, as the same may from time to time be amended or supplemented and not to
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any particular section, subsection, or clause contained in this Agreement, and all references to Sections, Exhibits and Schedules shall mean, unless the context clearly indicates otherwise, the Sections hereof and the Exhibits and Schedules attached hereto, the terms of which Exhibits and Schedules are hereby incorporated into this Agreement. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience and do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. Each of the definitions set forth in Section 1.01 hereof shall be equally applicable to both the singular and plural forms of the defined terms. Unless specifically stated otherwise, all references herein to any statute, rule, regulation or any agreement, document or instrument shall, in each case, be a reference to the same as amended, restated, supplemented or otherwise modified from time to time. The term including means including without limitation.
SECTION 1.03. Computation of Time Periods . Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word from means from and including and the words to and until each means to but excluding.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
SECTION 2.01. The Loans .
(a) On the terms and subject to the conditions hereof, from time to time during the period commencing on the Closing Date and ending at the close of business on the Business Day immediately preceding the Amortization Date, each Conduit Lender may in its sole discretion, and each Committed Lender shall, if the Conduit Lender in its related Lender Group elects not to (or if there is no Conduit Lender in its related Lender Group), make Loans to the Borrower in an amount, for each Lender Group, equal to its Lender Group Percentage of the amount requested by the Borrower pursuant to Section 2.02; provided, that no Lender shall make any such Loan or portion thereof to the extent that, after giving effect to such Loan:
(i) the aggregate outstanding Principal Amount of the Loans funded by such Lender hereunder shall exceed its Conduit Lending Limit (in the case of a Conduit Lender) or Commitment (in the case of a Committed Lender);
(ii) the Aggregate Loan Principal Balance shall exceed the lesser of the Facility Limit and the Borrowing Base; or
(iii) the sum of (A) the aggregate Face Amount of Commercial Paper issued by the Conduit Lender(s) in such Lender Group to fund or maintain the Loans hereunder and (B) the aggregate outstanding Principal Amount of the Loans funded hereunder by the Lenders in such Lender Group other than through the issuance of Commercial Paper, shall exceed the Lender Group Limit for such Lender Group.
If there is more than one Committed Lender in a Lender Group, each such Committed Lender shall lend its Pro Rata Share of such Lender Groups Lender Group Percentage of each requested Loan, to the extent such Loan is not made by the related Conduit Lender. Each Borrowing shall be in a minimum principal amount equal to $1,000,000 and in integral multiples of $100,000 in excess thereof. Subject to the foregoing and to the limitations set forth in Section 2.05, the Borrower may borrow, prepay and reborrow the Loans hereunder.
(b) Each Borrowing shall consist of Loans made on the same day by each of the Lender Groups ratably according to their respective Lender Group Percentages. No Lender shall fund any portion of any Loan with the plan assets of any benefit plan investor within the meaning of Section 3(42) of ERISA.
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(c) Each Lender (or its related Managing Agent) shall maintain an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the outstanding principal balance of such Loans and the amount of Interest payable and paid to such Lender from time to time hereunder. The entries made in such accounts of the Lenders shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, however, that the failure of any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(d) On the Amortization Date, the Commitments of the Committed Lenders will terminate automatically without any action required on the part of any Person. The Aggregate Loan Principal Balance, together with all other Borrower Obligations, shall mature and be due and payable in full in cash on the Maturity Date.
SECTION 2.02. Borrowing Procedures .
(a) Borrowing Requests .
(i) The Borrower may request a Borrowing hereunder by submitting to the Administrative Agent (with a copy to each of the Paying Agent, the Servicer, the Backup Servicer and the Custodian) a written notice, substantially in the form of Exhibit B (each, a Borrowing Request ) not later than 10:00 a.m. (New York City time) on the second (2 nd ) Business Day prior to the date of the proposed Borrowing (each, a Borrowing Date ); provided, that there shall not be more than one (1) Borrowing Date during any calendar week. Promptly after its receipt thereof, the Administrative Agent shall submit a copy of each Borrowing Request to each Managing Agent who shall promptly forward a copy thereof to the Lenders in its Lender Group.
(ii) Each Borrowing Request shall: (A) specify (1) the amount of the requested Borrowing which amount shall be allocated among the Lender Groups based on the respective Conduit Lending Limits of the Conduit Lenders (or Commitments, if there are no Conduit Lenders in a Lender Group) in each Lender Group, (2) the Aggregate Loan Principal Balance after giving effect to such Borrowing, (3) the desired Borrowing Date, and (4) the account of the Borrower to which the proceeds of such Borrowing are to be remitted, (B) certify that, after giving effect to the proposed Borrowing, no Borrowing Base Deficiency would exist and (C) if any Eligible Timeshare Loans are being added to the Collateral in connection with such Borrowing, be accompanied by a duly completed Schedule I to such Borrowing Request which sets forth the required information regarding such Eligible Timeshare Loans.
(b) Conduit Lender Acceptance or Rejection . If a Conduit Lender shall receive a Borrowing Request, such Conduit Lender shall instruct the related Managing Agent to accept or reject such request by no later than the close of business on the Business Day of the applicable Borrowing Request. If a Conduit Lender rejects a Borrowing Request, the related Managing Agent shall promptly notify the Borrower and the related Committed Lenders of such rejection. If a Conduit Lender declines to fund any portion of a Borrowing Request, the Borrower may cancel and rescind such Borrowing Request in its entirety upon notice thereof received by the Administrative Agent and each Managing Agent prior to the close of business on the Business Day immediately prior to the proposed Borrowing Date. At no time will a Conduit Lender be obligated to make Loans hereunder regardless of any notice given or not given pursuant to this Section.
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(c) Committed Lenders Commitment .
(i) If a Conduit Lender rejects a Borrowing Request and the Borrower has not cancelled such Borrowing Request in accordance with clause (b) above, or if there is no Conduit Lender in a Lender Group, any Loan requested by the Borrower in such Borrowing Request shall be made by the related Committed Lenders in such Lender Group on a pro rata basis in accordance with their respective Pro Rata Shares of such Loan.
(ii) The obligations of any Committed Lender to make Loans hereunder are several from the obligations of any other Committed Lenders (whether or not in the same Lender Group). The failure of any Committed Lender to make Loans hereunder shall not release the obligations of any other Committed Lender (whether or not in the same Lender Group) to make Loans hereunder, but no Committed Lender shall be responsible for the failure of any other Committed Lender to make any Loan hereunder.
(iii) Notwithstanding anything herein to the contrary, a Committed Lender shall not be obligated to fund any Loan at any time on or after the Amortization Date or if, after giving effect to such Loan, the aggregate outstanding Loans funded by such Committed Lender hereunder would exceed an amount equal to (i) such Committed Lenders Commitment, minus (ii) such Committed Lenders ratable share of the aggregate outstanding principal balance of the Loans held by the Conduit Lender(s) in such Committed Lenders Lender Group.
(d) Disbursement of Funds . On each Borrowing Date, subject to the satisfaction of the conditions precedent specified in this Agreement, each applicable Lender shall remit its share of the aggregate amount of the Loans requested by the Borrower to the account of its related Managing Agent specified therefor to such Lender by 1:30 p.m. (New York City time) by wire transfer of same day funds. Upon receipt of such funds, each Managing Agent shall remit such funds by wire transfer of same day funds to the account of the Borrower specified in the related Borrowing Request by 3:00 p.m. (New York City time) to the extent it has received such funds from the Lenders in its Lender Group no later than 1:30 p.m. (New York City time).
SECTION 2.03. Reductions and Increases to the Facility Limit .
(a) Reductions of the Facility Limit . The Borrower may, from time to time upon at least ten (10) days prior written notice to each Managing Agent (with a copy to the Paying Agent), elect to reduce the Facility Limit in whole or in part, provided that after giving effect to any such reduction and any principal payments on such date, the Aggregate Loan Principal Balance shall not exceed the Facility Limit. Any such reduction shall be in a minimum amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof; and provided further that any such reduction shall effect a ratable reduction of the Commitments of each Committed Lender and of each Lender Groups Lender Group Limit. Once the Facility Limit is reduced pursuant to this Section 2.03(a) it may not subsequently be reinstated without the consent of each Committed Lender.
(b) Increases to the Facility Limit . The Borrower may, from time to time upon at least thirty (30) days (or such lesser number of days agreed to by the Managing Agents) prior written notice request an increase to the Facility Limit. Each such notice shall specify (i) the proposed date such increase shall become effective and (ii) the proposed amount of such increase (which amount shall be at least $25,000,000 or an integral multiple of $5,000,000 in excess thereof), and shall otherwise be in form and substance satisfactory to the Managing Agents. Such increase to the Facility Limit shall become effective, if, and only if, (x) the Administrative Agent and the Managing Agent (on behalf of the Committed Lenders in the related Lender Group) of each Lender Group whose Lender Group Limit is
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being increased has approved such increase, by delivering a written confirmation of such approval to the Administrative Agents, the Managing Agents and the Borrower (with a copy to the Paying Agent) or (y) to the extent that the Committed Lenders in one or more Lender Groups have, in their sole discretion, agreed to increase the Facility Limit in an amount which is less than the Borrowers requested increase to the Facility Limit, the Borrower shall reduce its requested increase to the Facility Limit to an amount equal to such lower amount. Nothing contained herein shall constitute a commitment on the part of any Committed Lender hereunder to agree to any such increase.
SECTION 2.04. Interest and Unused Fees .
(a) The Borrower shall pay Interest on the unpaid Principal Amount of each Loan for each Interest Period during the period from the related Borrowing Date until the date that such Loan shall be paid in full. Interest shall accrue on the Loans funded or maintained by each Lender at the applicable Interest Rate on each day during each Interest Period and shall be due and payable on the Aggregate Loan Principal Balance for the preceding Interest Period on each Distribution Date and on the Final Collection Date in accordance with Section 2.06 , unless earlier paid pursuant to Section 2.05 or Section 2.14 . If applicable, each Managing Agent shall deliver to the Borrower, two (2) Business Days prior to each Determination Date an invoice, setting forth (i) an estimate of the Interest payable to the related Conduit Lenders based on the CP Rate for each day during the Interest Period to which such Determination Date relates and (ii) the amount of any variation between Interest payable to such Conduit Lenders for the preceding Interest Period based on such notices and estimates and accrued but unpaid Interest payable to such Conduit Lenders for such Interest Period based on its final determination of the CP Rate for each day during such Interest Period. The amount of any shortfall in Interest based on such variation shall be included in the portion of the Interest payable to such Conduit Lenders on the next succeeding Distribution Date, and the amount of any overpayment of interest to such Conduit Lenders based on such variation shall be credited against the portion of the Interest otherwise payable to such Conduit Lenders on the next succeeding Distribution Date.
(b) The Borrower shall pay to each Managing Agent the Unused Fee in the amounts set forth in the Fee Letter on the dates set forth therein.
(c) All payments of Interest for each Interest Period shall be made out of Available Collections in accordance with Section 2.06(b).
SECTION 2.05. Principal Payments .
(a) Generally . The Aggregate Loan Principal Balance shall be payable in installments equal to the Monthly Principal Payment Amount on each Distribution Date, to the extent of available funds therefor, in accordance with Section 2.06 . Notwithstanding the foregoing, the Aggregate Loan Principal Balance shall be due and payable on the Maturity Date.
(b) Optional Prepayments . The Borrower may, at its option, prepay on any Business Day all or any portion of any Loan upon prior written notice delivered to each Managing Agent (with a copy to the Paying Agent) not later than 12:00 p.m. (New York City time) three (3) Business Days prior to the date of such payment. Each such notice shall be in the form attached as Exhibit H and shall specify (i) the aggregate amount of the prepayment to be made on the Loans and (ii) the Business Day on which the Borrower will make such prepayment. Each such prepayment shall be in a minimum principal amount equal to $1,000,000 and in integral multiples of $100,000 in excess thereof and shall be made ratably among the Lenders based on the aggregate Principal Amount of the Loans held by each. Each such prepayment of the Loans to the Lenders in such Managing Agents Lender Group must be accompanied by a payment of all accrued and unpaid Interest on the amount prepaid, all Liquidation Fees
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with respect to such prepayment and all Hedge Breakage Costs and any other amounts payable by the Borrower under or with respect to any Hedging Agreement arising from any related release of Pledged Timeshare Loans pursuant to Section 2.15 in connection with such prepayment. Any notice of a prepayment shall be irrevocable. Any such prepayment shall be made out of Collections by transfer by the Paying Agent from the Collection Account to the Administrative Agent at the written direction of the Borrower or out of other funds of the Borrower.
(c) Mandatory Prepayments . If a Borrowing Base Deficiency exists on any Distribution Date, the Borrower shall no later than the close of business on the third Business Day following such Distribution Date, prepay the Aggregate Loan Principal Balance in part or in whole, such that after giving effect to such prepayment the Aggregate Loan Principal Balance does not exceed the Borrowing Base.
SECTION 2.06. Application of Collections .
(a) Subject to Section 2.16, funds on deposit in the Collection Account from time to time may be invested in Permitted Investments at the direction of the Borrower. Each such Permitted Investment shall mature not later than the Business Day preceding the next Distribution Date and shall be held to maturity. Each investment instruction by the Borrower, which may be a standing instruction, shall designate specific types of Permitted Investments (and the terms thereof) and shall certify that such investments constitute Permitted Investments that will mature at the time specified in the preceding sentence. Absent the written instruction of the Borrower, the funds on deposit in the Collection Account shall remain uninvested. None of the Administrative Agent, the Paying Agent or Securities Intermediary shall be liable for any loss incurred in connection with an investment in the Collection Account, except for losses due to such Persons failure to make payments on such Permitted Investments issued by such Person in its commercial capacity as principal obligor (and not as Administrative Agent, Paying Agent or Securities Intermediary).
(b) On each Distribution Date, the Paying Agent shall, based solely on the information set forth in the related Monthly Report, apply all Available Funds for such Distribution Date in the following order and priority:
(i) first , to the Servicer, the Servicing Fee for the immediately preceding Collection Period, together with any accrued and unpaid Servicing Fees and reimbursement of any amounts owing under Section 2.3(c) of the Servicing Agreement and, if the Servicer is a Successor Servicer, to the extent not previously paid by the predecessor Servicer, reasonable Transition Expenses (up to a maximum of $100,000 in the aggregate over the term of this Agreement) incurred in becoming the Successor Servicer;
(ii) second , pro rata, (i) to the Backup Servicer, any accrued and unpaid Backup Servicing Fees, out-of-pocket expenses and indemnification amounts then due and payable by the Borrower to the Backup Servicer, provided that such out-of-pocket expenses and indemnification amounts shall not exceed $10,000 in the aggregate in any calendar year, (ii) to the Custodian, any accrued and unpaid Custodial Fees, out-of-pocket expenses and indemnification amounts then due and payable by the Borrower to the Custodian; provided that such out-of-pocket expenses and indemnification amounts shall not exceed $10,000 in the aggregate in any calendar year, and (iii) to the Paying Agent, any accrued and unpaid Paying Agent Fees, out-of-pocket expenses and indemnification amounts then due and payable by the Borrower to the Paying Agent pursuant to this Agreement; provided that such out-of-pocket expenses and indemnification amounts shall not exceed $20,000 in the aggregate in any calendar year;
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(iii) third , pro rata (A) to the Administrative Agent for further distribution to Lenders pursuant to Section 2.06(c), the Interest and Unused Fees due to the Lenders for the related Interest Period and any accrued Interest and Unused Fees with respect to any prior Interest Period to the extent not paid on a prior Distribution Date and (B) to the Hedge Counterparties, pro rata, net payments, if any, (excluding Hedge Breakage Costs) then due and payable to them by the Borrower under the Hedging Agreements;
(iv) fourth , pro rata (A) to the Administrative Agent for further distribution to the Lenders pursuant to Section 2.06(c), the Monthly Principal Payment Amount on such Distribution Date and (B) to the Hedge Counterparties, pro rata, Hedge Breakage Costs, if any, then due and payable to them by the Borrower under the Hedging Agreements;
(v) fifth , to the Administrative Agent for further distribution to the Lenders pursuant to Section 2.06(c), any other fees, costs, expenses or indemnities then due or payable by the Borrower under this Agreement or any other Facility Document;
(vi) sixth , to the extent not previously paid pursuant to clause (ii) above, pro rata, to the Backup Servicer, the Custodian and the Paying Agent any fees, costs, expenses or indemnities due from the Borrower to such Person under this Agreement or any other Facility Document;
(vii) seventh , to the Administrative Agent for further distribution to Lenders pursuant to Section 2.06(c), pro rata to each Lender, the amount of any voluntary reduction of the Aggregate Loan Principal Balance that the Borrower has elected to effect on such Distribution Date; and
(viii) eighth , any remaining amounts to or at the direction of the Borrower.
(c) The Administrative Agent shall remit each installment of Interest, Unused Fees or principal in respect of the Loans received pursuant to Section 2.06(b) to the Lenders (or the related Managing Agent) as reflected in the Register on the Business Day immediately preceding the date such payment is to be made, by wire transfer in immediately available funds to the account designated by such Lender or its related Managing Agent in writing to the Administrative Agent. Each Managing Agent shall allocate all payments received by the Administrative Agent under this Section 2.06(c) to the Lenders in the related Lender Group. The Administrative Agent shall allocate and pay (i) amounts in respect of Interest and Unused Fees to the Lenders based on the amounts accrued at their applicable rates on their respective Invested Percentages, (ii) the principal of the Loans to the Lenders based on their respective Invested Percentages and (iii) amounts received in respect of fees, costs, expenses or indemnities to the Lenders to whom such amounts are due and payable.
SECTION 2.07. Extension of Commitment Termination Date . The Borrower may, no more frequently than once every six months by delivering written notice to the Managing Agents (with a copy to the Administrative Agent and the Conduit Lenders), request the Lenders to extend the Commitment Termination Date for an additional number of days past the then applicable Commitment Termination Date, with such extension to become effective with respect to any Lender Group, as of the date one or more Committed Lenders having Commitments equal to 100% of such Lender Groups Lender Group Limit shall in their sole discretion consent to such extension (the Lenders in such a Lender Group, Extending Lenders ). Any such request shall be subject to the following conditions: (i) none of the Lenders will have any obligation to extend any Commitment and (ii) any such extension of the Commitment Termination Date will be effective only upon the written agreement of at least one Committed Lender and the Borrower. The Managing Agent for each applicable Committed Lender will
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respond to any such request within thirty (30) days (with a copy to the Paying Agent), provided, that any Managing Agents failure to respond within such period shall be deemed to be a rejection of the requested extension.
SECTION 2.08. Payments and Computations, Etc . All amounts to be paid to the Administrative Agent, the Managing Agents or the Lenders by the Borrower hereunder shall be paid or deposited in accordance with the terms hereof no later than 2:00 p.m. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds to the Collection Account or such account as the Administrative Agent or the relevant Managing Agents may designate prior to such payment from time to time in writing. The Borrower shall, to the extent permitted by law, pay to the Affected Party interest on any amounts not paid by the Borrower when due hereunder at 2.00% per annum above the Prime Rate from time to time in effect, payable on demand. All computations of Interest, Unused Fees and Servicing Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed; provided , that all computations of Interest calculated at the Prime Rate shall be made on the basis of a year of 365 days for the actual number of days (including the first but excluding the last day) elapsed. In no event shall any provision of this Agreement require the payment or permit the collection of Interest in excess of the maximum permitted by applicable law. In the event that any payment hereunder (whether constituting a repayment of Loans or a payment of Interest or any other amount) is rescinded or must otherwise be returned for any reason, the amount of such payment shall be restored and such payment shall be considered not to have been made.
SECTION 2.09. Interest Protection .
(a) If due to either: (i) the introduction of or any change (including any change by way of imposition or increase of reserve requirements) in or in the interpretation by any Governmental Authority of any law or regulation after the date hereof, or (ii) the compliance by any Affected Party with any directive or request from any central bank or other Governmental Authority (whether or not having the force of law) imposed after the date hereof, (1) there shall be an increase in the cost (other than Taxes) to such Affected Party of funding or maintaining any Loan which accrues Interest at the Adjusted LIBO Rate hereunder or of extending a commitment in respect thereof, (2) such Affected Party shall be required to make a payment calculated by reference to any Loan which accrues Interest at the Adjusted LIBO Rate funded by it or Interest received by it or (3) any Affected Party shall be subjected to any Taxes (other than Indemnified Taxes or Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto, then the Borrower shall, from time to time, within thirty (30) days after demand by the related Managing Agent, pay such Managing Agent for the account of such Affected Party (as a third party beneficiary, in the case of any Affected Party other than one of the Lenders), that portion of such increased costs incurred, amounts not received or required payment made or to be made, which, subject to the requirements of Section 2.09, such Managing Agent reasonably determines is attributable to funding and maintaining, or extending a commitment to fund, any Loan which accrues Interest at the Adjusted LIBO Rate hereunder or pursuant to any Liquidity Agreement or similar liquidity facility.
(b) Each Managing Agent will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle any Affected Party in its Lender Group to compensation pursuant to Section 2.09(a). Each Affected Party will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Affected Party, be otherwise disadvantageous to it or inconsistent with its internal policies and procedures. In determining the amount of such compensation, such Lender may use any reasonable averaging and attribution methods. The applicable Affected Party (or such partys related Managing Agent) shall submit to the Borrower a certificate in reasonable detail describing such increased costs incurred, amounts not received or receivable or required payment made or to be made, which certificate shall be conclusive in the absence of manifest error.
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(c) Failure or delay on the part of any Managing Agent to demand compensation pursuant to Section 2.09(a) shall not constitute a waiver of such Managing Agents right to demand such compensation; provided that the Borrower shall not be required to compensate any Lender or related Liquidity Provider pursuant to this Section for any increased capital unless such Managing Agent gives notice to the Borrower and the Administrative Agent to compensate such Lender or Liquidity Provider pursuant to this Section within 120 days after the date such Managing Agent knows an event has occurred pursuant to which such Lender or Liquidity Provider will seek such compensation.
SECTION 2.10. Increased Capital .
(a) If either (i) the introduction of or any change in or in the interpretation by any Official Body of any law, rule or regulation (including any law, rule or regulation regarding capital adequacy or liquidity coverage) or (ii) compliance by any Affected Party with (x) any directive or request from any central bank or other Official Body (whether or not having the force of law) imposed after the date hereof or (y) the requirements of, whether such compliance is commenced prior to or after the date hereof, any of (a) the FAS 166/167 Capital Guidelines, (b) Basel II or Basel III Regulations or (c) the Dodd-Frank Act, or any existing or future rules, regulations, guidance, interpretations or directives from the U.S. bank regulatory agencies relating to the FAS 166/167 Capital Guidelines, Basel II, Basel III Regulations or the Dodd-Frank Act (whether or not having the force of law) affects or would affect the amount of capital or assets required or expected to be maintained by such Affected Party or such Affected Party reasonably determines that the amount of such capital is increased by or based upon the existence of any Lenders agreement to make or maintain Loans hereunder and other similar agreements or facilities and such event would have the effect of reducing the rate of return on the assets or capital of such Affected Party by an amount deemed by such Affected Party to be material, then, within thirty (30) days after demand by such Affected Party or the related Managing Agent, the Borrower shall pay to such Affected Party (as a third party beneficiary, in the case of any Affected Party other than one of the Lenders) or the related Managing Agent for the account of such Affected Party from time to time, as specified by such Affected Party or such Managing Agent, additional amounts sufficient to compensate such Affected Party in light of such circumstances, to the extent that such Affected Party or such Managing Agent on behalf of such Affected Party reasonably determines such increase in capital to be attributable to the existence of the applicable Lenders agreements hereunder.
(b) Each Managing Agent will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle any Lender or Affected Party in its Lender Group to compensation pursuant to Section 2.10(a). Each Lender or Affected Party will designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender or Affected Party, be otherwise disadvantageous to it or inconsistent with its internal policies. In determining the amount of such compensation, such Lender or Affected Party may use any reasonable averaging and attribution methods. The applicable Lender or Affected Party (or such partys related Managing Agent) shall submit to the Borrower a certificate describing such compensation, which certificate shall be conclusive in the absence of manifest error.
(c) Failure or delay on the part of any Managing Agent to demand compensation pursuant to Section 2.10(a) shall not constitute a waiver of such Managing Agents right to demand such compensation; provided that the Borrower shall not be required to compensate any Lender or Affected Party in its Lender Group pursuant to this Section for any increased capital unless such Managing Agent gives notice to the Borrower and the Administrative Agent to compensate such Lender or Affected Party
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in its Lender Group pursuant to this Section within 120 days after the date such Managing Agent knows an event has occurred pursuant to which such Lender or Affected Party in its Lender Group will seek such compensation.
(d) If any Lender or Affected Party has, or anticipates having, any claim for compensation under Section 2.10(a) against the Borrower, and such Affected Party or Lender believes that having the transactions contemplated by this Agreement publicly rated by a Rating Agency or qualifying under the supervisory formula approach under Basel II would reduce the amount of such compensation by an amount deemed by such Affected Party or Lender to be material, such Affected Party or Lender shall provide a request for Required Data or a Rating Request to the Borrower and the Servicer. Any Affected Party or Lender may also provide a request for Required Data or a Rating Request to the Borrower and the Servicer at any other time prior to the Commitment Termination Date. The Borrower shall cooperate with such Affected Party or Lenders efforts to obtain Required Data and/or a credit rating from the Rating Agency specified in the Rating Request at the level that reasonably reflects the economics and credit of the Loans at the time of such request, and shall provide directly or through distribution to such Affected Party or Lender any information such Rating Agency may require for purposes of providing and monitoring the credit rating. The Affected Party or Lender making the Rating Request shall bear the costs and expenses of providing the Required Data and pay the initial and any subsequent and ongoing fees payable to the Rating Agency in connection with a Rating Request pursuant to this Section 2.10(d).
SECTION 2.11. Funding Losses . In the event that any Liquidity Provider or any Lender shall incur (i) any Liquidation Fees as a result of any reduction of the Principal Amount of any Loan at any time other than in accordance with this Agreement or (ii) any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Liquidity Provider or Lender in order to fund or maintain any Loan or interest therein) as a result of the failure of the Borrower to accept the proceeds of any Loan in accordance with a request therefor under Section 2.02, then, upon demand from the related Managing Agent to the Borrower, the Borrower shall pay to such Managing Agent for the account of such Liquidity Provider or Lender, the amount of such loss, expense or Liquidation Fees. Such written notice shall, in the absence of manifest error, be conclusive and binding upon Borrower.
SECTION 2.12. Taxes .
(a) Except to the extent required by applicable law, any and all payments and deposits required to be made hereunder or under any instrument delivered hereunder by the Borrower (or the Servicer on its behalf) or the Paying Agent shall be made free and clear of and without deduction for Taxes. If the Paying Agent, the Borrower or the Servicer shall be required by law to make any deduction for Indemnified Taxes, (i) the Borrower shall make an additional payment to such Affected Party, in an amount sufficient so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.12), such Affected Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Paying Agent or the Borrower (or the Servicer, on its behalf) shall make such deductions and (iii) the Paying Agent or the Borrower (or the Servicer, on its behalf) shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law. If the Paying Agent, the Borrower or the Servicer is required by law to deduct any Excluded Taxes, then (A) the Paying Agent, the Borrower or the Servicer, as applicable, shall make such deductions, (B) the Paying Agent, the Borrower or the Servicer, as applicable, shall pay the amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (C) the amounts so deducted and paid to the relevant taxing authority shall be treated under this Agreement as made to the Affected Party.
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(b) In addition, the Borrower agrees to pay any present or future stamp or other documentary Taxes or any other similar excise or property taxes or levies which arise from any payment made hereunder or under any instrument delivered hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any instrument delivered hereunder, other than Connection Taxes resulting from an assignment.
(c) Each Affected Party:
(i) that is a United States person within the meaning of Section 7701(a)(30) of the Code agrees to complete and to deliver to the Borrower and the Paying Agent on or before the Closing Date (or, if later, on or prior to the date it becomes a party to this Agreement) a duly completed and executed copy of IRS Form W-9 or successor form establishing that the Affected Party is a United States person that is not subject to U.S. backup withholding Tax;
(ii) that is not organized under the laws of the United States or any State thereof shall timely deliver to the Borrower and the Paying Agent such properly completed and executed documentation prescribed by applicable laws or by the taxing authorities of any jurisdiction and such other reasonably requested information as will permit the Paying Agent, the Borrower or the Servicer, as the case may be, to determine (A) whether or not payments made hereunder are subject to Taxes, (B) if applicable, the required rate of withholding or deduction, and (C) such Affected Partys entitlement to any available exemption from, or reduction of, applicable Taxes in respect of all payments to be made to such Affected Party by the Borrower or the Paying Agent pursuant to this Agreement or otherwise to establish such Affected Partys status for withholding tax purposes in the applicable jurisdiction. Without limiting the generality of the foregoing, each Affected Party which is not organized under the laws of the United States or any State thereof shall, on or prior to the date that such Affected Party becomes a party to or obtains rights under this Agreement, deliver to the Borrower and the Paying Agent as applicable: (1) two duly completed and executed copies of the IRS Form W-8BEN or W-8ECI (or any successor form) as applicable; (2) in the case of an Affected Party claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, two duly completed and executed copies of Form W-8BEN along with a certificate to the effect that such Affected Party is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, a controlled foreign corporation described in section 881(c)(3)(C) of the Code, and conducting a trade or business in the United States with which the relevant interest payments are effectively connected; (3) in the case of an Affected Party that is not a beneficial owner of payments made under any Facility Document, two duly completed and executed copies of the IRS Form W-8IMY on behalf of itself and the relevant forms prescribed in this clause (ii) on behalf of each beneficial owner, provided, however, that if the Affected Party is a partnership and one or more partners are claiming the exemption for portfolio interest under Section 881(c) of the Code, such Affected Party may provide the certificate described in (2) above; and (4) to the extent it may lawfully do so, such other forms or certificates as may be required under the laws of any applicable jurisdiction (on or before the date that any such form expires or becomes obsolete), in order to permit the Borrower and the Paying Agent to make payments to, and deposit funds to or for the account of, such Affected Party hereunder and under the other Facility Documents without any deduction or withholding for or on account of any Tax or to determine the correct amount of Tax to deduct and withhold from payments to the Affected Party. Each such Affected Party, to the extent it may lawfully do so, shall submit to the Borrower and the Paying Agent (with copies to the Administrative Agent) two updated, completed, and duly executed versions of: (x) all forms referred to in the previous sentence upon the expiry of, or the occurrence of any event requiring a
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change in, the most recent form previously delivered by it to the Borrower and the Paying Agent or the substitution of such form; and (y) such extensions or renewals thereof as may reasonably be requested by the Borrower or the Paying Agent; and
(iii) shall deliver to the Borrower and the Paying Agent such other tax forms or other documents as shall be prescribed by applicable law, to the extent applicable, (x) to demonstrate that payments to such Affected Party under this Agreement and the Loans are exempt from any United States withholding tax imposed pursuant to FATCA or (y) to allow the Borrower and the Paying Agent to determine the amount to deduct or withhold under FATCA from a payment hereunder, and further agrees to complete and to deliver to the Borrower and the Paying Agent from time to time, so long as it is eligible to do so, any successor or additional form required by the IRS or reasonably requested by the Borrower or the Paying Agent in order to secure an exemption from, or reduction in the rate of, United States withholding tax imposed pursuant to FATCA. Solely for purposes of this clause (iii), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(d) If the Borrower is required to pay additional amounts to or for the benefit of any Affected Party pursuant to this Section as a result of a change of law or treaty occurring after such Affected Party first became a party to this Agreement, such Affected Party will, at the Borrowers request, change the jurisdiction of its applicable lending office if, in the sole judgment of such Affected Party, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Affected Party.
(e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Paying Agent, the Borrower or the Servicer did not properly withhold Tax from amounts paid to or for the account of any Affected Person due to a failure on the part of the Affected Person (because the appropriate form was not delivered, was not properly executed, or because such Affected Person failed to notify the Paying Agent, the Borrower or the Servicer of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Affected Person shall indemnify and hold the Paying Agent, the Borrower and the Servicer harmless for all amounts paid, directly or indirectly, by the Paying Agent, the Borrower or the Servicer, as Tax or otherwise, including penalties and interest, and including any Taxes imposed by any jurisdiction on the amounts payable to the Paying Agent, the Borrower or the Servicer under this Section 2.12, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Affected Persons under this subsection shall survive the payment of all obligations under this Agreement.
(f) If any Affected Party reasonably determines that it has received a refund of any Taxes as to which it has been indemnified by the Borrower or the Servicer or with respect to which the Borrower or the Servicer has paid additional amounts pursuant to this Section 2.12 it shall promptly pay over such refund to the Borrower or the Servicer, as applicable, (but only to the extent of payments made, or additional amounts paid, by the Borrower under this Section 2.12 with respect to Taxes giving rise to such a refund), net of all reasonable out-of-pocket expenses of such Affected Party and without interest (other than any interest paid by the relevant governmental authority with respect to such a refund).
(g) The Borrower shall indemnify each Affected Party, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Affected Party or required to be withheld or deducted from a payment to such Affected Party and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by an Affected Party shall be conclusive absent manifest error.
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SECTION 2.13. Security Interest .
(a) As security for the performance by the Borrower of all the terms, covenants and agreements on the part of the Borrower to be performed under this Agreement or any other Facility Document, including the payment when due of all Borrower Obligations, the Borrower hereby grants to the Administrative Agent, for the benefit of the Secured Parties, a security interest in all of the Borrowers right, title and interest in, to and under the following, whether now owned or hereafter acquired, now existing or hereafter created, and wherever located (collectively, the Collateral ):
(i) the Pledged Timeshare Loans, together with all Collections and all monies due (including any payments made under any guarantee or similar credit enhancement with respect to any such Timeshare Loans) to become due or received by any Person in payment of any of the Pledged Timeshare Loans on or after the respective Cutoff Dates for the Pledged Timeshare Loans;
(ii) the Related Security with respect to the Pledged Timeshare Loans;
(iii) the Account Collateral;
(iv) all Hedge Collateral;
(v) the Sale and Contribution Agreement, the Servicing Agreement, the Custody Agreement and any other Facility Document to which the Borrower is a party and all remedies thereunder and the assignment to the Administrative Agent of all UCC financing statements filed by the Borrower against Seller under or in connection with the Sale and Contribution Agreement;
(vi) all present and future claims, demands, causes of action and choses in action in respect of any or all of the foregoing and all payments on or under of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion thereof, voluntary or involuntary, into cash or other liquid property, all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of the foregoing;
(vii) all accounts, general intangibles, payment intangibles, instruments, investment property, documents, chattel paper, goods, moneys, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other property and interests in property of the Borrower, whether tangible or intangible; and
(viii) all income and proceeds of the foregoing
(b) The Borrower hereby authorizes the filing of financing statements, and continuation statements and amendments thereto and assignments thereof, describing the collateral covered thereby as all of debtors personal property or assets or words to that effect, notwithstanding that such wording may be broader in scope than the collateral described in this Section 2.13. The Borrower authorizes the Administrative Agent to file financing or continuation statements, and
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amendments thereto and assignments thereof, relating to the Pledged Timeshare Loans and the other Collateral without the signature of the Borrower. A photocopy or other reproduction of this Agreement shall be sufficient as a financing statement where permitted by law. This Agreement shall constitute a security agreement under applicable law.
(c) The Borrower represents and warrants that each remittance of Collections by it to the Administrative Agent, the Managing Agents or the Lenders hereunder will have been (i) in payment of a debt incurred by the Borrower in the ordinary course of business or financial affairs of the Borrower and (ii) made in the ordinary course of business or financial affairs.
SECTION 2.14. Refinancings .
(a) On any Business Day, the Borrower shall have the right to prepay all or a portion of the Aggregate Loan Principal Balance and request the Administrative Agent to release its security interest and Lien on some or all of the Pledged Timeshare Loans in connection with a Refinancing, subject to the following terms and conditions:
(i) The Borrower shall have given the Administrative Agent, the Paying Agent, the Custodian and the Servicer at least ten (10) Business Days prior written notice of its intent to effect a Refinancing and, at least three (3) Business Days prior to the closing of the Refinancing, shall provide the Administrative Agent, the Custodian and the Servicer with the related Refinancing Release together with a funds flow memorandum indicating sources and uses to the reasonable satisfaction of the Administrative Agent with respect to such Refinancing;
(ii) Unless such Refinancing is to be effected on a Distribution Date (in which case the relevant calculations with respect to such Refinancing shall be reflected on the applicable Monthly Report), the Servicer shall deliver to the Administrative Agent a Refinancing Date Certificate and an updated Monthly Loan Tape together with evidence reasonably satisfactory to the Administrative Agent that the conditions precedent set forth in clauses (iii)(D) and (E) below will be satisfied.
(iii) On the related Refinancing Date, the following shall be true and correct and the Borrower shall be deemed to have certified that, after giving effect to the Refinancing, the related prepayment of the Aggregate Loan Principal Balance and the release to the Borrower of the related Pledged Timeshare Loans on the related Refinancing Date:
(A) no adverse selection procedure shall have been used by the Borrower with respect to the Pledged Timeshare Loans that will remain subject to this Agreement after giving effect to the Refinancing (except as is necessary to comply with normal and customary eligibility criteria for asset-backed securities transactions involving timeshare loans);
(B) the representations and warranties contained in Section 4.01 are true and correct in all material respects, except to the extent relating to an earlier date;
(C) no Default or Event of Default has occurred and is continuing; and
(D) no Borrowing Base Deficiency exists.
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(iv) On the related Refinancing Date, the Paying Agent shall have received, for the benefit of the Secured Parties, in immediately available funds, (A) the portion of the Aggregate Loan Principal Balance to be prepaid, (B) an amount equal to all accrued and unpaid Interest to the extent reasonably determined by the Administrative Agent to be attributable to that portion of the Aggregate Loan Principal Balance to be paid in connection with the Refinancing and (C) all Liquidation Fees with respect to such prepayment and all Hedge Breakage Costs and any other amounts payable by the Borrower under or with respect to any Hedging Agreement arising from the release of Pledged Timeshare Loans pursuant to Section 2.15 in connection with such Refinancing payable to any Indemnified Party under this Agreement through the date of such prepayment. The amount paid pursuant to (1) clause (A) shall be applied on such Refinancing Date to the payment of principal on the Aggregate Loan Principal Balance, (2) clause (B) shall be deposited in the Collection Account to be included in Available Funds for the next Distribution Date (or for such Distribution Date, if the Refinancing Date is also a Distribution Date) pursuant to Section 2.06 and (3) clause (C) shall be paid to the Persons to whom such amounts are owed on such Refinancing Date, in each case in accordance with the written directions from the Borrower to the Paying Agent.
(b) The Borrower hereby agrees to pay the reasonable legal fees and expenses of the Administrative Agent, the Managing Agents, the Custodian, the Backup Servicer, the Paying Agent and the Lenders in connection with any Refinancing (including expenses incurred in connection with the release of the Lien of the Administrative Agent, the Lenders and any other party having such an interest in the Timeshare Loans in connection with such Refinancing).
SECTION 2.15. Release of Lien . In connection with any repurchase or substitution of Timeshare Loans by the Seller from the Borrower (a) pursuant to the Sale and Contribution Agreement or (b) effected pursuant to, and in compliance with, Section 2.14, and promptly following the Final Collection Date, the Administrative Agent agrees, at the Borrowers expense, and without recourse, representation or warranty, and, in the case of a Refinancing, subject to the conditions specified in Section 2.14, to execute, deliver, file and record any release, document or other instrument and take such action that may be necessary or that the Borrower may reasonably request, to evidence the release by the Administrative Agent of its security interest in the applicable Pledged Timeshare Loans and related Collateral.
SECTION 2.16. The Collection Account .
(a) On or prior to the Closing Date, the Borrower shall establish and shall thereafter maintain a segregated account in the name of the Borrower for the purpose of receiving Collections (the Collection Account ). The taxpayer identification number associated with the Collection Account shall be that of the Borrower and the Borrower will report for Federal, state and local income taxes, the income, if any, represented by the Collection Account.
(b) The Collection Account shall be established and at all times maintained with the Paying Agent which shall act as a securities intermediary (as defined in Section 8-102 of the UCC) and a bank (as defined in Section 9-102 of the UCC) hereunder (in such capacities, the Securities Intermediary ) with respect to the Collection Account. Wells Fargo, as initial Paying Agent, hereby confirms that the account number of the Collection Account is 46424100. In the event that the Paying Agent ceases to be a Qualified Institution, the Borrower shall, within thirty (30) days thereof, appoint a Qualified Institution to be the successor Paying Agent and establish a new Collection Account at such Qualified Institution.
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(c) The Collection Account shall be a securities account as defined in Section 8-501 of the UCC and shall be maintained by the Securities Intermediary as a securities intermediary in the name of the Borrower, subject to the lien of the Administrative Agent, for the benefit of the Secured Parties. The Securities Intermediary shall treat the Administrative Agent as the entitlement holder (within the meaning of Section 8-102(a)(7) of the UCC) in respect of all financial assets (within the meaning of Section 8-102(a)(9) of the UCC) credited to the Collection Account;
(d) The Securities Intermediary hereby confirms and agrees that:
(i) the Securities Intermediary shall not change the name or account number of the Collection Account without the prior written consent of the Administrative Agent;
(ii) all securities or other property underlying any financial assets (as hereinafter defined) credited to the Collection Account shall be registered in the name of the Securities Intermediary, indorsed to the Securities Intermediary or indorsed in blank or credited to another securities account maintained in the name of the Securities Intermediary, and in no case will any financial asset credited to the Collection Account be registered in the name of the Borrower or any other Person, payable to the order of the Borrower or specially indorsed to the Borrower or any other Person, except to the extent the foregoing have been specially indorsed to the Administrative Agent, for the benefit of the Secured Parties, or in blank;
(iii) all property transferred or delivered to the Securities Intermediary pursuant to this Agreement will be promptly credited to the Collection Account;
(iv) the Collection Account is an account to which financial assets are or may be credited, and the Securities Intermediary shall, subject to the terms of this Agreement, treat each of the Borrower and the Servicer as entitled to exercise the rights that comprise any financial asset credited to such account;
(v) the Securities Intermediary shall promptly deliver copies of all statements, confirmations and other correspondence concerning the Collection Account and/or any financial assets credited thereto simultaneously to each of the Servicer (on behalf of the Borrower) and the Administrative Agent at the address for each set forth on Schedule III to this Agreement; and
(vi) notwithstanding the intent of the parties hereto, to the extent that Collection Account shall be determined to constitute a deposit account within the meaning of Section 9-102(a)(29) of the UCC, the Collection Account shall be subject to the exclusive control of the Administrative Agent, for the benefit of the Secured Parties, and the Securities Intermediary will comply with instructions originated by the Administrative Agent directing disposition of the funds in the Collection Account without further consent by the Borrower or the Servicer.
(e) The Securities Intermediary hereby agrees that each item of property (including any investment property, financial asset, security, instrument or cash) credited to the Collection Account shall be treated as a financial asset within the meaning of Section 8-102(a)(9) of the UCC.
(f) Except as otherwise set forth in Section 2.16(g) and (h), the Securities Intermediary will comply with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) ( Entitlement Orders ) originated by the Borrower or by the Servicer. The Borrower shall not directly make any withdrawals from the Collection Account.
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(g) If at any time the Securities Intermediary shall receive any Entitlement Order from the Administrative Agent (i.e., an order directing a transfer or redemption of any financial asset in the Collection Account), or any instruction (within the meaning of Section 9-104 of the UCC), originated by the Administrative Agent, the Securities Intermediary shall comply with such Entitlement Order or instruction without further consent by the Borrower, the Servicer or any other Person. Notwithstanding the foregoing, the parties hereto agree that the Securities Intermediary will comply with the following with respect to any Entitlement Order or instruction: (i) until its receipt of a Notice of Exclusive Control (as defined below) with respect to the financial assets in the Collection Account, any cash received into the Collection Account may be invested in Permitted Investments selected by the Borrower or by the Servicer; and (ii) from and after its receipt of a Notice of Exclusive Control (as defined below), with respect to the financial assets in the Collection Account and without further consent of the Borrower, the Servicer or any other Person, any cash received into the Collection Account, may be invested in Permitted Investments selected by the Administrative Agent, for the benefit of the Secured Parties.
(h) Upon receipt by the Securities Intermediary of a written notice substantially in the form of Exhibit M hereto (a Notice of Exclusive Control ), the Securities Intermediary will take all Entitlement Orders, instructions or other directions it receives from the Administrative Agent, on behalf of the Secured Parties, with respect to the Collection Account and the disposition of funds in the Collection Account, without further consent by the Borrower, the Servicer or any other Person, and shall cease complying with Entitlement Orders, instructions or other directions concerning the Collection Account originated by the Borrower, the Servicer or any other Person. Notwithstanding the foregoing, promptly following receipt by the Administrative Agent of a written notice from the Servicer identifying amounts on deposit in the Collection Account as constituting Miscellaneous Payments, the Administrative Agent will issue an Entitlement Order to the Securities Intermediary to release such Miscellaneous Payments to the Servicer.
(i) In the event that the Securities Intermediary has or subsequently obtains by agreement, by operation of law or otherwise a security interest in the Collection Account or any financial assets, funds, cash or other property credited thereto or any security entitlement with respect thereto, the Securities Intermediary hereby agrees that such security interest shall be subordinate to the security interest of the Administrative Agent, for the benefit of the Secured Parties. Notwithstanding the preceding sentence, the financial assets, funds, cash or other property credited to the Collection Account will not be subject to deduction, set-off, bankers lien, or any other right in favor of any Person other than the Administrative Agent, for the benefit of the Secured Parties (except that the Securities Intermediary may set-off (i) all amounts due to the Securities Intermediary in respect of customary fees and expenses for the routine maintenance and operation of the Collection Account, and (ii) the face amount of any checks that have been credited to the Collection Account but are subsequently returned unpaid because of uncollected or insufficient funds).
(j) Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the banks jurisdiction (within the meaning of Section 9-304 of the UCC) and the security intermediarys jurisdiction (within the meaning of Section 8-110 of the UCC).
SECTION 2.17. The Paying Agent .
(a) The Borrower hereby appoints Wells Fargo as the initial Paying Agent. All payments of amounts due and payable in respect of the Borrower Obligations that are to be made from amounts withdrawn from the Collection Account pursuant to Section 2.06 shall be made on behalf of the Borrower by the Paying Agent. On the Final Collection Date, all funds then held by any Paying Agent other than the Administrative Agent under this Agreement shall, upon demand of the Borrower, be paid to the Administrative Agent to be held and applied according to Section 2.06, and thereupon such Paying Agent shall be released from all further liability with respect to such funds.
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(b) On each Distribution Date, the Borrower shall pay to the Paying Agent the Paying Agent Fee pursuant to Section 2.06(b)(ii).
(c) The Paying Agent hereby agrees that subject to the provisions of this Section, it shall:
(i) hold any sums held by it for the payment of amounts due with respect to the Borrower Obligations in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Administrative Agent notice of any default by the Borrower of which it has actual knowledge in the making of any payment required to be made with respect to the Borrower Obligations;
(iii) at any time during the continuance of any such default, upon the written request of the Administrative Agent (a copy of which shall be provided by the Administrative Agent to the Borrower and the Servicer), forthwith pay to the Administrative Agent any sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the Administrative Agent any sums held by it in trust for the payment of the Borrower Obligations if at any time it ceases to be a Qualified Institution;
(v) comply with all requirements of the Code and any applicable State law with respect to the withholding from any payments made by it in respect of any Borrower Obligations of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith; and
(vi) provide to the Managing Agents such information as is required to be delivered under the Code or any State law applicable to the particular Paying Agent, relating to payments made by the Paying Agent under this Agreement.
(d) Each Paying Agent (other than the initial Paying Agent) shall be appointed by the Borrower with the prior written consent of the Administrative Agent and the Majority Managing Agents. The Borrower shall not appoint any Paying Agent which is not, at the time of such appointment, a Qualified Institution.
(e) The Borrower shall indemnify the Paying Agent and its officers, directors, employees and agents for, and hold them harmless against any loss, liability or expense incurred, other than in connection with the willful misconduct, gross negligence or bad faith on the part of the Paying Agent, arising out of or in connection with (i) the performance of its obligations under and in accordance with this Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement and (ii) the negligence, willful misconduct or bad faith of the Borrower in the performance of its duties hereunder. All such amounts shall be payable in accordance with Section 2.06.
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(f) The Paying Agent shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Paying Agent in such capacity herein. No implied covenants or obligations shall be read into this Agreement against the Paying Agent and, in the absence of gross negligence, willful misconduct or bad faith on the part of the Paying Agent, the Paying Agent may conclusively rely on the truth of the statements and the correctness of the opinions expressed in any certificates or opinions furnished to the Paying Agent pursuant to and conforming to the requirements of this Agreement.
(g) The Paying Agent shall not be liable for (i) an error of judgment made in good faith by one of its officers; or (ii) any action taken, suffered or omitted to be taken in good faith in accordance with or believed by it to be authorized or within the discretion or rights or powers conferred, by this Agreement or at the direction of a Lender, Managing Agent or the Administrative Agent relating to the exercise of any power conferred upon the Paying Agent under this Agreement, in each case, unless it shall be proved that the Paying Agent shall have been grossly negligent or acted in bad faith or with willful misconduct in ascertaining the pertinent facts.
(h) The Paying Agent shall not be charged with knowledge of any Default or Event of Default unless a Responsible Officer of the Paying Agent obtains actual knowledge of such event or the Paying Agent receives written notice of such event from the Borrower, the Servicer, any Secured Party or the Administrative Agent, as the case may be.
(i) Without limiting the generality of this Section, the Paying Agent shall have no duty (i) to see to any recording, filing or depositing of this Agreement or any agreement referred to herein or any financing statement or continuation statement evidencing a security interest in the Collateral, or to see to the maintenance of any such recording or filing or depositing or to any recording, refiling or redepositing of any thereof, (ii) to see to the payment or discharge of any Tax, assessment or other governmental charge or any Lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Pledged Timeshare Loans, (iii) to confirm or verify the contents of any reports or certificates of the Servicer or the Borrower delivered to the Paying Agent pursuant to this Agreement believed by the Paying Agent to be genuine and to have been signed or presented by the proper party or parties or (iv) to ascertain or inquire as to the performance or observance of any of the Borrowers or the Servicers representations, warranties or covenants under this Agreement or any other Facility Document.
(j) The Paying Agent shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability shall not be reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Paying Agent to perform, or be responsible for the manner of performance of, any of the obligations of the Borrower under this Agreement.
(k) The Paying Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate of a Responsible Officer, any Monthly Report, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.
(l) The Paying Agent may consult with counsel of its choice with regard to legal questions arising out of or in connection with this Agreement and the advice or opinion of such counsel, selected with due care, shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by the Paying Agent in good faith and in accordance therewith.
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(m) The Paying Agent shall be under no obligation to exercise any of the rights, powers or remedies vested in it by this Agreement (except to comply with its obligations under this Agreement and any other Facility Document to which it is a party) or to institute, conduct or defend any litigation under this Agreement or in relation to this Agreement, at the request, order or direction of the Administrative Agent or any Managing Agent pursuant to the provisions of this Agreement, unless the Administrative Agent, on behalf of the Secured Parties, or such Managing Agent shall have offered to the Paying Agent reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby.
(n) The Paying Agent shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by a Lender, a Managing Agent or the Administrative Agent; provided, that if the payment within a reasonable time to the Paying Agent of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation shall be, in the opinion of the Paying Agent, not reasonably assured by the Borrower, the Paying Agent may require reasonable indemnity against such cost, expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Borrower or, if paid by the Paying Agent, shall be reimbursed by the Borrower to the extent of funds available therefor pursuant to Section 2.06.
(o) The Paying Agent shall not be responsible for the acts or omissions of the Administrative Agent, the Borrower, the Servicer, any Managing Agents, any Lender, any Hedge Counterparty or any other Person.
(p) Any Person into which the Paying Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which to Paying Agent shall be a party, or any Person succeeding to the business of the Paying Agent, shall be the successor of the Paying Agent under this Agreement, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
(q) The Paying Agent does not assume and shall have no responsibility for, and makes no representation as to, monitoring the value of the Timeshare Loans and other Collateral.
(r) If the Paying Agent shall at any time receive conflicting instructions from the Administrative Agent and the Borrower or the Servicer or any other party to this Agreement and the conflict between such instructions cannot be resolved by reference to the terms of this Agreement, the Paying Agent shall be entitled to rely on the instructions of the Administrative Agent. In the absence of bad faith, gross negligence or willful misconduct on the part of the Paying Agent, the Paying Agent may rely and shall be protected in acting or refraining from acting upon any resolution, officers certificate, any Monthly Report, certificate of auditors, or any other certificate, statement, instrument, opinion, report, notice request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Paying Agent may rely upon the validity of documents delivered to it, without investigation as to their authenticity or legal effectiveness, and the parties to this Agreement will hold the Paying Agent harmless from any claims that may arise or be asserted against the Paying Agent because of the invalidity of any such documents or their failure to fulfill their intended purpose.
(s) The Paying Agent is authorized, in its sole discretion, to disregard any and all notices or instructions given by any other party hereto or by any other person, firm or corporation, except only such notices or instructions as are herein provided for and orders or process of any court entered or
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issued with or without jurisdiction. If any property subject hereto is at any time attached, garnished or levied upon under any court order or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property or any part hereof, then and in any of such events the Paying Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree with which it is advised by legal counsel of its own choosing is binding upon it, and if it complies with any such order, writ, judgment or decree it shall not be liable to any other party hereto or to any other person, firm or corporation by reason of such compliance even though such order, writ, judgment or decree maybe subsequently reversed, modified, annulled, set aside or vacated.
(t) The Paying Agent may: (i) terminate its obligations as Paying Agent under this Agreement (subject to the terms set forth herein) upon at least 30 days prior written notice to the Borrower, the Servicer, the Managing Agents and the Administrative Agent; provided, however , that, without the consent of the Administrative Agent and the Majority Managing Agents, such resignation shall not be effective until a successor Paying Agent reasonably acceptable to the Administrative Agent and the Majority Managing Agents shall have accepted appointment by the Borrower as Paying Agent, pursuant hereto and shall have agreed to be bound by the terms of this Agreement; or (ii) be removed at any time by written demand, of the Administrative Agent and the Majority Managing Agents, delivered to the Paying Agent, the Borrower and the Servicer. In the event of such termination or removal, the Borrower with the consent of the Administrative Agent and the Majority Managing Agents shall appoint a successor paying. If, however, a successor paying agent is not appointed by the Borrower within ninety (90) days after the giving of notice of resignation, the Paying Agent may petition a court of competent jurisdiction for the appointment of a successor paying agent.
(u) Any successor Paying Agent appointed pursuant hereto shall (i) execute, acknowledge, and deliver to the Borrower, the Servicer, the Administrative Agent, and to the predecessor Paying Agent an instrument accepting such appointment under this Agreement. Thereupon, the resignation or removal of the predecessor Paying Agent shall become effective and such successor Paying Agent, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties, and obligations of its predecessor as Paying Agent under this Agreement, with like effect as if originally named as Paying Agent. The predecessor Paying Agent shall upon payment of its fees and expenses deliver to the successor Paying Agent all documents and statements and monies held by it under this Agreement; and the Borrower and the predecessor Paying Agent shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Paying Agent all such rights, powers, duties, and obligations.
(v) In the event the Paying Agents appointment hereunder is terminated without cause, the Borrower shall reimburse the Paying Agent for the reasonable out-of-pocket expenses of the Paying Agent incurred in transferring any funds in its possession to the successor Paying Agent.
(w) The parties hereto acknowledge and agree that the Paying Agent shall not be required to act as a commodity pool operator (as defined in the Commodity Exchange Act, as amended) or be required to undertake regulatory filings related to this Agreement or any Facility Document in connection therewith.
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SECTION 2.18. Defaulting Committed Lenders . Notwithstanding any provision of this Agreement to the contrary, if any Committed Lender becomes a Defaulting Committed Lender, then the following provisions shall apply for so long as such Committed Lender is a Defaulting Committed Lender:
(a) Unused Fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Committed Lender pursuant to Section 2.04;
(b) notwithstanding anything to the contrary contained in Section 2.03 hereof, the unused portion of the Commitment of such Defaulting Committed Lender may be reduced to zero without any contemporaneous ratable reduction of the Commitments of the other Committed Lenders;
(c) neither the Commitment nor the Loans of such Defaulting Committed Lender shall be included in determining whether all Lenders, a majority of the Lenders or the Majority Managing Agents have taken or may take any action hereunder and the Managing Agent of the Lender Group which includes such Defaulting Committed Lender shall not be included in determining whether all Managing Agents have taken or may have taken any action hereunder (including, in each case, any consent to any amendment or waiver pursuant to Section 10.01 ); provided, that any waiver, amendment or modification requiring the consent of all Lenders or Managing Agents or each affected Lender or Managing Agent, as applicable, which affects such Defaulting Committed Lender or the related Managing Agent differently than other affected Lenders or Managing Agents shall require the consent of such Defaulting Committed Lender or the related Managing Agent, as applicable; and
(d) the Borrower may replace such Defaulting Committed Lender in accordance with Section 2.19 of this Agreement.
In the event that the Administrative Agent determines that a Defaulting Committed Lender has adequately remedied all matters that caused such Committed Lender to be a Defaulting Committed Lender, then (x) the Pro Rata Shares, the Lender Group Limits and Lender Group Percentages shall be readjusted to reflect the inclusion of such Committed Lenders Commitment and on such date such Committed Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent and the Managing Agents shall determine may be necessary in order for such Committed Lender to hold such Loans in accordance with its Pro Rata Share and for such Committed Lenders Lender Group to hold such Loans in accordance with its Lender Group Percentage and (y) the provisions of clauses (a) through (d) above shall, from and after such determination, cease to be of further force or effect with respect to such Committed Lender.
SECTION 2.19. Replacement of Lender Group . If (i) any Affected Party requests compensation under Section 2.09(a) or 2.10(a), (ii) any Conduit Lender ceases to fund or maintain its Loans through the issuance of Commercial Paper, (iii) any Managing Agent fails to give consent to any amendment or waiver to the Facility Documents requiring the consent of 100% of the Managing Agents or 100% of the Managing Agents for all affected Lenders and Managing Agents whose Lender Group Limits together equal or exceed 66 2/3 percent of the Lender Group Limits required for such vote have consented or (iv) any Committed Lender becomes a Defaulting Committed Lender, then Borrower may, at its sole expense and effort, upon notice to the related Managing Agent and the Administrative Agent, require each Lender in such Managing Agents Lender Group to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.03), all of its respective interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Conduit Lender or Committed Lender, as applicable, if a Conduit Lender or Committed Lender accepts such assignment); provided, that (x) the Borrower shall have received the prior written consent of the Administrative Agent with respect to any assignee that is not already a member of a Lender Group hereunder, which consent shall not unreasonably be withheld, conditioned or delayed, (y) each member of such assigning Lender Group shall have received payment of an amount equal to all outstanding Loans funded or maintained by such Lender Group, together with all accrued
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Interest thereon and all accrued Unused Fees and other Borrower Obligations payable to them hereunder and under the other Facility Documents, from the assignee (to the extent of such outstanding Loans) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.09(a) or Section 2.10(a), such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to exist.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to Effectiveness . As conditions precedent to the effectiveness of this Agreement, and the initial Borrowing hereunder the Managing Agents shall have received each of the documents, instruments, legal opinions and other agreements listed on Schedule IV that are required to be delivered on or prior to the date hereof, together with all fees due and payable on the date hereof.
SECTION 3.02. Conditions Precedent to All Borrowings . Each Borrowing (including the Initial Borrowing) made by the Lenders to the Borrower, shall be subject to the further conditions precedent that on the date of each Borrowing, each of the following shall be true and correct both before and immediately after giving effect to such Borrowing:
(a) the Administrative Agent shall have received from the Servicer the Monthly Report most recently required to be delivered pursuant to the Servicing Agreement;
(b) the representations and warranties contained in Article IV shall be true and correct in all material respects on and as of such date as though made on and as of such date unless such representations and warranties by their terms refer to an earlier date, in which case they shall be true and correct in all material respects on and as of such earlier date;
(c) no event has occurred and is continuing, or would result from such Borrowing which constitutes a Default, an Event of Default, a Servicer Termination Event or an Unmatured Servicer Termination Event;
(d) the Amortization Date has not occurred;
(e) each of the Borrower, the Servicer and the Custodian shall have timely made all of the deliveries required pursuant to the Custody Agreement with respect to the Pledged Timeshare Loans and any Timeshare Loans to become Pledged Timeshare Loans in connection with such Borrowing;
(f) no Borrowing Base Deficiency shall exist before such Borrowing and, after giving pro forma effect to such Borrowing, any concurrent Transfer of Timeshare Loans to the Borrower with the proceeds of such Borrowing and/or any concurrent release of Pledged Timeshare Loans on such date pursuant to Section 2.15, no Borrowing Base Deficiency shall exist;
(g) if any Timeshare Loans are being Transferred to the Borrower with the proceeds of such Borrowing, after giving effect to such Transfer, the weighted average FICO® score of all Obligors of Eligible Timeshare Loans on the Applicable Measurement Date with FICO® scores (weighted based on the Timeshare Loan Balances on such date) shall be at least 700; and
(h) if such date occurs during a Hedging Period, the Borrower shall be in compliance with Section 5.03.
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Each delivery of a Borrowing Request to the Administrative Agent, and the acceptance by the Borrower of the proceeds of any Borrowing, shall constitute a representation and warranty by the Borrower that, as of the date of such Borrowing, both before and after giving effect thereto and the application of the proceeds thereof, each of the applicable statements set forth in clauses (a) through (f) above are true and correct to the extent set forth in such clauses.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower . The Borrower represents and warrants as of the Closing Date and on each date a Loan is made as follows:
(a) Due Formation and Good Standing . The Borrower is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified.
(b) Due Authorization and No Conflict . The execution, delivery and performance by the Borrower of this Agreement, the Sale and Contribution Agreement and all other Facility Documents to which it is a party, and the transactions contemplated hereby and thereby, are within the Borrowers limited liability company powers, have been duly authorized by all necessary limited liability company action and do not contravene or constitute a default under, any provision of applicable law or of the Borrowers certificate of formation or of the limited liability company agreement or of any agreement, judgment, injunction, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Adverse Claim on any asset of the Borrower. This Agreement, the Sale and Contribution Agreement and the other Facility Documents to which the Borrower is a party have been duly executed and delivered on behalf of the Borrower.
(c) Governmental Consent . No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower of this Agreement, the Sale and Contribution Agreement or any other agreement, document or instrument to be delivered by it hereunder that has not already been given or obtained, except for filings under the UCC required under Article III.
(d) Enforceability of Facility Documents . Each of this Agreement, the Sale and Contribution Agreement and each other Facility Document to be delivered by the Borrower in connection herewith, constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to the Enforceability Exceptions.
(e) No Litigation . (i) There is no action, suit, proceeding or investigation pending or, to the best knowledge of the Borrower, threatened, against the Borrower or the property of the Borrower in any court, or before any arbitrator of any kind, or before or by any Governmental Authority and (ii) the Borrower is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any Governmental Authority that, in the case of either of the foregoing clauses (i) and (ii), (A) asserts the invalidity of this Agreement or any other Facility Document, (B) seeks to prevent the grant of any Collateral by the Borrower to the Administrative Agent, the ownership or acquisition by the Borrower of the Timeshare Loans or the consummation of any of the transactions contemplated by this Agreement or any other Facility Document, (C) seeks any determination or ruling that, in the reasonable judgment of
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the Borrower, would materially and adversely affect the performance by the Borrower of its obligations under this Agreement or any other Facility Document or the validity or enforceability of this Agreement or any other Facility Document or (D) individually or in the aggregate for all such actions, suits, proceedings and investigations could reasonably be expected to have a Material Adverse Effect. The Borrower is not in default with respect to any order of any court, arbitrator or Governmental Authority.
(f) Perfection Representations .
(i) This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Collateral in favor of the Administrative Agent, which security interest is prior to all other Adverse Claims arising under the UCC, and is enforceable as such against creditors of the Borrower, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors rights and remedies generally, and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity);
(ii) The Pledged Timeshare Loans and the documents evidencing such Pledged Timeshare Loans constitute accounts, chattel paper, instruments or general intangibles within the meaning of the applicable UCC;
(iii) The Borrower owns and has good and marketable title to the Collateral free and clear of any Adverse Claims;
(iv) The Borrower has caused or will have caused, within ten days of the Closing Date, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral granted to the Administrative Agent hereunder;
(v) All original executed copies of the Obligor Notes that constitute or evidence the Pledged Timeshare Loans have been delivered to the Custodian and the Borrower has received a receipt therefor, which acknowledges that the Custodian is holding the Obligor Notes that constitute or evidence the Pledged Timeshare Loans solely on behalf and for the benefit of the Administrative Agent.
(vi) Other than the security interest granted to the Administrative Agent pursuant to this Agreement, the Borrower has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral. The Borrower has not authorized the filing of and is not aware of any financing statements against the Borrower that include a description of the Collateral other than any financing statement relating to the security interest granted to the Administrative Agent hereunder or that has been terminated.
(vii) All financing statements filed or to be filed against the Borrower in favor of the Administrative Agent in connection herewith describing the Collateral contain a statement to the following effect: A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Secured Party.
(viii) None of the Obligor Notes that constitute or evidence the Pledged Timeshare Loans has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Borrower and the Administrative Agent.
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(g) Compliance with Laws . The Borrower has complied with all applicable laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, the violation of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
(h) Accuracy of Information . The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Borrower to the Administrative Agent, any Managing Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Facility Documents or included herein or therein or delivered pursuant hereto or thereto (but excluding any projections, forward looking statements, budgets, estimates and general market data as to which the Borrower only represents and warrants that such information was prepared in good faith based upon assumptions believed by it to be reasonable at the time), when taken as a whole, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by or on behalf of the Borrower to the Administrative Agent, any Managing Agent or any Lender in connection with this Agreement and the other Facility Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. Each document or instrument included in a Timeshare Loan File delivered to the Custodian by or on behalf of the Borrower with respect to a Pledged Timeshare Loan that is not the originally executed document or instrument is a true and correct copy of such document or instrument.
(i) Location of Records; Organizational Identification Number . The locations of the offices where the Borrower keeps all the Records are listed on Exhibit D. The Borrowers federal employer identification number is 95-4349751 and its organizational identification number is 5313725. The Borrower is organized solely under the laws of the State of Delaware.
(j) Collection Information . The names and addresses of all Account Banks, together with the address of the Lockbox and the account numbers of the Accounts are as specified in Exhibit E. The Lockbox set forth on Exhibit E is the only address to which Obligors are directed to make payment. The Clearing Account set forth on Exhibit E is the only account to which Collections received from Obligors by means of pre-authorized debits from a deposit of such Obligor pursuant to a PAC or from a credit card of such Obligor pursuant to a Credit Card Account will be deposited. Except as provided in the Clearing Account Control Agreement, none of the Seller, the Borrower or the Servicer has granted any Person, other than the Administrative Agent, control (within the meaning of Section 9-102 of any applicable enactment of the UCC) of the Unidentified Receipts Account or the Clearing Account or the right to take control of the Unidentified Receipts Account or the Clearing Account at a future time or upon the occurrence of a future event.
(k) No Trade Names . The Borrower has no, and has not used any, trade names, fictitious names, assumed names or doing business as names.
(l) Investments . The Borrower does not own or hold, directly or indirectly (i) any capital stock or equity security of, or any equity interest in, any Person or (ii) any debt security or other evidence of Indebtedness of any Person, except for Permitted Investments and as otherwise contemplated by the Facility Documents. The Borrower has no Subsidiaries.
(m) Facility Documents . The Sale and Contribution Agreement delivered to the Administrative Agent is the only agreement pursuant to which the Borrower directly or indirectly purchases and receives capital contributions of Timeshare Loans from the Seller.
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(n) Business . Since its formation, the Borrower has conducted no business other than entering into and performing it obligations under the Facility Documents to which it is a party, and such other activities as are incidental to the foregoing. The Facility Documents to which it is a party, and any agreements entered into in connection with the transactions that are permitted by Section 5.03(k), are the only agreements to which the Borrower is a party.
(o) Taxes . The Borrower has (i) filed or has received an extension of time for filing of, all United States Federal income Tax returns (if any) and all other material Tax returns which are required to be filed by it and (ii) paid all material Taxes that are due and payable by it, except to the extent that any such Tax is being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower in respect of Taxes and other governmental charges are, in the Borrowers opinion, adequate.
(p) Solvency . The Borrower: (i) is not insolvent (as such term is defined in §101(32)(A) of the Bankruptcy Code), (ii) is able to pay its debts as they come due; and (iii) does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage.
(q) Use of Proceeds . No proceeds of any Loan will be used by the Borrower to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934.
(r) Ownership . As of the date hereof, all of the Equity Interests (other than the special membership interest of the Independent Directors) in the Borrower are validly issued and directly owned of record by the Seller; the Seller has no obligation to make further payments for the purchase of such Equity Interests or contributions to the Borrower solely by reason of its ownership of such Equity Interests, and there are no options, warrants or other rights to acquire any Equity Interests in the Borrower.
(s) Eligibility . Each Pledged Timeshare Loan represented by the Borrower to be an Eligible Timeshare Loan in any Borrowing Request or included in the calculation of the Borrowing Base on any Distribution Date, Refinancing Date or Borrowing Date satisfied the requirements of eligibility contained in the definition of Eligible Timeshare Loan as of the Cutoff Date for such Pledged Timeshare Loan.
(t) Payments to Seller . With respect to each Pledged Timeshare Loan, the Borrower shall have (i) received such Pledged Timeshare Loan as a contribution to the capital of the Borrower by the Seller or (ii) purchased such Pledged Timeshare Loan from the Seller in exchange for payment (made by the Seller in accordance with the provisions of the Sale and Contribution Agreement) in an amount which constitutes fair consideration and reasonably equivalent value. No such sale shall have been made for or on account of an antecedent debt owed by the Seller to the Borrower and no such sale is or may be voidable or subject to avoidance under any section of the Bankruptcy Code.
(u) Event of Default . No Default or Event of Default has occurred or is continuing.
(v) OFAC . None of the Borrower or any other Subsidiary of the Seller (i) is a Sanctioned Person, (ii) has more than 15% of its assets in Sanctioned Countries or (iii) derives more than 15% of its operating income from investments in, or transaction with, Sanctioned Persons or Sanctioned Countries. None of the proceeds of any Loan have been or will be used to fund any operations or finance any investments or activities in, or make any payments to, a Sanctioned Person or Sanctioned Country.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Borrower . Except as otherwise provided herein, from the Closing Date until the later of the Amortization Date and the Final Collection Date, the Borrower will, unless the Administrative Agent and the Majority Managing Agents shall otherwise consent in writing:
(a) Compliance with Laws, Etc . Comply in all material respects with all applicable laws, ordinances, orders, rules, regulations and requirements of Governmental Authorities, the violation of which either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Preservation of Existence . (i) Observe all procedures required by its certificate of formation and the limited liability company agreement and preserve and maintain its limited liability company existence, rights, franchises and privileges in the jurisdiction of its organization, and (ii) qualify and remain qualified in good standing as a foreign limited liability company in each other jurisdiction where the nature of its business requires such qualification and where, in the case of clause (ii), the failure to be so qualified could reasonably be expected to have a Material Adverse Effect.
(c) Audits . At any time and from time to time during regular business hours and upon reasonable prior notice, permit the Administrative Agent, on behalf of the Lenders and Managing Agents, or its agents or representatives: (i) to conduct periodic audits of the Pledged Timeshare Loans and the other Collateral and collection systems of the Borrower; (ii) to examine and make copies of and abstracts from the Records in its possession or control relating to the Pledged Timeshare Loans and other Collateral, including, the related Pledged Timeshare Loans; (iii) to visit the offices and properties of the Borrower for the purpose of examining the materials described in clause (ii) above; and (iv) to discuss matters relating to the Pledged Timeshare Loans, the other Collateral or the Borrowers performance hereunder with any of the officers or employees of the Borrower having knowledge of such matters; provided, that if no Event of Default shall have occurred and be continuing, the Administrative Agent or its agents or representatives shall only be entitled to conduct one (1) audit of the Borrower at the expense of the Borrower during any twelve (12) month period, beginning on the date hereof and on each anniversary of the date hereof; and provided, further, that if an Event of Default shall have occurred and be continuing, there shall be no limit on the number of such audits the Administrative Agent or its agents or representatives shall be entitled to conduct at the expense of the Borrower. The rights granted to the Administrative Agent in this Section 5.01(c) shall be exercised in conjunction with the rights granted to it under Section 3.2(f) of the Servicing Agreement.
(d) Keeping of Records and Books of Account . Maintain and implement administrative and operating procedures (including an ability to recreate records evidencing the Pledged Timeshare Loans in the event of the destruction of the originals thereof) and keep and maintain (or cause the Servicer to keep and maintain) all documents, books, records and other information reasonably necessary for the collection of all Pledged Timeshare Loans, and in which timely entries are made in accordance with GAAP. Such books and records shall include, without limitation, records adequate to permit the daily identification of each new Pledged Timeshare Loan and all Collections of and adjustments to each existing Pledged Timeshare Loan.
(e) Collections .
(i) Instruct or cause all Obligors to be instructed to (A) send all scheduled payments of principal or interest under the Pledged Timeshare Loans directly to the Lockbox; (B) make
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scheduled payments of principal or interest under the Pledged Timeshare Loans by way of pre-authorized debits from a deposit account of such Obligor pursuant to a PAC or from a credit card of such Obligor pursuant to a Credit Card Account from which payments under the Pledged Timeshare Loans shall be electronically transferred to the Clearing Account; or (C) make payment by electronic transfer of funds to the Clearing Account.
(ii) In the case of funds transfers pursuant to a PAC or Credit Card Account, or other electronic means, take, or instruct the Clearing Account Bank to take, all necessary and appropriate action to ensure that each such pre-authorized debit or credit card payment or transfer is credited directly to the Clearing Account.
(iii) Cause the Clearing Account to at all times be subject to the Clearing Account Control Agreement.
(f) Recordation of Assignments of Mortgage . At the direction of the Administrative Agent, the Borrower shall, upon the occurrence of an Event of Default or a Servicer Termination Event cause the recordation of each unrecorded Global Assignment or one or more assignments with respect to the Mortgages relating to the Pledged Timeshare Loans (together, the Assignments ) with each Requisite Office. Each such submission for recordation shall occur within thirty (30) calendar days of the occurrence of such Event of Default or Servicer Termination Event. The Borrower shall deliver all documents necessary to effect such recordations and pay all costs, fees and expenses related to each such recordation, including all recordation taxes with respect to such Assignments, any costs and/or expenses related to the assembly of such Assignments and the delivery thereof to the proper Governmental Authority for recordation, and any attorneys fees or fees for other professionals incurred in connection with the recordation of such Assignments.
(g) Separate Existence . Maintain the Borrowers identity as a separate legal entity from each of the Seller and all other Subsidiaries of the Seller (each a Hilton Entity and collectively, the Hilton Entities ) and to make it manifest to third parties that the Borrower is an entity with assets and liabilities distinct from those of the Hilton Entities. The Borrower shall operate in such a manner and be constituted so that each of the following statements will be true and correct at all relevant times:
(i) the Borrower maintains and shall maintain separate records, books of account and financial statements from those of the Hilton Entities;
(ii) the Borrower shall at all times maintain all of its liabilities and tangible and intangible assets, separate and readily identifiable, from those of each Hilton Entity and, except to the extent permitted pursuant to the Facility Documents, the Borrower does not and shall not commingle any of its assets or funds with those of any Hilton Entity;
(iii) the Borrower maintains and shall maintain an office separate from that of any other entity and a separate board of directors and observes all separate limited liability company formalities, and all decisions with respect to the Borrowers business and daily operations have been and shall be independently made by the officers of the Borrower pursuant to authority granted by its limited liability company agreement and by resolutions of its board of directors;
(iv) other than contributions of capital, distributions of funds and return of capital, no transactions have been or will be entered into between the Borrower and the Seller or between the Borrower and any Hilton Entity except such transactions as are contemplated by this Agreement and the other Facility Documents, or as permitted by the Borrowers organizational
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documents, and the Borrower shall not enter into or permit to exist any transaction (including any purchase, lease or exchange of property or the rendering of any service) with any Hilton Entity other than those described in Section 5.04(j);
(v) the Borrower acts solely in its own name and through its own authorized officers and agents and the Borrower does not and will not act as agent of any Hilton Entity or any other Person in any capacity;
(vi) except for any funds received from the Seller as a capital contribution or as otherwise permitted in this Agreement or any other Facility Document, the Borrower shall not accept for its own account funds from any Hilton Entity; and the Borrower shall not allow any Hilton Entity otherwise to supply funds to, or guarantee any obligation of, the Borrower;
(vii) the Borrower shall not guarantee, or otherwise become liable with respect to, any obligation of any Hilton Entity;
(viii) the Borrower shall at all times hold itself out to the public under the Borrowers own name as a legal entity separate and distinct from the Seller and the other Hilton Entities, and not hold itself out as a division of the Seller or any other Hilton Entity;
(ix) the Borrower is a company with limited purposes (as specified in its limited liability company agreement) and has not engaged, and does not presently engage and shall not engage, in any activity other than the activities undertaken pursuant to this Agreement and the Facility Documents and activities ancillary or incidental thereto and transactions permitted pursuant to its organizational documents, and has no Indebtedness other than as created by, or set forth in, this Agreement or the other Facility Documents;
(x) all of the issued and outstanding membership interests of the Borrower are owned by the Seller, and all distributions by the Borrower to the Seller shall be properly reflected as distributions on the books and records of the Seller;
(xi) the execution and delivery of this Agreement and the Facility Documents and the consummation of the transactions contemplated hereby and thereby were not made in contemplation of the insolvency of the Borrower or after the commission of any act of insolvency by the Borrower. The Borrower does not believe, nor does it have any reasonable cause to believe, that it cannot perform its covenants contained in this Agreement and the other Facility Documents to which it is a party. The transactions contemplated by this Agreement and the Facility Documents are being consummated by the Borrower in furtherance of its ordinary business purposes, with no intent to hinder, delay or defraud any of its present or future creditors and with no view to preferring one creditor over another or to preventing the application of the Borrowers assets in the manner required by applicable law or regulations; and
(xii) both immediately before and after the transactions contemplated by this Agreement and the other Facility Documents (y) the present fair salable value of the Borrowers assets in the normal course of its business operations was or will be in excess of the amount that will be required to pay its probable liabilities as they then exist and as they become absolute and matured; and (z) the sum of the Borrowers assets was and will be greater than the sum of its debts, valuing its assets at a fair salable value. This Agreement and the Facility Documents reflect bona fide transactions for legitimate business purposes;
(h) [Reserved].
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(i) Location of Records . Keep its chief place of business and chief executive office and the offices where it keeps the Records at (i) the address(es) of the Borrower referred to on Exhibit D or (ii) upon 30 days prior written notice to the Administrative Agent, at any other location in the United States where all actions reasonably requested by the Administrative Agent or any Managing Agent to protect and perfect the interests of the Administrative Agent and the Lenders in the Collateral have been taken and completed.
(j) Taxes . File, cause to be filed or obtain an extension of the time to file, all material Tax returns and reports required by law to be filed by it and will promptly pay or cause to be paid all Taxes and governmental charges at any time owing, provided that the Borrower may contest in good faith any such Taxes, assessments and other charges and, in such event, may permit the Taxes, assessments or other charges so contested to remain unpaid during any period, including appeals, when the Borrower is in good faith contesting the same so long as (i) adequate reserves have been established in accordance with GAAP, (ii) enforcement of the contested Tax, assessment or other charge is effectively stayed for the entire duration of such contest if such enforcement could reasonably be expected to have a Material Adverse Effect, and (iii) any Tax, assessment or other charge determined to be due, together with any interest or penalties thereon, is promptly paid as required after final resolution of such contest, and pay when due any Taxes payable in connection with the Pledged Timeshare Loans, exclusive of Taxes on or measured by income or gross receipts of the Administrative Agent, the Managing Agents or the Lenders.
(k) Performance and Enforcement of Sale and Contribution Agreement . (i) Perform and require the Seller to, perform each of their respective obligations and undertakings under and pursuant to the Sale and Contribution Agreement; purchase Timeshare Loans thereunder in compliance with the terms thereof; (ii) enforce the rights and remedies accorded to the Borrower under the Sale and Contribution Agreement and (iii) take all actions to perfect and enforce its rights and interests (and the rights and interests of the Administrative Agent and the Lenders as assignees of the Borrower) under the Sale and Contribution Agreement as the Administrative Agent may from time to time reasonably request, including making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Sale and Contribution Agreement.
(l) Ownership . Take all necessary action to (i) vest legal and equitable title to the Pledged Timeshare Loans and the other Collateral purchased under the Sale and Contribution Agreement irrevocably in the Borrower, free and clear of any Adverse Claims (including the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Borrowers interest in the Pledged Timeshare Loans and the other Collateral and such other action to perfect, protect or more fully evidence the interest of the Borrower therein as the Administrative Agent or any Managing Agent may reasonably request), and (ii) establish and maintain, in favor of the Administrative Agent, for the benefit of the Secured Parties, a valid and perfected first priority perfected security interest in all Pledged Timeshare Loans and the other Collateral to the full extent contemplated herein, free and clear of any Adverse Claims (including the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Administrative Agents (for the benefit of the Secured Parties) security interest in such Pledged Timeshare Loans and the other Collateral and such other action to perfect, protect or more fully evidence the interest of the Administrative Agent for the benefit of the Secured Parties as the Administrative Agent or any Managing Agent may reasonably request).
(m) Independent Directors . The Borrower will at all times have two (2) Independent Directors and ensure that all actions relating to (x) the selection, maintenance or replacement of the Independent Directors, (y) the dissolution or liquidation of the Borrower or (z) the initiation of,
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participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving the Borrower, are duly authorized by unanimous consent of the Borrowers directors, including the Independent Directors; and none of the Borrower or the Seller or any of the Borrowers members or directors shall remove and replace any Independent Director without giving the Administrative Agent ten days prior written notice and a certification of a Responsible Officer of the Borrower that such Person satisfies the criteria set forth in the definition herein of Independent Director. The Borrower shall compensate each Independent Director in accordance with its agreement with such Independent Director (or the company employing such Independent Director as a part of its business of supplying director services to special purpose entities). No Independent Director shall at any time serve as a trustee in bankruptcy for the Borrower or the Seller or any of their respective Affiliates. Without limiting the foregoing, the Borrower will promptly notify the Administrative Agent in writing of the resignation or removal of any Independent Director or its receipt of any notice of intended resignation by any Independent Director.
SECTION 5.02. Reporting Requirements of the Borrower . From the Closing Date until the later of the Amortization Date and the Final Collection Date, the Borrower will, unless the Administrative Agent and the Majority Managing Agents shall otherwise consent in writing, furnish or cause to be furnished to the Administrative Agent (and to the Paying Agent and Backup Servicer, with respect to (a) and (f) below):
(a) Notice of Certain Events . As soon as reasonably practicable and in any event within three (3) Business Days after any Responsible Officer of the Borrower obtains knowledge of the occurrence of each Event of Default, Servicer Termination Event, Default (if such Default is continuing on such date) or Unmatured Servicer Termination Event, the statement of a Responsible Officer of the Borrower setting forth the details of such event and the action which the Borrower is taking or proposes to take with respect thereto.
(b) Financial Statements . Promptly upon its receipt thereof, the financial statements and compliance certificates of the Seller provided by the Seller to the Borrower pursuant to Section 4.2(a) of the Sale and Contribution Agreement.
(c) Copies of Notices . Promptly upon its receipt of any written notice, request for consent, financial statements, certification, report or other communication under or in connection with any Facility Document from the Seller, the Custodian, the Servicer, the Backup Servicer, any Account Bank or any other Person other than the Administrative Agent that is a party thereto copies of the same.
(d) ERISA Events . As soon as reasonably possible, and in any event within thirty (30) days after a Responsible Officer knows, or with respect to any Plan or Multiemployer Plan to which any Hilton Entity or any of its Subsidiaries makes direct contributions, has reason to believe, that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of such Hilton Entity setting forth details respecting such event or condition and the action, if any, that such Hilton Entity or any ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given the PBGC by such Hilton Entity or such ERISA Affiliate with respect to such event or condition):
(i) any Reportable Event with respect to a Plan, as to which PBGC has not by regulation or otherwise waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a Reportable Event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan;
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(ii) the distribution under Section 4041(c) of ERISA of a notice of intent to terminate any Plan or any action taken by such Hilton Entity or such ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by such Hilton Entity or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan by such Hilton Entity or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by such Hilton Entity or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against such Hilton Entity or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax exempt status of the trust of which such Plan is a part if such Hilton Entity or an ERISA Affiliate fails to timely provide security to such Plan in accordance with the provisions of said Sections.
(e) Reporting on Adverse Effects . Promptly and in no event more than three (3) Business Days after any Responsible Officer of the Borrower obtains knowledge of any matter or the occurrence of any event concerning the Borrower, the Servicer, the Seller or the Performance Guarantor which would reasonably be expected to have a Material Adverse Effect, notice thereof.
(f) Other Information . As soon as reasonably practicable, from time to time, such other information, documents, records or reports respecting the Pledged Timeshare Loans or the conditions or operations, financial or otherwise, of the Borrower as the Administrative Agent or any Managing Agent may from time to time reasonably request.
SECTION 5.03. Covenants of the Borrower Relating to Hedging .
(a) On the first Distribution Date that is at least thirty (30) days after the commencement of any Hedging Period and at all times thereafter during such Hedging Period, the Borrower shall be party to one or more Hedge Transactions, each with an Eligible Hedge Counterparty, pursuant to one or more Hedging Agreements that are in form and substance reasonably acceptable to the Majority Managing Agents and copies of which been delivered to the Administrative Agent, having the terms set forth in this Section 5.03.
(b) On the date specified in Section 5.03(a), the Borrower shall (i) cause (A) the aggregate scheduled notional amounts under the Hedge Transactions to amortize on a monthly basis in accordance with the Hedge Amortization Schedule provided to the Borrower immediately prior to such date pursuant to Section 5.13(h), (B) in the case of Hedge Transactions that are in the form of interest rate
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caps, the weighted average cap rate thereunder to be no greater than the Required Rate on such date and (C) in the case of Hedge Transactions that are in the form of interest rate swaps, the weighted average fixed rate swap rate thereunder to be no greater than the Required Rate on such date and (ii) thereafter, maintain such Hedge Transactions subject to the requirements set forth in the immediately succeeding sentence and Sections 5.03(c) and 5.03(d). On each Distribution Date thereafter, the Borrower shall enter into one or more additional Hedge Transactions, if and to the extent that the aggregate notional amount of the existing Hedge Transactions on such Distribution Date is less than 90% of the Aggregate Loan Principal Balance on such Distribution Date, and terminate one or more existing Hedge Transactions or portions thereof on such Distribution Date, if and to the extent that the aggregate notional amount of all existing Hedge Transactions that are in the form of interest rate swaps are greater than 110% of the Aggregate Loan Principal Balance on such Distribution Date.
(c) On each Borrowing Date during a Hedging Period, the Borrower shall enter into one or more additional Hedge Transactions or terminate one or more existing Hedge Transactions or portions thereof such that the aggregate notional amount of the Hedging Transactions on the date of such Borrowing are not less than 90% nor more than 110% of the Aggregate Loan Principal Balance on such date after giving effect to such Borrowing and the aggregate scheduled notional amounts under the Hedge Transactions shall amortize on a monthly basis in accordance with the Hedge Amortization Schedule most recently provided to the Borrower pursuant to Section 5.13(h). The Borrower shall pay any additional premium due for the adjustments to the Hedging Agreements on any Borrowing Date from the proceeds of the related Borrowing.
(d) On each Transfer Date during a Hedging Period, the Borrower shall enter into one or more additional Hedge Transactions, terminate one or more existing Hedge Transactions or portions thereof or amend or otherwise modify existing Hedge Transactions, (i) such that the aggregate scheduled notional amounts under the Hedge Transactions shall amortize on a monthly basis in accordance with the Hedge Amortization Schedule reflecting the addition of Pledged Timeshare Loans on such Transfer Date and provided to the Borrower, (ii) in the case of Hedge Transactions that are in the form of interest rate caps, such that the weighted average cap rate thereunder is no greater than the revised Required Rate reflecting the addition of Pledged Timeshare Loans on such Transfer Date and (iii) in the case of Hedge Transactions that are in the form of interest rate swaps, such that the weighted average fixed rate swap rate thereunder is no greater than the revised Required Rate reflecting the addition of Pledged Timeshare Loans on such Transfer Date.
(e) Each Hedge Transaction that is in the form of an interest rate swap shall provide for the payment on each Distribution Date to the related Hedge Counterparty of interest on the notional amount thereof at a fixed rate per annum and the payment to the Borrower for deposit into the Collection Account of a floating rate per annum equal to the LIBOR Rate for the Interest Period for such Distribution Date; provided that the Borrower and the Hedge Counterparty may, subject to the related Hedging Agreement, make payments on a net basis.
(f) Each Hedge Transaction that is in the form of an interest rate cap shall provide for the payment on each Distribution Date by the related Hedge Counterparty to the Borrower for deposit into the Collection Account on the notional amount thereof to the extent that the LIBOR Rate for the Interest Period for such Distribution Date exceeds a fixed rate per annum.
(g) Each Hedge Transaction shall terminate on the last day that the Aggregate Loan Principal Balance is assumed to be outstanding based on the then-current Hedge Amortization Schedule.
(h) During the Hedging Period, the Borrower shall cause the Servicer, at least three (3) Business Days prior to each Borrowing Date and Distribution Date, to provide to the Administrative
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Agent a timeshare loan data file with sufficient information so that the Administrative Agent may prepare the Hedge Amortization Schedule. The Administrative Agent shall provide the Borrower and the Servicer with the Hedge Amortization Schedule within two (2) Business Days of its receipt of the data file from the Servicer.
(i) During the Hedging Period, within thirty (30) days after (i) the occurrence of any event defined as an Event of Default or Termination Event in a Hedging Agreement with respect to the Hedge Counterparty or (ii) a Hedge Counterparty (other than Deutsche Bank AG or any of its Affiliates) ceasing to satisfy the minimum rating requirements set forth in the definition of Eligible Hedge Counterparty, the Borrower shall cause such Hedge Counterparty to assign its obligations under the Hedging Agreement to a new Hedge Counterparty which satisfies the requirements set forth in the definition of Eligible Hedge Counterparty.
(j) As additional security hereunder, the Borrower has granted to the Administrative Agent a security interest in all right, title and interest of Borrower in the Hedge Collateral. The Borrower acknowledges that, as a result of that assignment, the Borrower may not, without the prior written consent of the Administrative Agent, exercise any rights under any Hedging Agreement or Hedge Transaction, except for the Borrowers right under any Hedging Agreement to enter into, terminate, amend or otherwise modify Hedge Transactions in order to meet the Borrowers obligations hereunder. Nothing herein shall have the effect of releasing the Borrower from any of its obligations under any Hedging Agreement or any Hedge Transaction, nor be construed as requiring the consent of the Administrative Agent or any Secured Party for the performance by the Borrower of any such obligations.
(k) During the Hedging Period, all reasonably documented costs and expenses (including reasonable legal fees and disbursements) incurred by the Administrative Agent and the Lenders incurred with each Hedge Transaction shall be paid by the Borrower.
SECTION 5.04. Negative Covenants of the Borrower . From the Closing Date until the Final Collection Date, the Borrower will not, without the written consent of the Administrative Agent and the Majority Managing Agents:
(a) Sales, Liens, Etc. Against Collateral . Sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Collateral or assign any right to receive income in respect thereof except in each case as contemplated or provided hereunder.
(b) Extension or Amendment of Pledged Timeshare Loans . Consent to or permit any extension, amendment, waiver or modification of, the terms of any Pledged Timeshare Loan, except (i) in accordance with the Collection Policy or (ii) as otherwise permitted under the Servicing Agreement.
(c) Change in Business . Make any change in the character of its business.
(d) Changes to Accounts . Not add or terminate any bank as the Clearing Account Bank from those listed on Exhibit E, unless the Administrative Agent shall have received (i) thirty (30) Business Days prior notice of such addition, termination or change and (ii) prior to the effective date of such addition, termination or change, (x) an executed copy of an amendment or supplement to the Clearing Account Control Agreement pursuant to which such Clearing Account Bank becomes a party to the Clearing Account Control Agreement and the Clearing Account becomes subject to the Clearing Account Control Agreement and (y) a revised Exhibit E hereto giving effect to any such addition or termination.
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(e) Merger, Consolidation, Etc . Sell any equity interest to any Person (other than the Seller) or consolidate with or merge into or with any Person, or purchase or otherwise acquire all or substantially all of the assets or capital stock, or other ownership interest of, any Person, or sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any Person, except as expressly provided or permitted under the terms of this Agreement or as consented to by the Administrative Agent.
(f) Change in Name; Jurisdiction of Organization . (i) Make any change to its name (within the meaning of Section 9-507(c) of any applicable enactment of the UCC) indicated on its certificate of organization (or equivalent organizational document), or (ii) change its form of organization or its jurisdiction of organization, unless, in either case, prior to the effective date of such change, it delivers to the Administrative Agent such financing statements or amendments to financing statements (Form UCC-1 or Form UCC-3, respectively) authorized by it which the Administrative Agent may request to reflect such name change or change in form or jurisdiction of organization, together with such other documents, legal opinions and instruments that the Administrative Agent may reasonably request in connection with the transaction giving rise thereto.
(g) ERISA Matters . Establish or be a party to any Plan or Multiemployer Plan other than any such plan established by an Affiliate of the Borrower.
(h) Indebtedness . Create, incur, assume or suffer to exist any Indebtedness except for (i) Indebtedness to the Administrative Agent, any Lender, any Affected Party or the Servicer expressly contemplated hereunder or (ii) Indebtedness to the Seller pursuant to the Sale and Contribution Agreement.
(i) Guarantees . Guarantee, endorse or otherwise be or become contingently liable (including by agreement to maintain balance sheet tests) in connection with the obligations of any other Person, except endorsements of negotiable instruments for collection in the ordinary course of business and reimbursement and indemnification obligations in favor of the Administrative Agent, any Managing Agent, any Lender or any Affected Party as provided for under this Agreement.
(j) Limitation on Transactions with Affiliates . Enter into, or be a party to any transaction with any Hilton Entity, except for: (i) the transactions contemplated hereby, by the Sale and Contribution Agreement and by the other Facility Documents; (ii) capital contributions by the Seller to the Borrower which are in compliance with Section 5.01(g); (iii) Restricted Junior Payments which are in compliance with Section 5.04(n); and (iv) to the extent not otherwise prohibited under this Agreement, other transactions in the nature of leases, service agreements, employment contracts and directors or managers fees, upon fair and reasonable terms materially no less favorable to the Borrower than would be obtained in a comparable arms-length transaction with a Person not an Affiliate.
(k) Facility Documents . Terminate, amend or otherwise modify any Facility Document, or grant or consent to any such termination, amendment, waiver or consent, except in accordance with the terms thereof.
(l) Limitation on Investments . Make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of Indebtedness, acquisition of the business or assets, or otherwise) in, any Hilton Entity or any other Person except for Permitted Investments and the purchase and receipt of capital contributions of Timeshare Loans and related assets pursuant to the terms of the Sale and Contribution Agreement.
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(m) Organizational Documents . (i) Change, amend, alter or otherwise modify its limited liability company agreement in any fashion that could reasonably be expected to have a Material Adverse Effect or (ii) change, amend, alter or otherwise modify its certificate of formation in any fashion.
(n) Restricted Junior Payments . Make any Restricted Junior Payment; provided, that prior to the Amortization Date, the Borrower may make Restricted Junior Payments so long as (i) no Default or Event of Default shall then exist or would result therefrom and (ii) such Restricted Junior Payments have been approved by all necessary action on the part of the Borrower and in compliance with all applicable laws.
(o) Treatment as Sales . Other than for Tax and accounting purposes under GAAP, not account for or treat (whether in financial statements or otherwise) the transactions contemplated by the Sale and Contribution Agreement in any manner other than as the sale and/or absolute conveyance of Timeshare Loans and related assets by the Seller to the Borrower.
(p) Acquisition of Timeshare Loans . Acquire any Timeshare Loans directly or indirectly from any Person other than the Seller pursuant to the terms of the Sale and Contribution Agreement.
SECTION 5.05. Special Covenants Regarding CRD Compliance . The Seller, in its capacity as sole member of the Borrower, represents that, on the Closing Date, its membership interest in the Borrower (the Retained Interest ) represents a net economic interest in the Pledged Timeshare Loans no less than the percentage thereof required under Paragraph 1 of Article 122a. The Seller agrees that, from the Closing Date until the Final Collection Date, it shall, for the benefit of each Lender and each Managing Agent and each holding company of any Lender or any Managing Agent that is required to comply with the requirements of Article 122a, unless each such Managing Agent shall otherwise consent in writing:
(a) hold and maintain, or cause another entity within the same consolidated group as the Seller to hold and maintain, such membership interest on an ongoing basis until the Commitment Termination Date; provided, that the Seller shall not be restricted by this Section 5.05(a) from transferring one or more senior interests in the membership interest, so long as it or another entity within the same consolidated group as the Seller maintains the most subordinate interest in such membership interest and such subordinate interest satisfies the requirements of Paragraph 1 of Article 122a (the Minimum Retained Membership Interest );
(b) not sell or subject the Minimum Retained Membership Interest to any hedge, credit risk mitigation or short position that is not permitted under Article 122a;
(c) for the purpose of each Monthly Report, confirm to the Servicer that it continues to comply with subsections (a) and (b) above;
(d) provide notice promptly to each such Managing Agent in the event it has breached subsections (a) or (b) above;
(e) notify each such Managing Agent of any change to the form of retention of the Retained Interest; and
(f) provide all information which any such Managing Agent reasonably requests in order for such Managing Agent to comply with its obligations under Article 122a.
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ARTICLE VI
SERVICING
SECTION 6.01. Servicing Agreement . The parties hereto agree that the servicing, administering and collection of the Pledged Timeshare Loans shall be conducted by the Servicer from time to time in accordance with the Servicing Agreement.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default . Each of the following events shall constitute an Event of Default hereunder:
(a) default in the payment of any Interest on the Loans or Unused Fees when the same becomes due and payable, and, in any such case, such default shall continue for a period of two (2) Business Days after the earlier of actual knowledge of a Responsible Officer of the Borrower or written notice to the Borrower thereof;
(b) default in the payment of, or any installment of the principal amount of the Loans when the same becomes due and payable, and such default shall continue for a period of two (2) Business Days after the earlier of actual knowledge of a Responsible Officer of the Borrower or written notice to the Borrower thereof;
(c) default in the payment of any amount (except Interest, Unused Fees or principal) due and payable by the Seller, the Borrower, the Servicer or the Performance Guarantor under this Agreement or any other Facility Document when the same becomes due and payable, and such default shall continue for a period of thirty (30) days after the earlier of actual knowledge of a Responsible Officer of the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be, or written notice to the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be;
(d) a Borrowing Base Deficiency shall exist and such condition shall continue unremedied for three (3) Business Days after the earlier of actual knowledge of the Borrower or written notice to the Borrower thereof;
(e) an Event of Bankruptcy shall occur with respect to the Performance Guarantor, the Seller, the Servicer or the Borrower;
(f) any failure on the part of the Seller, the Borrower, the Servicer or the Performance Guarantor to duly observe or perform any of its covenants or agreements set forth in this Agreement or any other Facility Document (other than as otherwise described in this Section 7.01) that continues unremedied for a period of thirty (30) days after the earlier of actual knowledge of a Responsible Officer of the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be or written notice to the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be;
(g) any representation, warranty or statement of the Seller, the Borrower, the Servicer or the Performance Guarantor made in this Agreement or any Facility Document, or any certificate, report or other writing delivered pursuant thereto, shall prove to be incorrect in any material respect as of the time when the same shall have been made, and, if capable of being cured, is not cured within thirty (30) days after the earlier of actual knowledge of a Responsible Officer of the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be or written notice to the Seller, the Borrower, the Servicer or the Performance Guarantor, as the case may be;
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(h) the IRS shall file notice of a Lien pursuant to Section 6323 of the Code with regard to any assets of the Performance Guarantor, the Seller or the Borrower and such Lien shall not have been released within ten (10) Business Days, or the PBGC shall file notice of a Lien pursuant to Section 4068 of ERISA with regard to any of the assets of the Performance Guarantor, the Seller or the Borrower and such Lien shall not have been released within ten (10) Business Days;
(i) (x) any Facility Document shall, in whole or in material part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Hilton Entity party thereto or (y) the Performance Guarantor, the Borrower, the Seller, the Servicer or any other Hilton Entity shall, directly or indirectly, disaffirm or contest in any manner such effectiveness, validity, binding nature or enforceability;
(j) any Lien securing any obligation of the Seller or the Borrower under the Facility Documents shall, in whole or in part, cease to be a perfected first priority Lien (subject to Permitted Liens);
(k) a Servicer Termination Event shall have occurred;
(l) the Seller or any of its material subsidiaries (other than the Borrower) shall fail to pay any principal of or premium or interest on any Indebtedness having a principal amount of $50,000,000 or greater, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness and shall not be waived by the requisite holders of such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness of the Seller or any of its material subsidiaries (other than the Borrower), as applicable, or any other event shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case, prior to the stated maturity thereof;
(m) any failure on the part of the Custodian to duly observe or perform any of its covenants or agreements set forth in the Custody Agreement or under any other Facility Document which failure would reasonably be expected to have a Material Adverse Effect, and shall continue for a period of sixty (60) days after the earlier of actual knowledge of a Responsible Officer of the Custodian or written notice to the Custodian;
(n) a notice of termination with respect to the Clearing Account Control Agreement shall have been delivered, or a termination of the Clearing Account Control Agreement shall have otherwise occurred, and a replacement Clearing Account Control Agreement in form and substance reasonably satisfactory to the Majority Managing Agents shall not have been executed within forty-five (45) days;
(o) a Change of Control shall occur;
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(p) the Borrower shall fail to comply with its obligations under Section 5.03 and such failure shall continue for a period of thirty (30) days after the earlier of actual knowledge of a Responsible Officer of the Borrower or written notice to the Borrower of such failure;
(q) one or more final judgments for the payment of $25,000,000 or more rendered against the Performance Guarantor, the Seller or any of their respective material Subsidiaries (other than the Borrower) or one or more final judgments for the payment of $25,000 or more rendered against the Borrower, and such amount is not covered by insurance or indemnity or not discharged, paid or stayed within thirty days after (i) the date on which the right to appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished;
(r) the Borrower shall become subject to registration as an investment company under the Investment Company Act of 1940;
(s) for any Distribution Date:
(i) the Average Delinquency Ratio or the Average Managed Portfolio Delinquency Ratio exceeds 1.75%; or
(ii) the Average Default Ratio or the Average Managed Portfolio Default Ratio exceeds 1.0%; or
(t) the Seller shall fail to maintain any of the Seller Financial Covenants.
SECTION 7.02. Right to Cure .
(a) Notwithstanding anything to the contrary contained in Section 7.01, but subject to the requirements in Section 7.02(b) below, in the event the Seller is not in compliance with the covenant described in clause (b) of the definition of Seller Financial Covenants as of any day of determination, no Event of Default shall be deemed to exist as a result of such non-compliance if the Seller receives a capital contribution, the proceeds of which shall be used to cause an increase in Consolidated EBITDA in an amount (such amount, the Cure Amount ) necessary such that, if such proceeds had been received on the day of determination that gave rise to any noncompliance, the Consolidated EBITDA, as calculated as of such date, would have been sufficient to cause the Seller to be in compliance with such clause (b) for such period (the Cure Right); provided, that, such proceeds (i) are actually received by Seller and (ii) do not exceed the aggregate amount necessary to cure such non-compliance under such clause (b). The parties hereby acknowledge that this Section 7.02 may not be relied on for any purposes other than to demonstrate compliance with clause (b) of the definition of Seller Financial Covenants for purposes of determining whether an Event of Default exists.
(b) The Cure Right is subject to the following conditions: (i) the Seller may not effect a cure for (x) consecutive Fiscal Quarters or (y) more than two times during the period commencing on the Closing Date and ending on the Amortization Date; and (ii) any capital contribution made under Section 7.02(a) shall not be included for purposes of any calculation other than for determining compliance (for the Fiscal Quarter with respect to which such contribution is made and for the following three Fiscal Quarters) with clause (b) of the definition of Seller Financial Covenants. To the extent the calculation of Consolidated EBITDA under clause (b) of the Seller Financial Covenants is annualized as described in clauses (A) through (C) thereof, no Cure Amounts received by the Seller for any applicable Fiscal Quarters shall be so annualized, but shall only be added to Consolidated EBITDA for purposes of determining compliance with such clause (b) after Consolidated EBITDA has been annualized thereunder.
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SECTION 7.03. Remedies .
(a) If an Event of Default shall occur and be continuing, the Administrative Agent shall, at the request, or may with the consent, of the Majority Managing Agents by notice to the Borrower, declare the Amortization Date to have occurred; provided, however , that, in the case of any event described in Section 7.01(e) above, the Amortization Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, the Administrative Agent and the Secured Parties shall have, in addition to all other rights and remedies under this Agreement or otherwise, but subject to the following sentence, the limitations set forth in this Article VII and Section 10.09 hereof, all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws, which rights shall be cumulative. Upon the declaration or automatic occurrence of the Amortization Date in accordance with this Section 7.03, all obligations hereunder shall be immediately due and payable and all Loans shall be immediately due and payable.
(b) Without limiting the generality of the foregoing, during the continuation of an Event of Default, the Administrative Agent on behalf of the Secured Parties without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Borrower, the Servicer or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith, deliver a Notice of Exclusive Control or an activation or control notice under the Clearing Account Control Agreement, collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), at public or private sale or sales, at any exchange, auction or office of the Administrative Agent or elsewhere upon such terms and conditions and at prices that are consistent with the prevailing market for similar collateral as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Borrower, which right or equity is hereby waived or released. The Administrative Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent hereunder, including reasonable attorneys fees and disbursements, to the payment in whole or in part of the Borrower Obligations, in such order as the Administrative Agent may elect, and only after such application and after the payment by the Administrative Agent of any other amount required or permitted by any provision of law, including Section 9 504(1)(c) of the UCC, need the Administrative Agent account for the surplus, if any, to the Borrower.
(c) During the continuation of an Event of Default, the Borrower further agrees, at the Administrative Agents request, to instruct the Custodian to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at the Borrowers premises or elsewhere.
(d) To the extent permitted by applicable law, the Borrower waives all claims, damages and demands it may acquire against the Secured Parties arising out of the exercise by any of the Secured Parties of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of such Secured Party. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) Business Days before such sale or other disposition. The Borrower shall remain liable for any deficiency (plus accrued interest thereon) if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Borrower Obligations and the reasonable fees and disbursements of any attorneys employed by any of the Secured Parties to collect such deficiency.
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SECTION 7.04. Appointment as Attorney in Fact .
(a) The Borrower hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, effective during the continuation of any Event of Default, as its true and lawful attorney in fact with full irrevocable power and authority in the place and stead of the Borrower and in the name of the Borrower or in its own name, from time to time in the Administrative Agents discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, the Borrower hereby gives the Administrative Agent the power and right, on behalf of the Borrower, without assent by, but with notice to, the Borrower, if an Event of Default shall have occurred and be continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys with respect to any other Collateral whenever payable;
(ii) to pay or discharge Taxes and Liens levied or placed on or threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Administrative Agent may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and to do, at the Administrative Agents option and the Borrowers expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Lien of the Administrative Agent for the benefit of the Secured Parties thereon and to effect the intent of this Agreement, all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that such attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable until payment in full of all Borrower Obligations.
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(b) The Borrower also authorizes the Administrative Agent, at any time and from time to time, to execute, in connection with the sale provided for in Section 7.03 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.
(c) The powers conferred on the Administrative Agent are solely to protect the Administrative Agents (for the benefit of the Secured Parties) interests in the Collateral and shall not impose any duty upon the Administrative Agent to exercise any such powers. The Administrative Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Administrative Agent nor any of its officers, directors, or employees shall be responsible to the Borrower for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.
SECTION 7.05. Performance of Borrowers Obligations . If the Borrower fails to perform or comply with any of its material agreements contained in the Facility Documents and the Administrative Agent, any Managing Agent or any Lender may itself perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable out of pocket expenses of the Administrative Agent, such Managing Agent or such Lender incurred in connection with such performance or compliance, together with interest thereon at a rate per annum equal to the Alternative Rate, shall be payable by the Borrower to the Administrative Agent, such Managing Agent or such Lender on demand and shall constitute Borrower Obligations.
SECTION 7.06. Powers Coupled with an Interest . All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities by the Borrower . Without limiting any other rights which any Affected Party may have hereunder or under applicable law (including the right to recover damages for breach of contract), the Borrower hereby agrees to indemnify each Lender, the Administrative Agent, each Managing Agent, the Paying Agent, the Backup Servicer, the Custodian and each Liquidity Provider, and their respective directors, officers and employees (the Indemnified Parties ), from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable external attorneys fees and disbursements (all of the foregoing being collectively referred to as Indemnified Amounts ), awarded against or incurred by such Indemnified Party to the extent relating to or arising from or as a result of this Agreement or the funding or maintenance of Loans made by a Lender hereunder subject to the proviso set forth below. Without limiting the generality of the foregoing indemnification, the Borrower shall indemnify the Indemnified Parties for Indemnified Amounts to the extent relating to or resulting from any of the following:
(i) the failure of any Pledged Timeshare Loan represented by the Borrower to be an Eligible Timeshare Loan hereunder to be an Eligible Timeshare Loan at the time of such representation;
(ii) reliance on any representation or warranty made or deemed made by the Borrower under this Agreement or any other Facility Document to which it is a party which shall have been false or incorrect when made or deemed made;
(iii) the failure by the Borrower to comply with any term, provision or covenant contained in this Agreement, the Sale and Contribution Agreement or any other Facility Document to which it is party or with any applicable law, rule or regulation with respect to any Pledged Timeshare Loan or other Collateral, or the nonconformity of any Pledged Timeshare Loan or other Collateral with any such applicable law, rule or regulation;
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(iv) the failure to pay when due any Taxes, including sales, excise or personal property Taxes payable by the Borrower in connection with the Collateral;
(v) the payment by such Indemnified Party of Indemnified Taxes, including any Indemnified Taxes imposed by any jurisdiction on amounts payable and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, to the extent caused by the Borrowers actions or failure to act in breach of this Agreement;
(vi) the failure to vest and maintain vested in the Administrative Agent, on behalf of the Secured Parties, a first priority perfected security interest in the Collateral, free and clear of any Adverse Claim, whether existing at the time such Collateral arose or at any time thereafter;
(vii) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the applicable UCC or other applicable laws naming the Borrower as Debtor with respect to any Collateral;
(viii) any dispute, claim, offset or defense (other than as a result of the bankruptcy or insolvency of the related Obligor) of a Obligor to the payment of any Pledged Timeshare Loan (including a defense based on such Pledged Timeshare Loan not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms);
(ix) the commingling of Collections with any other funds;
(x) any failure by the Borrower to give reasonably equivalent value to the Seller in consideration for the transfer by the Seller to the Borrower of any Pledged Timeshare Loan, or any attempt by any Person to void any such transfer under any statutory provision or common law or equitable action, including any provision of the Bankruptcy Code;
(xi) (A) the failure of the Clearing Account Bank to remit any Collections held in the Clearing Account to the Collection Account as provided in the Clearing Account Control Agreement or any Collections held in the Unidentified Receipts Account to the Clearing Account, whether by reason of the exercise of setoff rights or otherwise, or (B) any claim by the Clearing Account Bank for indemnification by the Administrative Agent pursuant to the terms of the Clearing Account Control Agreement;
(xii) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Loans made pursuant to this Agreement or any other Facility Document delivered hereunder or in respect of any of the Collateral;
(xiii) the grant by the Borrower of a security interest in any Pledged Timeshare Loan in violation of any applicable law, rule or regulation;
provided, however , that the Borrower shall not be required to indemnify any Indemnified Party to the extent of any amounts (x) resulting from the gross negligence or willful misconduct of such Indemnified Party, or (y) constituting credit recourse for the failure of a Obligor to pay a Pledged Timeshare Loan, or (z) constituting Excluded Taxes. Any amounts subject to the indemnification provisions of this Section 8.01 shall be paid by the Borrower to the related Indemnified Party within ten (10) Business Days following written demand therefor.
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SECTION 8.02. Limited Liability of Parties . No Indemnified Party shall have any liability (whether in contract, tort or otherwise) to the Borrower, the Seller or the Servicer or any of their security holders or creditors for or in connection with the transactions contemplated hereby, except to the extent such liability is determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Partys gross negligence or willful misconduct or breach of its obligations under this Agreement or any Facility Document.
ARTICLE IX
THE AGENTS
SECTION 9.01. Authorization and Action . Each Lender hereby appoints and authorizes its related Managing Agent and the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Managing Agent or the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The provisions of this Article IX are solely for the benefit of the Managing Agents, the Administrative Agent and the Lenders. The Borrower shall not have any rights as a third-party beneficiary or otherwise under any of the provisions hereof. In performing their functions and duties hereunder, the Managing Agents shall act solely as the agent for the respective Conduit Lenders and the Committed Lenders in the related Lender Group and do not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the other Lenders, the Borrower, the Servicer, the Seller, any Affiliate thereof or any of their respective successors and assigns.
SECTION 9.02. Agents Reliance, Etc . Neither the Administrative Agent nor any Managing Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or such Managing Agent or the Administrative Agent under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, each of the Administrative Agent and the Managing Agents: (i) may consult with legal counsel (including counsel for the Borrower, the Servicer or the Seller), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile) believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 9.03. Agents and Affiliates . Each Managing Agent and the Administrative Agent and their respective Affiliates may engage in any kind of business with the Borrower, any Hilton Entity or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of Borrower, any Hilton Entity or any Obligor or any of their respective Affiliates, all as if such Persons were not Managing Agents and/or Administrative Agent and without any duty to account therefor to any Lender.
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SECTION 9.04. Lenders Loan Decision . Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any Managing Agent, any of their respective Affiliates or any other Lender, and based on such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and, if it so determines, to make Loans hereunder. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any Managing Agent, any of their respective Affiliates, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement.
SECTION 9.05. Delegation of Duties . The Administrative Agent and each Managing Agent may each execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor any Managing Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.
SECTION 9.06. Indemnification . Each Managing Agent severally agrees to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower, the Seller or the Performance Guarantor), ratably according to its related Lender Group Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement; provided, that (i) no Managing Agent shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting or arising from the Administrative Agents gross negligence or willful misconduct and (ii) no Managing Agent shall be liable for any amount in respect of any compromise or settlement of any of the foregoing unless such compromise or settlement is approved by the Majority Managing Agents. Without limitation of the generality of the foregoing, each Managing Agent agrees to reimburse the Administrative Agent, ratably according to its related Lender Group Percentage, promptly upon demand, for any reasonable out-of-pocket expenses (including reasonable fees of a single counsel) incurred by the Administrative Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement; provided, that no Managing Agent shall be responsible for the costs and expenses of the Administrative Agent in defending itself against any claim alleging the gross negligence or willful misconduct of the Administrative Agent to the extent such gross negligence or willful misconduct is determined by a court of competent jurisdiction in a final and non-appealable decision.
SECTION 9.07. Successor Agents . The Administrative Agent and each Managing Agent may, upon thirty (30) days notice to the Borrower, each Lender and each other party hereto, resign as Administrative Agent or Managing Agent, as applicable. If any such party shall resign as Administrative Agent or Managing Agent under this Agreement, then, in the case of the Administrative Agent, the Majority Committed Lenders and the Borrower, and in the case of any Managing Agent, its related Conduit Lenders, during such thirty-day period shall appoint a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent or applicable Managing Agent and references herein to the Administrative Agent or such Managing Agent shall mean such successor agent, effective upon its appointment; and such former Administrative Agents or Managing Agents rights, powers and duties in such capacity shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or Managing Agent or any of the parties to this Agreement. After any retiring Administrative Agents or Managing Agents resignation hereunder as such agent, the provisions of Article VIII, this Article IX and Section 10.09 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or a Managing Agent under this Agreement.
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ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc .
(a) No waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent and the Majority Managing Agents (on behalf of the Lenders in the related Lender Group) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
(b) No amendment to this Agreement shall be effective unless the same shall be in writing and signed by each of the Borrower, the Administrative Agent and the Majority Managing Agents (on behalf of the Lenders in the related Lender Group), provided, however , that, without the written consent of all the Managing Agents (on behalf of the Lenders in the related Lender Group)(or, solely in the case of clauses (iv) and (v) below, the Managing Agents for each affected Lender Group), no such amendment shall:
(i) extend the Commitment Termination Date;
(ii) extend the date of any payment or deposit of Collections by the Borrower or the time of payment of the principal amount of, or accrued interest on, the Loans;
(iii) release the security interest in or transfer all or any material portion of the Collateral;
(iv) change the outstanding principal amount of any of the Loans made by any Lender hereunder other than as provided herein;
(v) change the amount of any Lender Group Limit other than as provided herein or increase the Facility Limit hereunder;
(vi) amend, modify or waive any provision of the definitions of, Majority Managing Agents, Borrowing Base, Collateral Value or any of the defined terms used in such definitions or this Section 10.01;
(vii) consent to or permit the assignment or transfer by the Borrower or any of its rights and obligations under this Agreement or of any of its right, title or interest in or to the Pledged Timeshare Loans;
(viii) amend or modify any provision of Section 7.01 or Section 10.03, or
(ix) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (i) through (viii) above in a manner which would circumvent the intention of the restrictions set forth in such clauses;
provided, that without the written consent of the Servicer, the Paying Agent, the Backup Servicer and/or the Custodian, as applicable, no such amendment shall adversely affect the Servicer, the Paying Agent,
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the Backup Servicer or the Custodian; provided , further , that if this Agreement is amended without the consent of the Servicer, the Paying Agent, the Backup Servicer or the Custodian, the Borrower shall provide the Servicer, the Paying Agent, the Backup Servicer and the Custodian with a copy of the related amendment promptly following execution thereof.
SECTION 10.02. Notices, Etc . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by electronic mail or facsimile copy) and shall be personally delivered or sent by registered mail, return receipt requested, or by courier or by electronic mail or facsimile, to each party hereto, at its address set forth on Schedule III hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of overnight courier, two (2) days after being deposited with such courier, or, in the case of notice by electronic mail or facsimile, when electronic confirmation of receipt is obtained, in each case addressed as aforesaid.
SECTION 10.03. Assignability .
(a) Any Conduit Lender may (i) with notice to the Borrower and the Servicer, and with the consent of the Managing Agent for the Lender Group of which it is a member, assign at any time all or any portion of its rights and obligations hereunder and interests herein to (A) any other Lender, (B) any commercial paper conduit managed by such Conduit Lenders sponsor or administrator bank if the Commercial Paper of such commercial paper conduit have short-term ratings from S&P and Moodys that are equivalent to or higher than the short-term ratings by S&P and Moodys of the Commercial Paper of such Conduit Lender, (C) any Affiliate of such Conduit Lenders sponsor bank or (D) any Liquidity Provider with respect to such Conduit Lender and (ii) with the consent of the Borrower (such consent not to be unreasonably withheld or delayed) and the Managing Agent for the Lender Group of which it is a member, assign at any time all or any portion of its rights and obligations hereunder and interests herein to any other Person not listed in clause (i) above. Any Managing Agent may, with notice to the Borrower, and with the consent of the Lenders in its Lender Group, assign at any time all or any portion of its rights and obligations hereunder and interests herein to any Affiliate of such Managing Agent.
(b) Any Committed Lender may, with the consent of the Administrative Agent and, if no Event of Default is continuing, the Borrower (such consent not to be unreasonably withheld or delayed) assign at any time all or any portion of its rights and obligations hereunder and interests herein to any Person; provided, however , that notwithstanding the foregoing, no consent of the Borrower shall be required for any assignment is to a Lender or an Affiliate of a Lender other than a Conduit Lender.
(c) With respect to any assignment hereunder
(i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement,
(ii) the amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, and
(iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with a processing and recordation fee of $2,500.
(d) Upon such execution, delivery, acceptance and recording from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party
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to this Agreement and, to the extent that rights and obligations under this Agreement have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (y) the assigning Lender shall, to the extent that rights and obligations have been assigned by it pursuant to such Assignment and Acceptance, relinquish such rights and be released from such obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto). At all times during which any Loan is outstanding, the Administrative Agent shall maintain at its address referred to in Section 10.02 of this Agreement (or such other address of the Administrative Agent notified by the Administrative Agent to the other parties hereto) a register as provided herein (the Register ). The Aggregate Loan Principal Balance (including stated interest) and any interests therein, and any Assignments and Acceptances of the Aggregate Loan Principal Balance or any interest therein delivered to and accepted by the Administrative Agent, shall be registered in the Register, and the Register shall serve as a record of ownership that identifies the owner of the Aggregate Loan Principal Balances and any interest therein. Notwithstanding any other provision of this Agreement, no transfer of the Aggregate Loan Principal Balances or any interest therein shall be effective unless and until such transfer has been recorded in the Register. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Servicer, the Administrative Agent, the Managing Agents and the Lenders may treat each Person whose name is recorded in the Register as a Lender, as the case may be, under this Agreement for all purposes of this Agreement. This Section 10.03(d) shall be construed so that the Aggregate Loan Principal Balance and any interest therein is maintained at all times in registered form within the meaning of Sections 163(f), 871(h) and 881(c) of the Code, solely for the purposes of this Section 10.03, the Administrative Agent will act as an agent of the Borrower. The Register shall be available for inspection by the Borrower or any Managing Agent at any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance, the Administrative Agent shall, if such Assignment and Acceptance has been duly completed, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower.
(f) Any Lender may, without the consent of the Borrower, sell participations to one or more banks or other entities (each, a Participant ) in all or a portion of its rights and obligations hereunder (including the outstanding Loan); provided that following the sale of a participation under this Agreement (i) the obligations of such Lender shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Servicer and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which such Lender sells such a participation shall provide that the Participant shall not have any right to direct the enforcement of this Agreement or the other Facility Documents or to approve any amendment, modification or waiver of any provision of this Agreement or the other Facility Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (i) reduces the amount of principal or Interest that is payable on account of any Loan or delays any scheduled date for payment thereof or (ii) reduces any fees payable by the Borrower to the Administrative Agent (to the extent relating to payments to the Participant) or delays any scheduled date for payment of such fees. The Borrower acknowledges and agrees that any Lenders source of funds may derive in part from its Participants. Accordingly, references in Sections 2.09 or 2.10 and the other terms and provisions of this Agreement and the other Facility Documents to determinations, reserve and capital adequacy requirements, expenses, increased costs, reduced receipts and the like as they pertain to the Lenders shall be deemed also to include those of its Participants; provided, however , that in no event shall the Borrower be liable to any Participant under Sections 2.09 or 2.10 for an amount in excess of that which would be
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payable to the applicable Lender under such sections. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the aggregate principal balance (including stated interest) of each Participants interest in the Loans or other obligations under the Facility Documents (the Participant Register ); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or other information relating to the Participants interest in any Commitments or Loans) except to the extent that such disclosure is necessary to establish that such Commitment or Loan is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive and binding for all purposes, absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(g) The Borrower may not assign any of its rights or obligations hereunder or any interest herein without the prior written consent of the Administrative Agent and the Majority Managing Agents.
(h) Notwithstanding any other provision of this Agreement to the contrary, any Lender may at any time pledge or grant a security interest in all or any portion of its rights (including rights to payment of the principal balance of the Loans and Interest with respect thereto) hereunder to secure obligations of such Lender to a Federal Reserve Bank, without notice to or consent of the Borrower or the Administrative Agent; provided, that no such pledge or grant of a security interest shall (x) release a Lender from any of its obligations hereunder or substitute any such pledgee or grantee for such Lender as a party hereto or (y) create any additional, or modify any existing, obligations of the Seller, the Borrower or the Servicer under this Agreement or any other Facility Document.
SECTION 10.04. Additional Lender Groups . Upon the Borrowers request and with the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed), one or more additional Lender Group may be added to this Agreement at any time by the execution and delivery of a Joinder Agreement by the members of such proposed additional Lender Group, the Borrower and the Administrative Agent. Upon the effective date of such Joinder Agreement, (i) each Person specified therein as a Conduit Lender shall become a party hereto as a Conduit Lender, entitled to the rights and subject to the obligations of a Conduit Lender hereunder, (ii) each Person specified therein as a Committed Lender shall become a party hereto as a Committed Lender, entitled to the rights and subject to the obligations of a Committed Lender hereunder, (iii) each Person specified therein as a Managing Agent shall become a party hereto as a Managing Agent, entitled to the rights and subject to the obligations of a Managing Agent hereunder and (iv) the Facility Limit shall be increased by an amount equal to the aggregate Commitments of the Committed Lenders party to such Joinder Agreement.
SECTION 10.05. Consent to Jurisdiction .
(a) Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement, and each party hereto hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
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(b) The Borrower consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to it at its address specified in Section 10.02. Nothing in this Section 10.05 shall affect the right of any Lender or the Administrative Agent to serve legal process in any other manner permitted by law.
SECTION 10.06. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER FACILITY DOCUMENT .
SECTION 10.07. Right of Setoff . Each Lender is hereby authorized (in addition to any other rights it may have) at any time after the occurrence of the Amortization Date due to the occurrence of an Event of Default, or at any time that any Borrower Obligation hereunder is due and payable, to set off, appropriate and apply (without presentment, demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by such Lender to, or for the account of, the Borrower against the amount of the Borrower Obligations owing by the Borrower to such Person.
SECTION 10.08. Ratable Payments . If any Lender, whether by setoff or otherwise, has payment made to it with respect to any Borrower Obligations or obligation of the Servicer in a greater proportion than that received by any other Lender entitled to receive a ratable share of such amount, such Lender agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Borrower Obligations or Servicer obligation held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of such Borrower Obligations or Servicer obligations, as applicable; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.
SECTION 10.09. Limitation of Liability .
(a) No claim may be made by any Transaction Party or any other party hereto against any other party hereto or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Facility Document, or any act, omission or event occurring in connection herewith or therewith; and each party hereto hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
(b) Notwithstanding anything to the contrary contained herein, the obligations of the Conduit Lenders under this Agreement are solely the corporate obligations of each such Conduit Lender and shall be payable only at such time as funds are actually received by, or are available to, such Conduit Lender in excess of funds necessary to pay in full all outstanding Commercial Paper issued by such Conduit Lender and, to the extent funds are not available to pay such obligations, the claims relating thereto shall not constitute a claim against such Conduit Lender. Each party hereto agrees that the payment of any claim (as defined in Section 101 of Title 11 of the Bankruptcy Code) of any such party shall be subordinated to the payment in full of all Commercial Paper.
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(c) No recourse under any obligation, covenant or agreement of any Conduit Lender contained in this Agreement shall be had against any incorporator, stockholder, officer, director, member, manager, employee or agent of such Conduit Lender or any of its Affiliates (solely by virtue of such capacity) by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is solely a corporate obligation of such Conduit Lender, and that no personal liability whatever shall attach to or be incurred by any incorporator, stockholder, officer, director, member, manager, employee or agent of any Conduit Lender or any of its Affiliates (solely by virtue of such capacity) or any of them under or by reason of any of the obligations, covenants or agreements of such Conduit Lender contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by any Conduit Lender of any of such obligations, covenants or agreements, either at common law or at equity, or by statute, rule or regulation, of every such incorporator, stockholder, officer, director, member, manager, employee or agent is hereby expressly waived as a condition of and in consideration for the execution of this Agreement; provided that the foregoing shall not relieve any such Person from any liability it might otherwise have as a result of fraudulent actions taken or fraudulent omissions made by them.
SECTION 10.10. Costs, Expenses and Taxes .
(a) In addition to the rights of indemnification under Article VIII hereof, the Borrower agrees to pay to the Administrative Agent and each Managing Agent promptly after written demand thereof (i) all reasonable costs and expenses of the Administrative Agent and each Managing Agent in connection with the preparation, execution and delivery (including any requested amendments, waivers or consents) of this Agreement and the other documents to be delivered hereunder, including all pre-closing due diligence expenses and the reasonable fees and out-of-pocket expenses of a single law firm as special counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent and each Managing Agent and the related Lenders as to their respective rights and remedies under this Agreement, and the other agreements executed pursuant hereto, (ii) all reasonable costs and out-of-pocket expenses (including fees and expenses of a single outside counsel), incurred by the Administrative Agent and each Managing Agent in connection with any amendment to any of the Facility Documents after the Closing Date and (iii) all reasonable costs and out-of-pocket expenses incurred by the Administrative Agent and each Managing Agent in connection with the enforcement of this Agreement and the other agreements and documents to be delivered hereunder after the occurrence of an Event of Default.
(b) In addition, the Borrower shall pay any and all stamp, sales, transfer and other taxes and fees (including UCC filing fees and any penalties associated with the late payment of any UCC filing fees) payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other agreements and documents to be delivered hereunder (including any UCC financing statements) and agrees to indemnify the Administrative Agent, the Managing Agents, the Lenders and the Liquidity Providers against any liabilities with respect to or resulting from any delay by the Borrower in paying or omission to pay such taxes and fees.
SECTION 10.11. No Proceedings . The Borrower, each Lender, each Managing Agent and the Administrative Agent each hereby agrees that it will not institute against any Conduit Lender any proceeding of the type referred to in the definition of Event of Bankruptcy so long as any Commercial Paper issued by such Conduit Lender shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper shall have been outstanding.
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SECTION 10.12. Confidentiality .
(a) By accepting delivery of this Agreement, the Borrower agrees not to disclose to any Person the material economic or commercial terms of this Agreement, the Servicing Agreement or the Fee Letter (including any specific pricing information provided by the Administrative Agent, the Managing Agents or the Lenders or the amount or terms of any fees payable to the Administrative Agent, the Managing Agents or the Lenders (collectively, the Product Information ) in connection with the transaction contemplated by this Agreement (the Transaction ), except (i) to its and its affiliates officers, directors, employees, agents, accountants, legal counsel and other representatives (collectively, the Borrower Representatives ) who have a need to know the Product Information for the purpose of assisting in the negotiation and completion of the Transaction and who agree to be bound by the provisions of this section applicable to the Borrower, (ii) in connection with any legal or regulatory action or proceeding relating to this Agreement or the transactions contemplated hereby or the exercise of any remedies hereunder, (iii) to extent required by applicable law, regulation, subpoena or other legal process, (iv) to the extent requested by any Governmental Authority having jurisdiction over the Borrower, the Seller or any Borrower Representative, (v) to the extent required to perform their respective obligations under the Facility Documents, to the Custodian or the Servicer or (vi) to existing or prospective lenders to, or investors in, any Hilton Entity or any Affiliate thereof, or to any Rating Agency in connection with a Securitization; provided , in each case in this clause (vi), such recipients agree to be bound by the provisions of this section applicable to the Borrower. The Borrower will be responsible for any failure of any Borrower Representative to comply with the provisions of this clause (a).
(b) The Administrative Agent, the Managing Agents and the Lenders will not disclose to any Person the confidential or proprietary information of the Borrower, the Seller, the Servicer or the Performance Guarantor furnished to the Administrative Agent, the Managing Agents and the Lenders in connection with the Transaction (the Borrower Information ), except (i) to their respective and their Affiliates officers, directors, employees, agents, accountants, legal counsel and other representatives (collectively, the Lender Representatives ) who have a need to know the Borrower Information for the purpose of assisting in the negotiation and completion of the Transaction and who agree to be bound by the provisions in this section applicable to the Administrative Agent, the Managing Agents and the Lenders, (ii) to the extent required by applicable law, regulation, subpoena or other legal process, (iii) to the extent requested by any governmental or regulatory authority having jurisdiction over the Administrative Agent, the Managing Agents, the Lenders or any Lender Representative, (iv) to any Rating Agency, including in compliance with Rule 17g-5 under the Securities Exchange Act of 1934 or any similar rule or regulation in any relevant jurisdiction, (v) to any actual or potential subordinated investor in any Conduit Lender or Liquidity Provider that has signed a confidentiality agreement containing restrictions on disclosure substantially similar to this Section or (vi) to credit enhancers and dealers and investors in respect of Commercial Paper of any Conduit Lender in accordance with the customary practices of such Lender for disclosures to credit enhancers, dealers or investors, as the case may be, it being understood that any such disclosure to dealers or investors will not identify the Borrower, the Seller or the Servicer or any of their respective Affiliates by name. The Administrative Agent, the Managing Agents and each Lender, as the case may be, will be responsible for any failure of any related Lender Representative to comply with the provisions of this clause (b).
(c) The Administrative Agent, the Managing Agents and the Lenders will (i) not disclose to any person or entity the confidential or proprietary information of Obligors relating to the Pledged Timeshare Loans (if any) obtained pursuant to this Agreement (the Obligor Information ), and (ii) comply with all applicable laws (including Graham-Leach-Bliley Act) with respect to Obligor Information.
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SECTION 10.13. No Waiver; Remedies . No failure on the part of the Administrative Agent, any Managing Agent, any Lender or any Liquidity Provider to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
SECTION 10.14. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10.15. Execution in Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or by electronic mail in a .pdf file shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.16. Integration; Binding Effect; Survival of Termination . This Agreement and the other Facility Documents executed by the parties hereto on the date hereof contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy). Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until the Final Collection Date; provided, however , that the provisions of 2.09, 2.10, 2.11, 2.12, 2.17 and Article VIII, and the provisions of Sections 10.06, 10.09, 10.10, 10.11 and 10.12 shall survive any termination of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
HILTON GRAND VACATIONS TRUST I LLC, | ||
as Borrower | ||
By: |
/s/ Kim Robert Kreiger |
|
Name: | Kim Robert Krieger | |
Title: | Vice President | |
Solely as to Section 5.05: | ||
HILTON RESORTS CORPORATION | ||
By: |
/s/ Kim Robert Kreiger |
|
Name: | Kim Robert Krieger | |
Title: | Senior Vice President Chief Club Officer |
DEUTSCHE BANK SECURITIES, INC., | ||
as Administrative Agent | ||
By: |
/s/ Billy Strobel |
|
Name: | Billy Strobel | |
Title: | Vice President | |
By: |
/s/ Colin Bennett |
|
Name: | Colin Bennett | |
Title: | Director | |
DEUTSCHE BANK AG, NEW YORK BRANCH,
as a Committed Lender and as a Managing Agent |
||
By: |
/s/ Billy Strobel |
|
Name: | Billy Strobel | |
Title: | Vice President | |
By: |
/s/ Colin Bennett |
|
Name: | Colin Bennett | |
Title: | Director | |
MONTAGE FUNDING LLC,
as a Conduit Lender |
||
By: |
/s/ Lori Gebron |
|
Name: | Lori Gebron | |
Title: | Vice President |
WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
as Paying Agent and Securities Intermediary | ||
By: |
/s/ Benjamin F. Jordan |
|
Name: | Benjamin F. Jordan | |
Title: | Vice President |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated September 6, 2013, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-191110) and related Prospectus of Hilton Worldwide Holdings Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
McLean, Virginia
October 18, 2013